<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement [ ] Confidential, for Use of the
Rule 14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MacGregor Sports & Fitness, Inc.
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(Name of Registrant as Specified in Its Charter)
C. Frederick Lebaron, Jr., ESQ., and David S. Guin, ESQ.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
MACGREGOR SPORTS & FITNESS, INC.
8100 WHITE HORSE ROAD
GREENVILLE, SC 29611
July 5, 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 Tuesday, July 30,
1996, at 2:00 p.m., Central Daylight Time, at the Marquette Hotel, Galaxy 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
July 1, 1996 (the "Record Date") are entitled to notice of and to vote at the
Meeting. As of the Record Date, MacGregor had 9,244,497 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"), to Hutch Sports U.S.A., Inc. ("Hutch"), a subsidiary of Roadmaster
Industries, Inc. ("Roadmaster"); (ii) the execution and delivery of the
attached Agreement and Plan of Merger, as amended (the "Merger Agreement"),
between MSF, MG Acquisition Subsidiary, Inc., a Minnesota corporation, a
newly-formed, wholly-owned subsidiary of MSF ("Subsidiary" or "MG"), and
IntraNet Integration Group, Inc. (formerly known as Technical Publishing
Solutions, Inc.), a Minnesota corporation ("TPSI"), pursuant to which
Subsidiary shall be merged (the "Merger") with and into TPSI, with TPSI as the
surviving corporation and as a wholly-owned subsidiary of MSF; (iii) the
amendment and restatement of MSF's Articles of Incorporation in their entirety;
(iv) the election of a newly constituted MSF Board of Directors consisting of
five members; (v) the adoption and ratification of a new 1994-1997 MSF Stock
Option Plan; and (vi) the ratification and appointment of Lund Koehler Cox &
Company, PLLP, as MSF's independent auditors for the fiscal years ending March
31, 1997 and March 31, 1998. For ease of reference the post-merger, publicly
traded parent company is hereinafter referred to as "IntraNet". YOU SHOULD BE
AWARE THAT PROPOSALS (I) AND (II) GIVE RISE TO DISSENTERS' RIGHTS UNDER
MINNESOTA LAW. IF YOU WISH TO EXERCISE YOUR DISSENTERS' RIGHTS, YOU MUST FILE
A WRITTEN NOTICE OF YOUR INTENT TO DO SO AND REFRAIN FROM VOTING FOR ONE OR
BOTH OF PROPOSALS (I) AND (II). A MORE DETAILED DESCRIPTION OF THE PROCEDURE
NECESSARY TO EXERCISE YOUR DISSENTERS' RIGHTS APPEARS IN THE ATTACHED PROXY
STATEMENT UNDER THE CAPTIONS "SALE OF SUBSTANTIALLY ALL OF MACGREGOR'S
ASSETS TO HUTCH - DISSENTERS' RIGHTS" AND "RATIFICATION AND APPROVAL OF THE
MERGER AGREEMENT - DISSENTERS' RIGHTS."
In connection with the proposed sale of the MacGregor Rights (which
comprise substantially all of the assets of MSF) MSF has disposed of the
residual liabilities left in its subsidiaries MacGregor Sports Products, Inc.
("MSP") and Carolina
<PAGE> 3
Team Sports,Inc., a South Carolina corporation ("CTS"), by selling all of the
issued and outstanding capital stock of MSP and CTS. If the proposed Merger
becomes effective, each common shareholder of TPSI will be entitled to receive
1.736 shares of MSF common stock in exchange for each share of Company common
stock held, of record, on the Effective Date of the Merger, as defined in the
Merger Agreement. In addition, each option or warrant to purchase one share of
the common stock of TPSI shall become an option or warrant to purchase 1.736
shares of MSF common stock. Any fractional shares of MSF's common stock
resulting from the application of the exchange ratio shall be rounded either to
the next higher or lower whole share, as the case may be. If the Amended and
Restated Articles of Incorporation of MSF are approved, the rights of
MacGregor's shareholders will be affected as described herein.
THE COMBINED EFFECT OF THE SALE OF THE MACGREGOR RIGHTS AND THE MERGER
WILL BE TO CHANGE THE BUSINESS CONDUCTED BY MACGREGOR. The proposed sale of
the MacGregor Rights, the Merger and the amendment and restatement of MSF's
Articles of Incorporation have each been approved by MSF's Board of Directors
and the proposed Merger has been approved by the Boards of Directors of
Subsidiary and TPSI. The sale of the MacGregor Rights, the Merger and the
amendment and restatement of MSF's Articles of Incorporation are subject to
approval by the holders of a majority of the outstanding common stock of MSF.
The Merger is also subject to the approval of the shareholders of Subsidiary
and TPSI.
THE MACGREGOR BOARD OF DIRECTORS BELIEVES THAT THE SALE OF THE MACGREGOR
RIGHTS, THE MERGER BETWEEN MSF, SUBSIDIARY AND TPSI AND THE AMENDMENT AND
RESTATEMENT OF MSF'S ARTICLES OF INCORPORATION ARE EACH IN THE BEST INTEREST OF
MACGREGOR SPORTS AND FITNESS, INC. AND ITS SHAREHOLDERS, AND, THEREFORE,
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH OF SUCH PROPOSALS. IN
ADDITION, THE MACGREGOR BOARD RECOMMENDS RATIFICATION OF THE NEW MSF STOCK
OPTION PLAN AND THE APPOINTMENT OF LUND KOEHLER COX & COMPANY, PLLP AS MSF'S
AUDITORS.
Details of the background and reasons for each of the above proposals
appear and are explained in the enclosed Proxy Statement. Additional
information concerning MacGregor and TPSI is also set forth in the attached
Proxy Statement. I urge you to read this material carefully.
MSF's Board of Directors has engaged two investment bankers, R.J. Steichen
& Co. and Summit Investment Corporation ("Summit"), both located in Minneapolis,
Minnesota, to advise MSF, its Board of Directors and its shareholders in
connection with the Merger and the matters discussed in this Proxy Statement.
Specifically, MSF's Board of Directors has received a Fairness Opinion
dated March 20, 1996 from Summit that the 1.736 Exchange Ratio being offered in
the Merger is fair and reasonable from a financial point of view to you, as
shareholders. A copy of Summit's Fairness Opinion is attached to the Proxy
Statement as Exhibit F.
-2-
<PAGE> 4
In order to ensure that your vote is represented at the Meeting, please
indicate your choice on the enclosed proxy card, date and sign it, and return
it in the enclosed postage-paid envelope. You are also welcome to attend the
Meeting, and may revoke your proxy and vote in person at the Meeting even if
you have previously returned your proxy card.
Very truly yours,
Henry Fong
Chairman of the Board
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. IF THE AGREEMENT
AND PLAN OF MERGER IS ADOPTED BY MACGREGOR'S SHAREHOLDERS, YOU WILL BE SENT
INSTRUCTIONS FROM NORWEST STOCK TRANSFER, MACGREGOR'S TRANSFER AGENT, REGARDING
THE SURRENDER OF YOUR EXISTING MACGREGOR SPORTS & FITNESS, INC. STOCK
CERTIFICATES.
-3-
<PAGE> 5
MACGREGOR SPORTS & FITNESS, INC.
8100 WHITE HORSE ROAD
GREENVILLE, SC 29611
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
TUESDAY, JULY 30, 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 Galaxy Room of the Marquette Hotel, 710 Marquette Avenue, Minneapolis,
Minnesota 55402, on Tuesday, July 30, 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") 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, May 31 and July
2, 1996 (the "Merger Agreement"), among MacGregor, IntraNet Integration
Group, Inc. (formerly known as Technical Publishing Solutions, Inc.), a
Minnesota corporation ("TPSI") and MG Acquisition Subsidiary, Inc., a
Minnesota corporation, a wholly-owned subsidiary of MacGregor
("Subsidiary"), a copy of which Merger Agreement is attached hereto as
Exhibit and incorporated herein by reference, pursuant to which: (a)
Subsidiary will be merged with and into TPSI (the "Merger"), with TPSI as
the surviving corporation, and further, with the result that TPSI shall
become a wholly-owned subsidiary of MacGregor (for ease of reference, the
post-merger, publicly traded parent company is hereinafter referred to as
"IntraNet"); and (b) each of the owners of issued and outstanding Company
common stock will be entitled to receive 1.736 shares of MacGregor's
common stock in exchange and conversion for each share of Company common
stock held, of record, on the Effective Date of the Merger, as defined in
the Merger Agreement and each option or warrant to purchase one share of
the common stock of TPSI outstanding on the Effective Date of the Merger
shall become an option or warrant to purchase 1.736 shares of MSF common
stock;
3. The amendment and restatement of MacGregor's Articles of
Incorporation to effect a name change, eliminate the classes of preferred
stock and reduce the par value of the common stock, as more fully set
forth in Exhibit E attached hereto and incorporated herein by reference;
4. The election of a newly-constituted MacGregor Board of Directors
consisting of five (5) members;
5. The adoption and ratification of a new 1994-1997 MacGregor Stock
Option Plan, a copy of which Stock Option Plan is attached hereto as
Exhibit H;
<PAGE> 6
6. The ratification and appointment of Lund Koehler Cox & Company,
PLLP as MacGregor's independent auditors for the fiscal years ending
March 31, 1997 and March 31, 1998; and
7. A proposal to adjourn the Meeting to a later date to permit
further solicitation of proxies in the event an insufficient number of
shares of MacGregor Common Stock are present, in person or by proxy, at
the Meeting to approve the Merger Agreement and all of the matters
summarized above.
You should be aware that proposals (i) and (ii) give rise to dissenters'
rights under Minnesota law. If you wish to exercise your dissenters' rights,
you must file a written notice of your intent to do so and not vote in favor of
one or both of proposals (i) and (ii). A more detailed description of the
procedure necessary to exercise your dissenters' rights appears in the attached
Proxy Statement under the captions "Sale Of Substantially All Of MacGregor's
Assets To Hutch - Dissenters' Rights" and "Ratification And Approval Of The
Merger Agreement - Dissenters' Rights."
Only those individuals and entities who were holders of record of shares
of MacGregor's Common Stock on July 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: July 5, 1996
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. HOWEVER, WHETHER OR NOT
YOU PLAN TO BE PERSONALLY PRESENT AT THE MEETING, PLEASE COMPLETE, DATE, AND
SIGN THE ACCOMPANYING PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED
SELF-ADDRESSED STAMPED RETURN ENVELOPE. IF YOU LATER DESIRE TO REVOKE YOUR
PROXY AND VOTE YOUR SHARES AT THE MEETING, YOU MAY DO SO AT ANY TIME BEFORE IT
IS EXERCISED AT THE MEETING.
AT THIS TIME, PLEASE DO NOT SEND IN ANY OF YOUR OUTSTANDING MSF STOCK
CERTIFICATES IN CONNECTION WITH THE MERGER. YOU SHALL RECEIVE SUPPLEMENTAL
CORRESPONDENCE FROM NORWEST STOCK TRANSFER, MACGREGOR'S TRANSFER AGENT,
CONCERNING THE REISSUANCE OF YOUR SHARES SUBSEQUENT TO, AND CONDITIONED UPON,
APPROVAL OF EACH OF THE PROPOSALS SET FORTH ABOVE.
-2-
<PAGE> 7
PROXY STATEMENT
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, JULY 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION................................................................ (iii)
AVAILABLE INFORMATION.......................................................(viii)
SUMMARY OF PROXY STATEMENT..................................................... 1
GLOSSARY OF TECHNICAL TERMS.................................................... 6
COMPARATIVE PER SHARE MARKET INFORMATION....................................... 8
PROPOSAL NUMBER I.............................................................. 12
THE SALE OF SUBSTANTIALLY ALL OF MACGREGOR'S ASSETS TO HUTCH........... 12
Background..................................................... 12
The Proposed Transaction....................................... 13
Management Recommendation and Rationale for the Transaction.... 13
Dissenter's Rights............................................. 14
Related Parties................................................ 16
ROPOSAL NUMBER II.............................................................. 17
APPROVAL OF THE MERGER AGREEMENT....................................... 17
General Information............................................ 17
The Merger..................................................... 22
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.............................................. 32
No Solicitation................................................ 32
Effective Time of the Merger................................... 32
Certain Federal Income Tax Consequences........................ 32
Dissenter's Rights............................................. 33
Certain Risk Factors to Consider............................... 33
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 37
MacGregor.................................................... 37
TPSI......................................................... 40
</TABLE>
(i)
<PAGE> 8
<TABLE>
<S> <C>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.......................................................... 45
PROPOSAL NUMBER III................................................................. 47
AMENDMENT AND RESTATEMENT OF MACGREGOR'S ARTICLES OF
INCORPORATION IN THEIR ENTIRETY..................................... 47
General............................................................. 47
Management Recommendation and Rationale for the Amendments.......... 47
PROPOSAL NUMBER IV.................................................................. 49
ELECTION OF A NEWLY CONSTITUTED BOARD OF DIRECTORS OF
MACGREGOR CONSISTING OF FIVE (5) MEMBERS............................ 49
SUMMARY COMPENSATION TABLE.................................................. 50
Certain Transactions................................................ 50
PROPOSAL NUMBER V................................................................... 52
ADOPTION OF INTRANET SOLUTIONS, INC. 1994-1997 STOCK OPTION PLAN............ 52
Certain Federal Income Tax Consequences............................. 54
PROPOSAL NUMBER VI.................................................................. 57
THE RATIFICATION AND APPOINTMENT OF LUND KOEHLER COX &
COMPANY, PLLP AS MACGREGOR'S INDEPENDENT AUDITORS FOR
THE FISCAL YEARS ENDING MARCH 31, 1997 AND MARCH 31, 1998........... 57
PROPOSAL NUMBER VII................................................................. 58
A PROPOSAL TO ADJOURN THE MEETING TO A LATER DATE TO PERMIT
FURTHER SOLICITATION OF PROXIES IN THE EVENT AN
INSUFFICIENT NUMBER OF SHARES OF MACGREGOR COMMON STOCK
IS PRESENT, IN PERSON OR BY PROXY, AT THE MEETING TO
APPROVE THE MERGER AGREEMENT AND THE MATTERS SUMMARIZED ABOVE....... 58
OTHER BUSINESS...................................................................... 58
EXPERTS............................................................................. 58
CERTAIN LEGAL MATTERS............................................................... 59
EXHIBIT INDEX....................................................................... 60
</TABLE>
(ii)
<PAGE> 9
INTRODUCTION
This Proxy Statement has been prepared in connection with a Special
Meeting (the "Meeting") of shareholders of MacGregor Sports & Fitness, Inc., a
Minnesota corporation ("MSF" or "MacGregor"), and is being furnished to the
holders of MacGregor's Common Stock, $.02 par value ("MacGregor Common Stock"),
in connection with the solicitation of proxies by MacGregor's Board of
Directors for use at the Meeting. The Meeting will be held in the Galaxy Room
of the Marquette Hotel, 710 Marquette Avenue, Minneapolis, Minnesota, on
Tuesday, July 30, 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 July 1, 1996 (the "Record Date") are entitled to notice of and
to vote at the Meeting. As of the Record Date, MacGregor had 9,144,497 shares
of Common Stock issued and outstanding. MacGregor had no shares of any other
class of capital stock issued and outstanding as of the Record Date.
PROPOSALS OF SECURITY HOLDERS
In the event the Merger described below is approved, any holders of
Securities of MacGregor who wish to submit a proposal to be considered at the
next annual meeting of Shareholders must insure that such proposal is delivered
to IntraNet by April 1, 1997. In the event the Merger described below is not
approved, any holders of Securities of MacGregor who wish to submit a proposal
to be considered at the next annual meeting of Shareholders must insure that
such proposal is delivered to MacGregor by September 1, 1997.
THE SIX PROPOSALS
The Meeting has been called to consider and vote upon: (i) the sale of
all the rights of MacGregor, in and to the "MacGregor" trademark pursuant
to certain license agreements and certain related trademarks (the
"MacGregor Rights"), which comprise substantially all of MacGregor's
assets, to Hutch Sports U.S.A., Inc. ("Hutch"), a subsidiary of Roadmaster
Industries, Inc. ("Roadmaster"). MacGregor and Roadmaster are affiliates in
that they are both under the indirect control of Mr. Henry Fong; (ii) the
ratification of the attached Agreement and Plan of Merger, as amended (the
"Merger Agreement"), among MacGregor, MG Acquisition Subsidiary, Inc., a
Minnesota corporation ("Subsidiary" or "MG"), and IntraNet Integration
Group, Inc. (formerly known as Technical Publishing Solutions, Inc.), a
Minnesota corporation ("TPSI"), pursuant to which MacGregor's newly-formed
wholly-owned subsidiary, MG, shall be merged (the "Merger") with and into
TPSI, with TPSI as the surviving corporation and as a wholly-owned
subsidiary of MacGregor (for ease of reference, the post-merger, publicly
traded parent company is hereinafter referred to as "IntraNet")(TPSI is not
an affiliate of either MSF or Roadmaster); (iii) the amendment and
restatement of the MacGregor's Articles of Incorporation in their entirety;
(iv) the election of a newly constituted MacGregor Board of Directors
consisting of five members; (v) the adoption and ratification of a new
1994-1997 MacGregor Stock Option Plan; and (vi) the ratification and
appointment of Lund Koehler Cox & Company, PLLP, as MacGregor's independent
auditors for the fiscal years ending March 31, 1997 and March 31, 1998.
Consummation of the Merger is conditioned upon approval of proposals (i)
and (iv) above. If MacGregor's shareholders do not approve the sale of
substantially all of MacGregor's assets to Hutch, TPSI will not proceed
with the Merger regardless of whether it is approved by MacGregor's
shareholders. Each of proposals (iii), (iv), (v), and (vi) above is
conditioned on the approval of proposal (ii). If MacGregor's shareholders
do not approve the Merger, MacGregor will not take any of the actions
described in proposals (iii), (iv), (v) or (vi), regardless of whether such
proposals
(iii)
<PAGE> 10
are approved by MacGregor's shareholders. However, the sale of the MacGregor
Rights is not conditioned on the shareholders' approval of the Merger.
Therefore, if the sale of the MacGregor Rights is approved but the Merger is
not, MacGregor will still complete the sale of the MacGregor Rights to Hutch.
THE COMBINED EFFECT OF THE PROPOSED SALE OF MACGREGOR'S ASSETS AND THE
PROPOSED MERGER WILL BE TO ENTIRELY CHANGE THE LINE OF BUSINESS IN WHICH
MACGREGOR ENGAGES. The current shareholders of MacGregor will continue to hold
Shares of the merged entity. However, the business engaged in by the merged
entity will be that of document-based information management systems rather
than sporting goods. In addition, the proposed Merger would result in a
decrease in the percentage ownership of MacGregor's current shareholders from
100% to as little as 33% of the post-merger entity. See: "Ratification And
Approval Of The Merger Agreement-Management Of IntraNet After The Merger."
I.
Sale of the MacGregor Rights to Hutch. At the Meeting, you will be asked
to approve the sale of the MacGregor Rights to Hutch for a purchase price of
$2,910,000 payable as follows: (i) $1,000,000 in cash at closing, and (ii) an
unsecured promissory note in the amount of $1,910,000. In response to this
agreement, MacGregor reduced the carrying value of its intangible assets by
$1,200,000, the amount by which the book value of those assets exceeded the
actual price MacGregor was able to realize on the sale thereof. See:
"Proposal Number I; The Sale Of Substantially All Of MacGregor's Assets To
Hutch."
II.
The Merger. At the Meeting, you will be asked to approve and ratify an
Agreement and Plan of Merger dated January 16, 1996, as amended on March 20,
1996, May 31, 1996 and July 2, 1996 (the "Merger Agreement"), by and among
MacGregor, MG Acquisition Subsidiary, Inc., a Minnesota corporation, a
newly-formed, wholly-owned subsidiary of MacGregor ("MG" or "Subsidiary"), and
IntraNet Integration Group, Inc. (formerly known as Technical Publishing
Solutions, Inc.), a Minnesota corporation ("TPSI"), providing for the merger
(the "Merger") of Subsidiary into TPSI. If the proposed Merger is consummated,
each outstanding share of TPSI's Common Stock, $.001 par value ("TPSI Common
Stock"), will be converted into 1.736 shares (the "Exchange Ratio") of
MacGregor Common Stock and each option or warrant to purchase one share of
TPSI Common Stock shall become an option or warrant to purchase 1.736 shares of
MacGregor Common Stock. TPSI's shareholders shall be entitled to: (a) one
time-demand registration rights exercisable for eighteen (18)Emonths after the
Effective Date; and (b) piggy-back registration rights exercisable for a period
of thirty-six (36) months after the Effective Date. TPSI shareholder Robert F.
Olson shall be subject to a one-year lock-up agreement. Based on the closing
bid price of $3.1875 of MacGregor Common Stock on the NASDAQ composite tape on
January 16, 1996, the Exchange Ratio would have resulted in TPSI's shareholders
receiving approximately $57,375,000 in market value of MacGregor Common Stock,
if the Merger had been effective on that date. Because the Exchange Ratio is
fixed by the Merger Agreement and the market price of MacGregor Common Stock is
subject to fluctuation, the market price of MacGregor Common Stock may increase
or decrease prior to the Merger, thereby increasing or decreasing the market
value of the shares of MacGregor Common Stock which TPSI's shareholders will
receive in the Merger. See: "Proposal Number II; Ratification And Approval Of
The Merger Agreement."
(iv)
<PAGE> 11
In the event the proposed Merger is consummated, MacGregor will issue
approximately 18,000,000 shares of MacGregor Common Stock in exchange for all
of the TPSI Common Stock outstanding at such time, which would constitute, as of
the Effective Time, approximately 60% of the outstanding shares of MacGregor
Common Stock (or approximately 67% after considering the effect of the
outstanding TPSI options and warrants as discussed below) after giving effect
to such issuance. MacGregor may also issue up to approximately 5,756,194
additional shares of MacGregor Common Stock upon exercise of outstanding
employee stock options granted by TPSI and pursuant to TPSI's employee stock
purchase plans, and 272,118 shares issuable pursuant to TPSI stock purchase
warrants, which will be assumed by MacGregor in the Merger. The TPSI Stock
purchase warrants are immediately exercisable. The employee stock options
generally vest over periods of one to five years. The effect of such issuances
would be to reduce the percentage ownership of MacGregor's current shareholders
from approximately 40% to 33%. (For more information regarding MacGregor or
TPSI's outstanding stock options and stock purchase plans, see "Ratification
And Approval Of The Merger Agreement-Treatment Of MacGregor And TPSI Options
And Employee Stock Option Plans.")
TPSI is a Minneapolis-based technology company focused on document-based
information management systems. TPSI's present customer base includes over 200
accounts, primarily Fortune 1500 organizations. In addition to its corporate
offices in Minneapolis, TPSI has sales offices in Milwaukee, Denver, and
Phoenix, with independent sales representation in Boston and Atlanta. In
mid-1994, TPSI began IntraNet Distribution Group, Inc. (formerly known as
DocuPro Services, Inc., hereinafter "IDG"), a wholly-owned subsidiary. IDG
offers customers a service for off-site electronic document warehousing,
electronic demand publishing, and multiple methods of digital distribution of
information.
TPSI will record the transaction as an acquisition and recapitalization.
Accordingly, for accounting purposes, TPSI is assumed to be the acquirer.
Subsequent to the transaction,the historical financial statements will be those
of TPSI. MacGregor will change its fiscal year end to March 31.
III.
Amendment and Restatement of MacGregor Articles of Incorporation. At the
Meeting you will also be asked to approve the amendment and restatement of
MacGregor's Articles of Incorporation. The Amended and Restated Articles of
Incorporation provide only for the issuance of Common Stock, thereby
eliminating MacGregor's ability to issue preferred stock. In addition, the
Amended and Restated Articles will change the par value of MacGregor Common
Stock from $0.02 to $0.01. Finally, the Amended and Restated Articles will
change MacGregor's name from "MacGregor Sports & Fitness, Inc." to "IntraNet
Solutions, Inc." See: "Proposal Number III; Amendment And Restatement Of
MacGregor's Articles Of Incorporation In Their Entirety."
IV.
Election of Five Directors. At the Meeting, you will also be asked to
elect a new Board of Directors consisting of five (5) members. MacGregor's
existing Board of Directors is recommending election of the following five (5)
individuals: Henry Fong; Robert F. Olson; Jeffrey J. Sjobeck; Ronald E.
Eibensteiner; and David D. Koentopf. Of these nominees, only Mr.Fong
currently serves as a director of MacGregor. See: "Proposal Number IV;
Election Of A Newly Constituted Board Of Directors Of MacGregor Consisting Of
Five (5) Members."
(v)
<PAGE> 12
V.
Adoption of a New MacGregor 1994-1997 Stock Option Plan. At the Meeting,
you will also be asked to approve a new 1994-1997 Stock Option Plan for the
benefit of MacGregor's employees, consultants, advisors and non-employee
directors. The stock option plan is more fully described herein. See:
"Proposal Number V; Adoption And Ratification Of A MacGregor Stock Option
Plan."
VI.
Appointment of MacGregor Independent Auditors. At the meeting, you will
also be asked to approve, conditioned upon approval of the Merger, the
appointment of Lund Koehler Cox & Company, PLLP as MacGregor's independent
auditors for the fiscal years ending March 31, 1997 (including any applicable
transition periods created by the Merger) and March 31, 1998. Gelfond Hochstadt
Pangburn & Co. is MacGregor's current independent auditor. MacGregor's Board
of Directors has determined that Lund Koehler Cox & Company PLLP, currently
TPSI's independent auditor, would prove more appropriate as independent
auditors if the Merger is consummated, due to its familiarity with the
business of TPSI. See: "Proposal Number VI; The Ratification And Appointment
Of Lund Koehler Cox & Company, PLLP As MacGregor's Auditors For The Fiscal
Years Ending March 31, 1997 And March 31, 1998."
VOTING REQUIREMENTS
Votes Required. Approval of Proposals I, II, and III, the (i) sale of the
MacGregor Rights to Hutch, (ii) approval of the Merger, and (iii) approval of
MacGregor's Amended and Restated Articles of Incorporation, respectively,
require the affirmative vote of the holders of a majority of the outstanding
shares of MacGregor Common Stock. Approval of Proposals IV, V and VI, the (i)
election of directors, (ii) adoption of a Stock Option Plan and (iii)
appointment of MacGregor's independent auditors, respectively, require the
affirmative vote of the holders of a majority of the shares of MacGregor Common
Stock represented in person or by proxy at the Meeting, assuming a quorum is
present at the Meeting. See: "Proxies; Solicitation; Quorum Requirements."
PROXIES; SOLICITATION; QUORUM REQUIREMENTS
Any person signing and mailing the enclosed proxy may revoke the proxy at
any time prior to its exercise by (i) executing a subsequent proxy; (ii)
notifying the Secretary of MacGregor of such revocation in a written notice
received by him at MacGregor Sports & Fitness, Inc., 8100 White Horse Road,
Greenville, South Carolina 29611, prior to the Meeting; or (iii) attending the
Meeting and voting in person.
The cost of solicitation of proxies will be borne by MacGregor. In
addition to the use of the mails, proxies may be solicited personally, or by
telephone or facsimile, by directors of MacGregor (each a "Director" and
collectively, the "Directors") and executive officers and regular employees of
MacGregor. In addition, the firm of D.F. King & Co., Inc., New York, NY, has
been retained to assist in the solicitation of proxies for a fee of $4,500 plus
reasonable out-of-pocket expenses.
Shares of MacGregor represented by properly executed proxies will, unless
such proxies have been previously revoked, be voted in accordance with the
instructions indicated in the proxies. Unless
(vi)
<PAGE> 13
otherwise instructed in the proxy, the agent named in the proxy intends to cast
the proxy votes (i)FOR the approval of the sale of the MacGregor Rights to
Hutch; (ii) FOR the Merger through the adoption of the Merger Agreement and
related transactions; (iii) FOR the approval of the amendment and restatement
of MacGregor's Articles of Incorporation; (iv) FOR the election of management's
slate of directors; (v) FOR the adoption and ratification of MacGregor's Stock
Option Plan; and (vi) FOR the ratification and appointment of Lund Koehler Cox
& Company, PLLP as MacGregor's independent auditors for the fiscal years ending
March 31, 1997 and March 31, 1998.
A quorum must be present at the Meeting before action can be taken on
the proposals. The presence, in person or by proxy, of the holders of a
majority of MacGregor's shares outstanding on the record date is required for a
quorum at the Meeting. The shares of MacGregor Common Stock held by Henry
and his affiliates Fong present in person or by proxy at the Meeting will be
counted in determining whether a quorum is present at the Meeting. As to all
anticipated votes, each share will have one (1) vote, except that Mr. Fong and
his affiliates California Pro Sports, Inc., Equitex, Inc. and Roadmaster
Industries, Inc., who own 1.91%, 21.74% 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 3,608,717
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 July 5, 1996, and is first being mailed on
or about July 5, 1996 to the record holders of MacGregor Common Stock as of
July 1, 1996.
(vii)
<PAGE> 14
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE MATTERS
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MACGREGOR OR TPSI. THIS
PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH A
PROXY SOLICITATION. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF MACGREGOR OR TPSI SINCE THE DATE HEREOF OR THAT THE INFORMATION SET
FORTH OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
AVAILABLE INFORMATION
MacGregor is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files periodic reports and other information with the SEC. Such
reports and other information filed by MacGregor may be inspected and copied at
the public reference facilities maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at
75 Park Place, New York, New York 10007 and 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Such reports and other information filed by MacGregor also
may be inspected at the offices of the National Association of Securities
Dealers, Inc., Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
(viii)
<PAGE> 15
SUMMARY OF PROXY STATEMENT
Certain significant matters discussed in this Proxy Statement are
summarized below. This Summary is not intended to be complete and is qualified
in all respects by reference to the more detailed information appearing, or
incorporated by reference, elsewhere in this Proxy Statement. Shareholders are
urged to review the entire Proxy Statement carefully (including all Exhibits,
financial statements and notes thereto and any documents incorporated herein by
reference).
Date, Time and Place of Meeting The Meeting will be held on
Tuesday, July 30, 1996, at 2:00 p.m.,
Central Daylight Time, in the Galaxy
Room of the Marquette Hotel, 710
Marquette Avenue, Minneapolis,
Minnesota.
Record Date Holders of record of MacGregor's Common
Stock on July 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
sell the MacGregor Rights to Hutch
for a purchase price of $2,910,000;
consisting of $1,000,000 in cash and
$1,910,000 in the form of an unsecured
promissory note. MacGregor has disposed
of its
1
<PAGE> 16
subsidiaries MacGregor Sports
Products, Inc., a Delaware
corporation ("MSP") and Carolina
Team Sports, a South Carolina
corporation ("CTS") by selling
them for a purchase price of
$10. A detailed description of
disposition of the MacGregor
Rights by MSP appears later in
this Proxy Statement at pages
12-14. The combined effect of
the proposed sale of assets and
the Merger (see below) will be
to change the nature of
MacGregor's business. See:
"The Sale Of Substantially All
Of MacGregor's Assets To Hutch -
The Proposed Transaction."
Recommendation of Board of Directors The Board of Directors
believes that disposition of
the MacGregor Rights will allow
it to maximize the value of
those assets while at the same
time relieving MacGregor of
potential liabilities.
Management has investigated the
sale of the MacGregor Rights to
other parties and believes the
proposed transaction offers the
best outcome for the MacGregor
and its shareholders. See:
"The Sale Of Substantially All
Of MacGregor's Assets To Hutch
- Management Recommendation And
Rationale For The Transaction."
Interests of Certain Persons in Sale of Assets Henry Fong, Chairman of the
MacGregor's Board of Directors,
is also the President and
Chairman of the Board, and
indirectly a controlling
shareholder of, Roadmaster and
Chairman of California Pro
Sports, Inc. ("California
Pro"). Because all of
MacGregor, Roadmaster and
California Pro are indirectly
under the common control of
Mr.Fong, Roadmaster and
California Pro are considered
affiliates of MacGregor for SEC
reporting purposes. In
addition, Mr.Fong is the
President, a director and
controlling shareholder of
Equitex, Inc. ("Equitex"), a
Denver-based business
development company. Equitex
is a principal shareholder of
MacGregor and also owns
some 10.2% of the stock of
Roadmaster. Through his
affiliation with Equitex,
Roadmaster and California Pro,
Mr. Fong, who owns no shares of
MacGregor Common Stock and
warrants to purchase only
250,200 shares of MacGregor
Common Stock in his own name,
may be deemed to be a
beneficial owner of 3,342,517
shares of MacGregor Common
Stock and warrants to purchase
250,200 shares of MacGregor
Common Stock. See: "The Sale
Of Substantially All Of
MacGregor's Assets to Hutch -
Related Parties."
The Merger At the Effective Time (as
defined below), TPSI will be
merged into Subsidiary, and
each outstanding share of
TPSI Common Stock will be
converted into 1.736 shares
2
<PAGE> 17
of MacGregor Common Stock and each
option or warrant to purchase one
share of TPSI Common Stock shall
become an option or warrant to
purchase 1.736 shares of MacGregor
Common Stock. Based on the closing
bid price of $3.1875 of MacGregor
Common Stock on the NASDAQ SmallCap
Market ("NASDAQ") composite tape on
January 16, 1996, the Exchange
Ratio would have resulted in TPSI
shareholders receiving
approximately $57,375,000 in market
value of MacGregor Common Stock, if
the Merger had been effective on
that date. Because the
Exchange Ratio is fixed by the
Merger Agreement and the market
price of MacGregor Common Stock is
subject to fluctuation, the market
price of MacGregor Common Stock may
increase or decrease prior to the
Merger, thereby increasing or
decreasing the market value of the
shares of MacGregor Common Stock
that TPSI shareholders will receive
in the Merger. See: "Approval Of
The Merger Agreement - The Merger."
IntraNet Integration Group, Inc. (formerly TPSI is a Minneapolis-based
known as Technical Publishing Solutions, technology company focused on
Inc.) document-based information
management systems. TPSI's
present customer base includes over
200 accounts, primarily Fortune
1500 organizations. In addition to
its corporate offices in
Minneapolis, TPSI has sales offices
in Milwaukee, Denver, and Phoenix,
with independent sales
representation in Boston and
Atlanta. In mid-1994, TPSI began
IntraNet Distribution Group, Inc.
(formerly known as DocuPro
Services, Inc., hereinafter "IDG"),
a wholly-owned subsidiary. IDG
offers customers a service for
off-site electronic document
warehousing, electronic demand
publishing, and multiple methods of
digital distribution of
information. See: "Approval Of The
Merger Agreement - Management Of
MacGregor After The Merger."
Recommendation of Board of Directors MacGregor's Board of Directors,
after considering many issues (as
more fully discussed herein) but
which include, although not limited
to, the Fairness Opinion discussed
herein, has determined that the
proposed Merger is fair and in the
best interest of MacGregor and its
shareholders. As such, MacGregor's
Board of Directors recommends
approval of the proposed merger.
See: "Approval Of The Merger
Agreement - Management
Recommendation And Rationale For
The Transaction."
3
<PAGE> 18
Closing Date and Effective Time of If the Merger Agreement is approved and
the Merger ratified at the Meeting, and all other
conditions to the Merger have been met (or
waived), the parties expect the Merger to
be effective on the day of the Meeting, or
shortly thereafter, upon the filing of
Articles of Merger with the Minnesota
Secretary of State. The time of such
filing is referred to in this Proxy
Statement as the "Effective Time." See:
"Approval Of The Merger Agreement -
Effective Time Of The Merger."
Conditions to Merger The respective obligations of MacGregor
and TPSI to consummate the Merger are
subject to a number of contingencies
relating to MacGregor's financial
condition at the Effective Time. In
addition, TPSI and MacGregor must have
completed a satisfactory due diligence
of the other, all representations and
warranties of the parties must be true as
of the Effective Time, all covenants must
have been performed and there must have
been no material adverse change
relating to either entity. See:
"Approval Of The Merger Agreement -
Conditions To The Merger; Termination."
Dissenter's Rights Pursuant to Section 302A.471 of the
Minnesota Business Corporations Act,
holders of record of MacGregor Common
Stock who file a written objection to the
Sale of the MacGregor Rights and/or the
Merger with MacGregor at or prior to the
time the vote is taken at the Meeting,
and who do not vote in favor of the Sale
of the MacGregor Rights or the Merger,
may make written demand on MacGregor for
payment of the fair value of their
shares. Persons whose shares are not
owned of record by them and who desire
to make such written demand should
contact the holder of record. Any
shareholder failing to make such demand
within the statutory period will lose his
or her right to receive payment of the
fair value of his or her shares and will
be bound by the terms of the Sale
of the MacGregor Rights and the Merger
Agreement, assuming such transactions are
approved by the holders of MacGregor
Common Stock as a whole. THE FAILURE BY A
SHAREHOLDER TO TAKE ANY STEP IN A TIMELY
MANNER IN CONNECTION WITH THE EXERCISE OF
SUCH DISSENTERS' RIGHTS MAY RESULT IN
TERMINATION OR WAIVER OF DISSENTERS'
RIGHTS. Accordingly, shareholders who
seek to perfect such rights are advised
to follow the statutory procedures
precisely as set forth in Minnesota
Statutes, Section 302A.473, copies of
which are appended hereto as Exhibit G.
See: "Sale of Substantially All Of
4
<PAGE> 19
MacGregor's Assets To Hutch -
Dissenter's Rights," "Approval Of The
Merger Agreement - Dissenter's Rights,"
and Exhibit G to this Proxy Statement.
Termination of Merger Agreement In the event that one party is unable or
unwilling to consummate the Merger for
reasons other than those specifically
provided for in the Merger Agreement, the
party who fails or refuses to perform is
required to pay all of the other party's
out-of-pocket expenses relating to the
Merger as well as a termination or
"break-up" fee in the amount of $100,000.
The failure of the shareholders to
approve the Sale of the MacGregor Rights
would not trigger the "break up" fee.
See: "Approval Of The Merger Agreement -
Conditions To The Merger; Termination."
Federal Income Tax Consequences The Merger is expected to qualify as a
tax-free reorganization under Sections
368(a)(1)(A) and 368(a)(2)(E) of the
Internal Revenue Code of 1986, as
amended. However, no ruling will be
requested from the Internal Revenue
Service (the "IRS") as to the federal
income tax consequences of the Merger.
See: "Approval Of The Merger Agreement -
Certain Federal Income Tax Consequences."
Effect of Amendment and Restatement The Amended and Restated Articles
of Articles of Incorporation of Incorporation will provide for the
issuance of only Common Stock,
thereby eliminating the A,
B, and C series of preferred stock and
the potential series of undesignated
preferred stock currently authorized. In
addition, the Amended and Restated
Articles will change the par value of
MacGregor Common Stock from $0.02 to
$0.01. Finally, the Amended and Restated
Articles will change MacGregor's name
from "MacGregor Sports & Fitness, Inc."
to "IntraNet Solutions, Inc." See:
"Proposal Number III; Amendment And
Restatement Of MacGregor's Articles Of
Incorporation In Their Entirety."
MacGregor Stock Option Plan The Merger Agreement provides that
MacGregor will adopt a new Stock Option
Plan substantially equivalent to TPSI's
existing 1994-1997 Stock Option Plan.
The terms of the proposed Stock Option
Plan are more fully described herein. At
the Effective Time there will be options
to purchase 3,315,780 shares of TPSI
Common Stock outstanding. The
obligations under these options will be
assumed by MacGregor as part of the
Merger and will become options to
purchase approximately 5,756,194 shares
of MacGregor Common
5
<PAGE> 20
Stock. At the Effective Time, there
will be options to purchase 50,000 shares
of MacGregor Common Stock outstanding under
MacGregor's existing Stock Option Plan.
See: "Proposal Number V; Adoption And
Ratification Of A MacGregor Stock Option
Plan."
GLOSSARY OF TECHNICAL TERMS
CAD File. A file containing an electronic drawing created using
Computer Automated Design Software.
Computer Network. A group of one or more computers connected together for
the purpose of sharing data and networked resources
such as printers, modems or fax servers.
Data Vault System. Secure electronic storage of data files using document
management software combined with database management
software.
Digital Document
Distribution. Distribution of documents through a computer network by
sending the version contained in a computer file rather
than a version printed on paper.
Digital Document
Management. Software technology that manages information contained
in electronic document files, or unstructured data,
providing revision control, configuration management,
and workflow.
Distribution
Technology. The various methods of using state-of-the-art
technology to distribute documents, both electronically
and in hardcopy.
Disaster Recovery
System. A combination of hardware and software designed to
provide automated backup and archiving of computer
files to allow rapid recovery in the event of a
catastrophic loss of data.
Document-based
Information
Management System. Software technology that manages business critical
documents and the information contained in those
documents by automating and accelerating the creation,
assembly, control, modification and distribution of
these documents.
Electronic Document
Warehousing. Using digital document management technology to provide
off-site storage of documents contained in computer
files.
6
<PAGE> 21
Electronic Demand
Publishing. Providing printed documents "on demand" through the use
of high-speed laser printers in order to reduce
inventory and production costs of frequently revised
documents.
Hardware Platform. A standard computer hardware configuration on which a
comprehensive approach to a computer solution of a
problem can be based. Examples of well-known hardware
platforms include the IBM PC and MacIntosh personal
computers.
Hypertext Link. An automatic link for navigation between electronic
documents activated by point and click with a computer
mouse.
Internet. An Open global network of interconnected commercial,
educational and governmental computer networks which
utilize a common communications protocol. TCP/IP.
Intranet. An organization's private network of its local area
networks which utilize Internet data formats and
communications protocols, and which may use the
Internet's facilities as the backbone for network
communications.
Overlay File. A file containing markup to communicate changes to a
computer file.
Post-script. An industry standard data file format for communication
with printing devices.
System Integrator. An organization that specialized in delivering
solutions to end-user organizations by combing a
variety of software components and integrating them
into a complete end-user solution.
Unstructured Business-
Critical Data. Information that typically exists in the form of word
processing documents, spreadsheets, or CAD files that
are maintained on a variety of hardware platforms with
little compatibility or data sharing capability between
systems.
Value Added Reseller
(VAR). A business that purchases equipment or software from a
vendor, usually at a discount, adds value and resells
the altered product.
Web. A collection of electronically retrievable documents
related by hypertext links.
Web Generation. The process of programmatically constructing a set of
interlinked electronic documents (A Web.)
Workflow A computer application which provides management,
control and tracking of a business process such as the
routing of a business document for approval signatures.
7
<PAGE> 22
World Wide Web. (WWW). The worldwide collection of electronically retrievable
hypertext linked documents resident on the Internet. This
worldwide collection of documents is unified by standard file
format and retrieval protocol standards to allow document
retrieval as if from a single library.
COMPARATIVE PER SHARE MARKET INFORMATION
MacGregor's Common Stock is traded on the NASDAQ Small Cap Market
("NASDAQ") under the symbol MACG. TPSI's Common Stock is not traded on any
market and is closely held by five shareholders.
The table below reflects the high ask and low bid prices of MacGregor
Common Stock on the NASDAQ composite tape as reported by IDD Information
Services for the periods indicated.
<TABLE>
<CAPTION>
MACGREGOR
STOCK
-----------------
HIGH ASK LOW BID
-------- -------
<S> <C> <C>
FISCAL YEAR ENDING JULY 31, 1996
1st Quarter 1-5/16 1-3/16
2nd Quarter 4-1/16 1-3/8
3rd Quarter 3-13/16 2-3/8
4th Quarter to May 31, 1996 5-7/8 2-3/8
FISCAL YEAR ENDING JULY 31, 1995
1st Quarter 1-5/16 3/8
2nd Quarter 1-3/16 5/8
3rd Quarter 1-1/16 23/32
4th Quarter 1-5/16 23/32
FISCAL YEAR ENDING JULY 31, 1994
1st Quarter 1-3/4 15/16
2nd Quarter 1-9/16 15/16
3rd Quarter 1-1/8 7/16
4th Quarter 3/4 1/4
FISCAL YEAR ENDING JULY 31, 1993
1st Quarter 2-1/21-1/4
2nd Quarter 2 1-1/2
3rd Quarter 1-3/4 7/8
4th Quarter 1-5/8 3/4
</TABLE>
On January 15, 1996, the business day preceding the public announcement of
the execution of the Merger Agreement, the high ask and low bid price per share
of MacGregor Common Stock on the NASDAQ composite tape were $4-1/16 and $3-1/2,
respectively, and the closing sale price was $3.75. Based on the closing sale
price, the Exchange Ratio would have resulted in TPSI's shareholders receiving
approximately $67,500,000 in market value of MacGregor Common Stock. On
8
<PAGE> 23
May 31, 1996, the high ask and low bid price of MacGregor Common Stock on the
NASDAQ composite tape were 5-7/8 and 5 respectively. Based on this price, the
Exchange Ratio would have resulted in TPSI's shareholders receiving
approximately $90,000,000 in market value of MacGregor Common Stock. On
October 4, 1995, the business day preceding the public announcement of the
execution of the Letter of Intent with respect to the Merger, the high ask and
low bid price of MacGregor Common Stock on the NASDAQ composite tape were $1.94
and $1.63 respectively. As of July 1, 1996, there were approximately 1,606
holders of record of MacGregor Common Stock. MacGregor has not declared any
cash dividends on any class of equity securities, including the MacGregor
Common Stock during the two-year period preceding the date hereof.
Shareholders are advised to obtain current market quotations for MacGregor
Common Stock. No assurance can be given as to the market price of MacGregor
Common Stock at the Effective Time.
HISTORICAL AND PRO FORMA PER SHARE DATA
<TABLE>
<CAPTION>
IntraNet Intregration Group, Inc. MacGregor Sports and Fitness, Inc.
(f/k/a/ Technical Publishing Solutions, Inc.)
------------------------------------------------------------ ----------------------------------------
Twelve months
Year ended March Year ended March ended Year ended Nine months ended
31, 1995 31, 1996 March 31, 1996 July 31, 1995 April 30, 1996
(Historical) (Historical) (pro forma)(1) (Historical) (Historical)
------------------------------------------------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C>
Book value per share $0.02 $0.00 $0.09 $0.15 $0.26
Cash dividends
declared per share None None None None None
Loss from
continuing
operations per
share $0.00 ($0.02) ($0.01) ($0.14) ($0.31)
</TABLE>
(1) On January 16, 1996, TPSI and its then sole shareholder
entered into an Agreement and Plan of Merger with MacGregor.
MacGregor is a publicly traded non-operating entity. At Closing,
TPSI's shareholders will receive approximately 60% of the then
outstanding common stock of MacGregor in exchange for their
10,000,000 outstanding shares of TPSI common stock. Pro forma
adjusted to record (i) MacGregor's transactions in anticipation of
the merger and (ii) this transaction as an acquisition and
recapitalization including estimated transaction costs.
9
<PAGE> 24
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
(f/k/a TECHNICAL PUBLISHING SOLUTIONS, INC)
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
TWELVE MONTH PERIOD
ENDED MARCH 31,
1996
YEAR ENDED MARCH 31, PRO FORMA (2)
---------------------------------------------------- -----------------------
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues $7,245,223 $10,446,661 $14,235,742 $14,235,742
Cost of revenues 5,223,914 7,600,690 10,708,253 10,708,253
---------- ----------- ----------- ----------
Gross profit 2,021,309 2,845,971 3,527,489 3,527,489
Operating expenses 1,830,720 2,612,262 3,670,773 3,670,773
Interest expense 23,143 97,033 230,293 230,293
---------- ----------- ----------- ---------
Income (loss)
before income taxes 167,446 136,676 (373,577) (373,577)
Provision for
(benefit of) income
taxes 64,000 64,553 (125,770) (125,770)
---------- ----------- ----------- ---------
Net income (loss) $103,446 $72,123 $ (247,807) $ (247,807)
========== =========== =========== =============
Net income (loss)
per share $0.01 $0.00 $ (0.02) $ (0.01)
========== =========== =========== =============
Shares used in per
share calculation 20,000,000 20,467,290 12,916,667 29,700,003
========== =========== =========== =============
<CAPTION>
MARCH 31, 1995 MARCH 31, 1996
-------------- --------------------------------
ACTUAL ACTUAL PRO FORMA(1)
-------------- --------------------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficiency) ($11,801) ($1,076,767) $1,723,233
Total assets 3,878,832 5,712,866 8,512,866
Total liabilities 3,471,108 5,734,049 5,734,049
Retained earnings (deficit) 396,160 (22,265) (22,265)
Shareholders' equity (deficiency) 407,724 (21,183) 2,778,817
</TABLE>
- --------------------
(1) On January 16, 1996, IIGI (or TPSI) and its then sole shareholder
entered into an Agreement and Plan of Merger with MacGregor.
MacGregor is a publicly traded non-operating entity. At Closing,
TPSI's shareholders will receive approximately 60% of the then
outstanding common stock of MacGregor in exchange for their
10,000,000 outstanding shares of IIGI common stock. Pro forma
adjusted to record (i) MacGregor's transactions in
10
<PAGE> 25
of the merger and (ii) this transaction as an acquisition and
recapitalization including estimated transaction costs.
(2) As pro forma adjusted to reflect the reverse merger
identified in Note 1, above, as if it had occurred on April 1, 1995.
Since MSF will be a nonoperating entity at the date of the
transaction, none of the revenues or expenses of MSF would have
resulted during the period had the transaction occurred on April 1,
1995. Accordingly, the pro forma adjustments reflect the removal of
these revenue and expense items.
MACGREGOR SPORTS AND FITNESS, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Year Ended July 31, Nine Months Ended April 30,
------------------- ---------------------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of operations data:
Revenues $ 2,684,933 $ 765,635 $ 627,115 141,667
Cost of revenues 1,872,198 446,471 328,239 0
----------- ----------- --------- ----------
Gross profit 812,735 319,164 298,876 141,667
Operating expenses 2,538,340 1,298,657 575,311 3,164,998
Other expenses 129,662 165,310 92,081 50,330
----------- ----------- --------- ----------
(Loss) before extraordinary item (1,855,267) (1,144,803) (368,516) (3,073,661)
Extraordinary item 0 0 0 119,787
Provision for (benefit of) income taxes 0 0 0 0
----------- ----------- --------- ----------
Net (loss) ($1,855,267) ($1,144,803) ($368,516) ($2,953,874)
=========== =========== ========= ==========
Net (loss) per share, before
extraordinary item -- -- - ($.32)
=========== =========== ========= ==========
Net (loss) per share ($0.26) ($0.14) ($.05) ($.31)
----------- ----------- --------- ----------
Shares used in per share calculation 7,376,483 8,169,622 8,143,312 9,652,274
=========== =========== ========= ==========
<CAPTION>
JULY 31, 1995 APRIL 30, 1996
------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency) ($2,166,528) $81,836
Total assets 4,284,808 3,014,715
Total liabilities 3,012,173 0
Accumulated deficit (7,293,370) (10,247,246)
Stockholders' equity 1,272,635 3,014,715
</TABLE>
11
<PAGE> 26
PROPOSAL NUMBER I:
THE SALE OF SUBSTANTIALLY ALL OF MACGREGOR'S ASSETS
TO HUTCH
BACKGROUND
MacGregor's assets are its ownership 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 of the
MacGregor Rights requires the approval of MacMark. MSP acquired these rights in
connection with the acquisition of assets from MacGregor Sports, Inc. in a sale
in the Bankruptcy Court in Milwaukee, Wisconsin, pursuant to Section 363 of the
Bankruptcy Code. The license agreements and other rights described above are
carried on MacGregor's balance sheet at a value of $2,932,879 as of April 30,
1996. Effective October 7, 1993, MSP entered into an agreement (the
"Distribution Agreement") with Roadmaster Corporation ("RMC") whereby RMC, a
wholly-owned subsidiary of Roadmaster, acquired the exclusive rights to
distribute sports, recreational and fitness products under the MacGregor
trademark, subject to certain territorial limitations and restrictions set forth
in other licensing agreements of MacGregor. The Distribution Agreement provided
for an initial term of five years, with an option to renew for an additional
five year term with a minimum annual royalty. The Distribution Agreement
provides that RMC will pay MacGregor on a quarterly basis, percentage-based
royalties on net revenues generated from sales of the MacGregor products, with
minimum cumulative royalties.
Under the terms of the Distribution Agreement, MSP and MacGregor
received cash of approximately $1,631,000 in exchange for accounts receivable
with a book value of $427,000, $623,000 of inventory, and $30,000 of equipment,
resulting in a $551,000 write off of the carrying value of the MacGregor
license costs. That amount included payment of MSP's then existing revolving
line of credit; payment of $276,000 to satisfy commissions owed to, and to
settle the exclusive representation agreement with, the company which had been
marketing the MacGregor branded products; $186,000 for the reduction of certain
notes payable and $729,000 for the reduction of certain accounts payable and
accrued expenses.
CTS formerly sold retail sporting goods and team sports equipment in the
Greenville, South Carolina area. In December 1993, management elected to
restructure CTS. The restructure included the novation of a government
contract effective December 1, 1993 whereby a new contract was created on the
same terms as the original contract and a new party substituted for CTS, the
elimination of the team division sales organization and support staff and the
closure of a team sports operation in Spartanburg, South Carolina. These
actions were taken to reduce costs and minimize usage of working capital.
In conjunction with the restructure, approximately $175,000 of inventory
and $50,000 of book value of fixed assets were sold to an unrelated third party
for $208,000. The proceeds were used to reduce CTS' revolving credit line with
the Branch Bank & Trust from $569,000 to $400,000, and to repay certain trade
accounts payable.
In May 1995, CTS did not renew its retail lease and ceased operations.
Its furniture and equipment were sold for a loss of approximately $19,000. CTS
is no longer in business.
12
<PAGE> 27
THE PROPOSED TRANSACTION
Beginning in December 1994, as previously disclosed, MacGregor began
discussions with RMC, an affiliate, to either grant an extension of the
Distribution Agreement, and/or to grant an option to RMC to acquire all of the
MacGregor's interests in and to the MacGregor Rights. On October 5, 1995 MSF
and TPSI signed a letter of intent with respect to the merger. One of the
conditions negotiated between MSF and TPSI in connection with the Letter of
Intent was that MSF sell the MacGregor Rights to a third-party. In December
1995, RMC approached MacGregor with the following proposal for the acquisition
of MacGregor's rights in and to the MacGregor Rights.
RMC offered to acquire the MacGregor Rights, through and in the name of
RMC's affiliate Hutch, for a purchase price of $2,910,000, payable as follows:
$1,000,000 in cash at the Closing and delivery of a one (1) year unsecured
installment promissory note in the amount of $1,910,000 to be paid in twelve
equal monthly installments which bears interest at a rate equal to the prime or
base rate from time to time publicly announced by Bank America N.A. MacGregor
has accepted the offer, which will close concurrently with the Merger but be
effective February 1, 1996, subject to the approval of MacGregor's shareholders
and MacMark Corporation, a Delaware corporation ("MacMark"), the owner and
licensor of the MacGregor trademark. In response to the agreement, MSF reduced
the carrying amount of its intangible assets at January 31, 1996 by $1,200,000.
Previously, MSF was anticipating realizing approximately $4 million on its
sale of the MacGregor Rights. However, in late 1995, due to the competitive
retail environment that the MacGregor trademarks operate in, management
believes the $2.9 million sales price stated in the agreement is the maximum
amount that a buyer would offer. Over the last two years, management has
investigated the sale of the MacGregor Rights with four other potential buyers
and based on the results of these other negotiations, believes the transaction
with RMC offers the best outcome for MSF and its shareholders.
The completion of the Sale of the MacGregor Rights to Hutch is a condition
to the obligations of MSF and TPSI to effect the Merger. However, the sale of
the MacGregor Rights is not conditioned on the shareholders' approval of the
Merger. Therefore, if the sale of the MacGregor Rights is approved but the
Merger is not, MSF will still complete the sale of the MacGregor Rights to
Hutch and its assets will then consist of $1,000,000 in cash and a $1,900,000
promissory note and will continue to pursue strategic alternatives.
MANAGEMENT RECOMMENDATION AND RATIONALE FOR THE TRANSACTION
MacGregor has not had sufficient working capital required to grow the
MacGregor sporting goods business to higher levels of revenue and
profitability, and therefore, entered the Distribution Agreement in 1993.
However, the level of cash flow from the royalties under the Distribution
Agreement does not provide assurance on an ongoing basis that MacGregor will
have sufficient cash flow to pay for its operating and other expenses, nor does
it provide a sufficient capital base for MacGregor to engage in other business
opportunities. In addition, as of July 31, 1995 and through the present,
MacGregor was not and is not in compliance with certain conditions, including
financial ratios, for the continuation of the MacMark licenses, making it
necessary for MacGregor to seek some other arrangements whereby it might best
realize the value of its ownership of the MacGregor Rights. Conversely,
Roadmaster and Hutch have been reluctant to expend the capital investment and
other costs necessary to maximize the potential value of the MacGregor Rights
in the absence of long term control over the MacGregor Rights and the
additional value therein resulting from the expenditure of such investment and
costs. Over the last two years management considered alternatives to the sale
of the MacGregor Rights including bank financing
13
<PAGE> 28
and raising additional equity. In that regard, management concluded that it had
no assets on which to borrow. Moreover, in the judgment of management, MSF
would not have been able to raise additional equity without expanding or
changing its line of business. Based on this analysis, management decided to
search for a merger or acquisition partner, and engaged R.J. Steichen & Co. to
assist in that process. Disposition by MacGregor of the MacGregor Rights will
allow MacGregor to realize the value in the MacGregor Rights and to create a
pool of cash assets which make it a more attractive merger partner to TPSI.
Management has investigated the sale of the MacGregor Rights with four other
parties. Discussions with three of the parties ended after preliminary due
diligence discussions and disclosures with such parties losing interest in
pursuing proposals before any discussion of price and terms were reached.
Discussions with the fourth party ended in 1995, when that party indicated it
was not interested in a transaction which included any cash consideration.
Based on the results of those negotiations, management believes the proposed
transaction offers the best current alternative for MacGregor and its
shareholders. MANAGEMENT THEREFORE RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
THE PROPOSED TRANSACTION.
DISSENTER'S RIGHTS
The sale of substantially all of MacGregor's assets, as well as the
Merger, triggers dissenter's rights under Minnesota law. TPSI has the right to
abandon the Merger if shareholders holding more than 5% of the MacGregor Common
Stock assert their dissenters' rights in connection with the Merger. In the
event that shareholders holding less than 5% of the MacGregor Common Stock
assert dissenters' rights or TPSI chooses to waive the limitation of
dissenters' rights as a condition precedent to the Merger, the Merger will
proceed and dissenting shareholders of MacGregor may assert a right for payment
for their shares under Minnesota law.
The rights of dissenting holders of MacGregor Common Stock are governed by
Sections 302A.471 and 302A.473 of the Minnesota Business Corporations Act.
THE FOLLOWING IS A SUMMARY OF THE STATUTORY PROCEDURES TO BE FOLLOWED BY
HOLDERS OF MACGREGOR COMMON STOCK IN ORDER TO DISSENT FROM THE SALE OF THE
MACGREGOR RIGHTS AND/OR THE MERGER AND PERFECT APPRAISAL RIGHTS UNDER MINNESOTA
LAW. THESE SUMMARIES ARE NOT INTENDED TO BE A COMPLETE STATEMENT OF SUCH
PROCEDURES AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE FULL TEXTS
OF SUCH STATUTE, A COPY OF WHICH IS ATTACHED HERETO AS EXHIBIT G.
In general, a holder of shares as of the Record Date who objects to the
sale of the MacGregor Rights and/or the Merger and who has not voted in favor
of the sale of the MacGregor Rights and/or the Merger, may be entitled to a
judicial determination of the fair value of his or her shares and payment
hereof by the surviving corporation (the "Surviving Corporation"). Any holder
of MacGregor Common Stock who elects to exercise his or her dissenter's rights
must file a written notice thereof with MacGregor before MacGregor's Special
Meeting, or at the Special Meeting but before the vote is taken. The written
notice is required in addition to and separate from any proxy or vote against
the sale of the MacGregor Rights and/or the Merger. Neither voting against nor
failure to vote for the sale of the MacGregor Rights and/or the Merger will
constitute the notice required to be filed by an objecting shareholder. A
shareholder voting for the sale of the MacGregor Rights and/or the Merger will
be deemed to have waived his or her dissenter's rights. A signed proxy that is
returned but which does not contain any instructions as to who it should be
voted will be voted in favor of the sale of the MacGregor Rights and
the Merger and will be deemed a waiver of dissenter's rights. Any proxy
may be revoked before it is exercised.
14
<PAGE> 29
A shareholder may not dissent as to less than all of the shares registered
in the name of the shareholder, unless the shareholder dissents with respect to
all shares that are beneficially owned by another person but registered in the
name of the shareholder and the shareholder discloses the name and address of
the beneficial owner on whose behalf the shareholder dissents. A beneficial
owner of shares who is not the shareholder of record may assert dissenters'
rights with respect to the shares held on behalf of the beneficial owner, and
will be treated as a dissenting shareholder if the beneficial owner submits a
written consent of the shareholder of record either at the time of or before
the waiver of notice of dissent is filed. All notices of dissent should be
addressed to the Secretary of MacGregor at the address of the executive office
of parent set forth above.
Following the Special Meeting, and assuming authorization of the sale of
the MacGregor Rights and the Merger, the Surviving Corporation will give
written notice to each holder of shares who timely filed a written notice of
who did not vote in favor of the sale of the MacGregor Rights and/or the
Merger, containing: (i) the address to which a demand for payment of the
certificate or certificates representing the shareholder's shares must be sent
in order to obtain payment and the date by which they must be received; (ii)
any restrictions on transfer of uncertified shares that will apply after the
demand for payment is received; (iii) a form to be used to certify the date on
which the shareholder or the beneficial owner on whose behalf the shareholder
dissenting acquired the shares or an interest in the shares, and to demand
payment; and (iv) a copy of Sections 302A.471 and 302A.473 and a description
of the procedure to be followed under such sections. A dissenting shareholder
must demand payment and deposit certificated shares, or comply with the
restrictions on transfer of uncertificated shares, within thirty (30) days
after notice is given by the Surviving Corporation to the dissenting
shareholder.
After consummation of the transaction giving rise to the dissenter's
rights, or after the Surviving Corporation receives a valid demand payment,
whichever is later, the Surviving Corporation is required to remit to each
dissenting shareholder who has complied with the provisions of Section
302A.473, the amount the Surviving Corporation estimates to be the fair value
of the shares, with interest, if any, and accompanied by certain specified
financial statements and notes thereto, a description of the method used to
estimate the fair value of the shares, and a brief description of the procedure
to be followed in demanding supplemental payment. If a dissenting shareholder
believes that the amount remitted is less than the fair value of the shares the
dissenting shareholder may give written notice to the Surviving Corporation of
the dissenter's estimate of the fair value of the shares and demand payment of
the difference. A demand of supplemental payment must be made within thirty
(30) days after the Surviving Corporation makes remittance. A dissenting
shareholder failing to make a timely demand for such supplemental payment will
be entitled only to the amount remitted by the Surviving Corporation.
Within sixty (60) days of receipt of a timely demand for supplemental
payment, the Surviving Corporation must either pay the amount demanded, or such
other amount as may be agreed upon by the shareholder and the Surviving
Corporation, or file a petition in court requesting that the court determine
the fair value of the shares. The petition shall be filed in the District
Court, for the Judicial District, Hennepin County, in the State of Minnesota
(the "Court"), which is the county in which the registered office of the
Surviving Corporation will be located. All dissenting shareholders other than
those who reached agreement with the Surviving Corporation as to the fair value
of their shares, will be named as parties in the petition. The Court will
determine whether the shareholder or shareholders named in the petition have
fully complied with the procedural requirement of Section 302A.473, and will
determine the fair value of the shares, taking into account any and all methods
that the Court, in its discretion, sees fit to use, whether or not used by the
Surviving Corporation or dissenting shareholder. The fair value of the shares
as determined by the Court is binding on all shareholders, wherever located. A
dissenting
15
<PAGE> 30
shareholder is entitled to judgment for the amount by which the fair
value of the shares as determined by the Court exceeds the amount, if any,
remitted by the Surviving Corporation.
The Court will determine the costs and expenses of the proceeding,
including the reasonable expenses and compensation of any appraisers appointed
by the Court and attorneys' fees, and may assess those costs and expenses
against MacGregor, except that the Court may assess part or all of such costs
and expenses against a dissenting shareholder if the Court finds that the
action of such dissenting shareholder in demanding payment was arbitrary,
vexatious or not in good faith. The Court may also, in its discretion, award
fees and expenses to an attorney for dissenting shareholders out of the amount
awarded to the dissenting shareholders, if any.
RELATED PARTIES
Henry Fong, Chairman of MacGregor's Board of Directors, is also the
President and Chairman of the Board, and indirectly a controlling shareholder of
Roadmaster, the parent of RMC and Hutch and is Chairman of California Pro
Sports, Inc. ("California Pro") Due to Mr. Fong's common control of Roadmaster,
California Pro and MacGregor, Roadmaster and California Pro are considered
affiliates of MacGregor for SEC reporting purposes. Roadmaster owns 140,610
shares (1.20%) of MacGregor Common Stock. California Pro owns 223,861 shares
(1.9%) of MacGregor Common Stock. In addition, Mr. Fong is the President, a
director and controlling shareholder of Equitex, Inc., a Denver-based business
development company. Equitex is a principal shareholder of MacGregor and also
owns some 10.2 % of the stock of Roadmaster. In connection with the proposed
transaction Equitex converted 1,000 shares of MacGregor Class C Preferred Stock
into 1,000,000 shares of MacGregor Common Stock, and in May 1996 Equitex sold
warrants to purchase 87,000 shares of MacGregor Common Stock and 347,000 shares
of MacGregor Common Stock. See "Proposal Number IV: Election of a Newly
Constituted Board of Directors of MacGregor Consisting of Five (5) Members --
Certain Transactions." 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 3,158,717 shares of MacGregor
Common Stock, or 26.43% of MacGregor's issued and outstanding Common Stock. Mr.
Fong has abstained from the voting or deliberation in connection with the
approval of the transactions contemplated by this Proposal. Similarly, the
Roadmaster, California Pro and Equitex shares will abstain from voting on this
Proposal so that it may be approved by a majority of MacGregor's independent
shareholders.
16
<PAGE> 31
PROPOSAL NUMBER II:
APPROVAL OF THE MERGER AGREEMENT
GENERAL INFORMATION
MACGREGOR SPORTS AND FITNESS, INC. MacGregor, through its wholly-owned
subsidiary MSP, is in the business of marketing and distributing through its
exclusive distributor, Roadmaster, a broad range of sports, recreational and
fitness products under the MacGregor trademark. MacGregor's other subsidiary,
CTS, was a sporting goods and team retailer in Greenville, South Carolina. CTS
is no longer in business.
In December 1994, MSP entered into a letter of potential interest with
Roadmaster. Under the terms of the letter, as amended in November, 1995, MSP
granted Roadmaster an option to extend the existing distribution agreement for
two additional five-year periods with increased minimum royalty requirements.
In addition, MSP granted Roadmaster an option to acquire all of its interests
in and to the MacGregor trademark and related trademarks and rights (the
"MacGregor Rights") for a cash payment of $675,000 plus a three-year note
representing the then existing present value of the remaining minimum payments
under the distribution agreement, including all extensions. In response to the
November 1995 amendment to the Letter of Potential Interest, MacGregor reduced
the carrying amount of its intangible assets at July 31, 1995 by $500,000.
MacGregor retail branded products are currently being marketed by
Roadmaster under its five-year exclusive distributor agreement. Roadmaster
distributes the MacGregor products to major retail chains including mass
merchants through independent representatives. The products marketed by
Roadmaster include baseballs, softballs, bats, gloves, basketballs, footballs,
soccer balls, volleyballs, playground balls and juvenile products.
MSP does not manufacture any products. Rather, the products sold under
the MacGregor mark are acquired by RMC from third party contract manufacturers.
MacGregor retains the right to inspect all products to ensure they meet
standards acceptable to MacGregor.
MacGregor's brand of products competes with the brands of numerous other
companies in the marketing and distribution of sporting goods, some which may
have greater capital available to them than MacGregor or Roadmaster, and some
of which may manufacture the products they market and distribute. There can be
no assurance that the MacGregor products can compete effectively. These
competitors include manufacturers of sporting goods, such as Wilson Sporting
Goods Company, Spalding Sports Worldwide, Inc., and Rawlings Sporting Goods
Company.
Competition in the channels of distribution in which Roadmaster markets
MacGregor products is fierce, and is based on price, quality, service and brand
recognition. Roadmaster products do not directly compete with MacGregor
products.
MSP has 1 full-time employee. MSP's employee is not represented by a
union, and MSP believes its relations with its employee to be good.
17
<PAGE> 32
MSP and CTS lease office space in Greenville, South Carolina. The
five-year lease terminates in 1998 and the monthly base rent is $5,833. CTS
previously had a retail store lease which expired in May 1995.
MACGREGOR SPORTS & FITNESS, INC. AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected statement of operations data for the years ended July 31, 1994,
and 1995, and the balance sheet data at July 31, 1995, are derived from, and
should be read in conjunction with, the more detailed consolidated financial
statement for MacGregor and the notes thereto, which have been audited by
Gelfond Hochstadt Pangburn & Co., independent public accountants, whose report
is located elsewhere in this Proxy Statement. The financial statements for the
nine months ended April 30, 1995, and 1996, have not been audited but, in the
opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial data for and
at the end of such periods. Results for interim periods are not necessarily
indicative of the results that may be expected for the entire year or other
interim periods. The selected financial data should be read in conjunction
with "Management's Discussion And Analysis Of Financial Condition And Results
Of Operations" and the financial statements and notes thereto included
elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Year Ended July 31, Nine Months Ended April 30,
------------------- ---------------------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of operations data:
Revenues $2,684,933 $ 765,635 $ 627,115 $ 141,667
Cost of revenues 1,872,198 446,471 328,239 0
---------- ---------- --------- ----------
Gross profit 812,735 319,164 298,876 141,667
Operating expenses 2,538,340 1,298,657 575,311 3,164,998
Other expenses 129,662 165,310 92,081 50,330
---------- ---------- --------- ----------
(Loss) before extraordinary item (1,855,267) (1,144,803) (368,516) (3,073,661)
Extraordinary item 0 0 0 119,787
Provision for (benefit of) income taxes 0 0 0 0
---------- ---------- --------- ----------
Net (loss) ($1,855,267) ($1,144,803) ($368,516) ($2,953,874)
========== ========== ========= ==========
Net (loss) per share, before
extraordinary item -- -- -- ($.32)
========== ========== ========= ==========
Net (loss) per share ($0.26) ($0.14) ($.05) ($.31)
========== ========== ========= ==========
Shares used in per share calculation 7,376,483 8,169,622 8,143,312 9,652,274
========== ========== ========= ==========
<CAPTION>
JULY 31, 1995 APRIL 30, 1996
------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency) ($2,166,528) 81,836
Total assets 4,284,808 3,014,715
Total liabilities 3,012,173 0
Accumulated deficit (7,293,370) (10,247,246)
Stockholders' equity 1,272,635 3,014,715
</TABLE>
18
<PAGE> 33
INTRANET INTEGRATION GROUP, INC. (FORMERLY KNOWN AS TECHNICAL PUBLISHING
SOLUTIONS, INC.) TPSI was formed in 1990 to help its clients create, manage,
and distribute unstructured business-critical information. This information is
typically contained in documents such as technical publications, CAD
engineering files, word-processing files, and spreadsheets. As a single source
vendor, TPSI has provided the hardware, software and services necessary to
create, manage and distribute this data; software for producing, managing, and
electronically distributing unstructured 2MacGregor's April 30, 1996 historical
balance sheet gives effect to the disposition of its MSP and CTS subsidiaries
to Resource Reservation, L.L.C. which will be reversed if the merger is not
consummated business-critical information, work stations, servers and
related software, backup and disaster recovery systems, data communications and
security products, as well as the training, installation, maintenance and
support, customization, and other services required to successfully implement.
The majority of the hardware and software products sold to date have been
through reseller arrangements with Sun Microsystems, Inc. and Interleaf, Inc.
TPSI maintains its own internal development staff that have provided the
customization required by a significant number of implementations, as well as
the research and development of its recently introduced proprietary products.
Until 1994, all of these solutions were sold to TPSI's customers for use
internally, running on customer's internal networks or "intranets". In 1994,
TPSI expanded its services to include off-site production and distribution
services by forming its wholly-owned subsidiary, IntraNet Distribution Group,
Inc. (formerly known as DocuPro Services, Inc., "IDG"). IDG's services allow
its customers to take advantage of digital document management and distribution
technology with a minimal incremental investment, with the added benefit of
maximizing their current technology investments. IDG's revenues currently
represent approximately 10% of TPSI's total revenues.
Beyond the core digital management and distribution services provided by
IDG, TPSI has made several advancements in the development of other proprietary
products and services. In November of 1995 TPSI introduced its IntraNet Remote
Print Manager(TM) ("RPM"). RPM is an easy to use, quickly deployable, and
inexpensive interface to the IDG internal document warehouse. The interface
allows customers to order on-demand printing remotely using the Internet. In
addition, RPM makes it possible to electronically retrieve documents for
revisions using a data vault system that controls accuracy and security. Users
of the interface can send copies of documents (either electronically or
physically) to the IDG electronic document warehouse. Once the documents have
been stored, customers then access them via the Internet or dial up connection,
retrieving documents for revisions as needed. Passwords are used to restrict
access to authorized users and off-site storage of valuable documents provides
an added backup in case of disaster. This system can also be used for
high-speed PostScript output of large or frequently produced documents.
TPSI has also recently acquired core technology that automates the process
of intranet web generation for the management and viewing of unstructured
business-critical data using Internet technology. Combined with its own
development, TPSI has recently launched the release of a comprehensive system
for automatic management of documents on an internal or external World Wide Web
site called the IntraNet Web-Based Management System(TM) ("WBMS"). WBMS(TM)
fills a void between the repository of business data, and the searching and
viewing needs of Web site users. WBMS(TM) eliminates the need to manually
generate links and navigation aids, overcomes database querying limitation,
permits secure workflow and revision control, allows diverse document types to
be accessible on a Web, and continually updates the site with the most current
information. Viewing capabilities are significantly expanded with the use of
WBMSTM; any user on the system can view a document created in virtually any
application without having the origin software loaded on their desktop.
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<PAGE> 34
TPSI also markets network based products: IntraNet EZVueTM, a search, view
and print interface primarily used in engineering applications; and IntraNet
Overlay Management ApplicationTM ("OMA"), a solution for managing CAD
engineering source files with overlay files.
TPSI's products and services provide integrated solutions for the
management and distribution of business-critical information. TPSI has focused
its marketing efforts toward large companies who have begun to more
aggressively reengineer their business processes. TPSI believes that as the
trend toward network-based computing environments as the primary computing
resource continues, the demand for its products, especially its recently
developed proprietary products, will continue. TPSI delivers its products
primarily through a direct sales force. TPSI currently has over 200 active
accounts, primarily in the Fortune 1500.
The following summarizes the key products and services currently delivered
by TPSI:
- Document-based Information Management
1. Tools for Creation of Document-based
Data
2. Enterprise Document Management
Systems
- Library Management
- Configuration Management
- Workflow Management
3. Digital Document Distribution
- Digital Document Distribution
1. CD-ROM Distribution
2. Enterprise Viewing Tools
3. Internet Publishing Solutions
- Data/Document Warehousing
- Demand Publishing
- Electronic Distribution and Fulfillment
- Enterprise Backup and Disaster Recovery Strategies
1. Hierarchical Storage Management and
Backup Software
2. RAID Disk Arrays, Optical Disk, and
Tape Jukeboxes
- Network Integration Products and Services
1. Network Design
2. Servers, Workstations
3. Network Management Software
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<PAGE> 35
- Single Source-Services
1. Support and Maintenance
2. Custom Development
3. Installation and Training
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<PAGE> 36
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
(F/K/A TECHNICAL PUBLISHING SOLUTIONS, INC)
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The selected statement of operations data for the years ended March 31, 1994,
1995, and 1996, and the balance sheet data at March 31, 1995 and 1996, are
derived from, and should be read in conjunction with, the more detailed
consolidated financial statements for IIGI and the notes thereto, which have
been audited by Lund Koehler Cox & Company, PLLP, Independent public
accountants, whose report is located elsewhere in this Proxy Statement. The
selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
TWELVE MONTH PERIOD
ENDED MARCH 31,
1996
YEAR ENDED MARCH 31, PRO FORMA (2)
---------------------------------------------------- -----------------------
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues $7,245,223 $10,446,661 $14,235,742 $14,235,742
Cost of revenues 5,223,914 7,600,690 10,708,253 10,708,253
---------- ----------- ----------- -----------
Gross profit 2,021,309 2,845,971 3,527,489 3,527,489
Operating expenses 1,830,720 2,612,262 3,670,773 3,670,773
Interest expense 23,143 97,033 230,293 230,293
---------- ----------- ----------- -----------
Income (loss)
before income taxes 167,446 136,676 (373,577) (373,577)
Provision for
(benefit of) income
taxes 64,000 64,553 (125,770) (125,770)
---------- ----------- ----------- -----------
Net income (loss) $103,446 $72,123 $ (247,807) $ (247,807)
========== =========== =========== ===========
Net income (loss)
per share $0.01 $0.00 $ (0.02) $ (0.01)
========== =========== =========== ===========
Shares used in per
share calculation 20,000,000 20,467,290 12,916,667 29,700,003
========== =========== =========== ===========
<CAPTION>
MARCH 31, 1995 MARCH 31, 1996
-------------- --------------------------------
ACTUAL ACTUAL PRO FORMA(1)
-------------- --------------------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficiency) ($11,801) ($1,076,767) $1,723,233
Total assets 3,878,832 5,712,866 8,512,866
Total liabilities 3,471,108 5,734,049 5,734,049
Retained earnings (deficit) 396,160 (22,265) (22,265)
Shareholders' equity (deficiency) 407,724 (21,183) 2,778,817
</TABLE>
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<PAGE> 37
- ----------------
(1) On January 16, 1996, TPSI and its then sole shareholder
entered into an Agreement and Plan of Merger with MacGregor.
MacGregor is a publicly traded non-operating entity.
At Closing, TPSI's shareholders will receive approximately
60% of the then outstanding common stock of MacGregor in exchange
for their 10,000,000 outstanding shares of TPSI common stock. Pro
forma adjusted to record (i) MacGregor's transactions in
anticipation of the merger and (ii) this transaction as an
acquisition and recapitalization including estimated transaction
costs.
(2) As pro forma adjusted to reflect the reverse merger
identified in Note 1, above, as if it had occurred on April 1, 1995.
Since MSF will be a nonoperating entity at the date of the
transaction, none of the revenues or expenses of MSF would have
resulted during the period had the transaction occurred on April 1,
1995. Accordingly, the pro forma adjustments reflect the removal of
these revenue and expense items.
TPSI's Common Stock is closely held by five (5) individuals and is not
publicly traded or traded on any market. No cash dividends have been declared
on TPSI's Common Stock for the last two (2) fiscal years.
THE MERGER
Background of the Merger. MacGregor has been evaluating possible options
for the continuation of its operations in contemplation of a possible sale of
the MacGregor Rights since December of 1994, when it began to discuss a sale of
the MacGregor Rights with Roadmaster. While that transaction was evaluated on
its own merits with respect to the future best interests of MacGregor and its
shareholders, it was nonetheless contemplated that under certain unanticipated
circumstances the sale of the MacGregor Rights could leave MacGregor in a
difficult position to continue business operations. In an effort to find
beneficial alternatives to such difficulties, the Directors explored various
strategies, including bank financing, the raising of additional equity and the
investigation of merger partners or other business combinations. In that
regard, management concluded that it had no assets on which to borrow.
Moreover, in the judgment of management, MacGregor would not have been able to
raise additional equity without expanding or changing its line of business. To
that end, with the assistance of various advisors, including Wayne Mills of
R.J. Steichen & Co., various acquisition candidates were identified and
evaluated. MacGregor selected Mr. Mills to assist in the identification and
evaluation of such candidates based upon his longstanding relationship with the
Company, dating back to his role in introducing MacGregor to Vida Ventures,
Ltd., MacGregor's predecessor, in 1990. In addition, Mr. Mills is widely
recognized and knowledgeable in the area of emerging and growth companies. Mr.
Mills' role included identifying companies whose capital needs would benefit
from a merger with MacGregor, while providing the best growth outcome for
MacGregor shareholders, and evaluating such identified candidates in light of
those criteria. As is more fully set forth below, Mr. Mills introduced
MacGregor representatives to TPSI in August of 1995. Initial contacts between
the parties indicated to MacGregor that TPSI fulfilled its evaluation criteria,
in that TPSI could use MacGregor's capital base (if the MacGregor Rights could
be converted into cash), while maximizing the benefits to MacGregor
shareholders, in light of MacGregor's evaluation of the TPSI
23
<PAGE> 38
products, the strength of the TPSI management team and the growth
potential of the TPSI market and business. MacGregor and its advisors
identified a number of other potential acquisition candidates from time to time
during this period, but, of such candidates, found that TPSI best fulfilled the
MacGregor evaluation criteria due to the TPSI products, the strength of TPSI's
management team and the growth potential of the TPSI market and business.
The negotiations between the parties leading up to the Merger Agreement
were conducted primarily by Henry Fong and Wayne Mills, on behalf of MacGregor,
and by Jeff Sjobeck and Robert F. Olson on behalf of TPSI. The first meeting
between the parties occurred on August 16, 1995. Henry Fong of MacGregor and
Wayne Mills of R.J. Steichen met with Robert Olson of TPSI to discuss the
possibility of a transaction between TPSI and MacGregor. Most of the meeting
involved Robert Olson presenting the nature of TPSI's business and operations,
its historical results of operations, and its needs for additional equity
financing. Mr. Fong was encouraged by the growth potential of TPSI and the
technology industry in which it participated. The parties concluded that
further discussions were warranted as a result of the meeting. Subsequent to
the initial meeting, initial due diligence was performed and several
teleconference calls were conducted during the first two weeks of September
1995. Shortly thereafter, Robert C. Engelstad, one of MacGregor's independent
directors, made a due diligence visit to TPSI and reported favorably to the
MacGregor Board of Directors. The result of these calls and due diligence was a
tentative offer presented by MacGregor to TPSI for the companies to combine
through a tax-free merger transaction. The proposal was to result in TPSI
shareholders holding approximately 55% of the post-merger entity. MacGregor did
not obtain or perform a formal appraisal of TPSI in formulating its proposal,
but relied upon its own analysis of TPSI's historical earnings and a subjective
evaluation of the strength of the TPSI products and management team as well as
the growth potential of the TPSI market and business. MacGregor believes that
the initial offer MacGregor presented to TPSI, based upon such methods of
valuation, was reasonable. Subsequently MacGregor engaged Summit Investment
Corporation to provide an opinion with respect to the fairness, from a financial
point of view, of the consideration to be received by MacGregor shareholders in
the Merger. The results of Summits analysis are set forth at the section of this
Proxy entitled "Opinion of MSF's Financial Advisor." On September 21, 1995, TPSI
mailed a business plan that included a draft letter of intent with the merger
terms proposed by MacGregor included. On October 2, 1995, the TPSI board members
met and authorized Olson to continue negotiations with MacGregor concerning the
proposed merger. On October 3, 1995, Henry Fong met with Robert Olson and
Jeffrey Sjobeck of TPSI and Wayne Mills of R.J. Steichen to review the draft
letter of intent. On October 5, 1995, the parties consummated and made public
through a press release the negotiated letter of intent. During the months of
November and December 1995, both parties continued to conduct further due
diligence. On January 10 and 11, 1996 Henry Fong and MacGregor's legal counsel
met with Jeffrey Sjobeck and TPSI's legal counsel and independent accountants,
and Wayne Mills of R.J. Steichen, to negotiate a definitive agreement between
the parties. On January 16, 1996 the parties consummated and made public
through a press release the definitive agreement between the parties. On March
20, 1996, May 31, 1996 and July 2, 1996 the Merger Agreement was amended to,
among other items, extend the time for the consummation thereof.
General. At the Effective Time (as defined below), Subsidiary will be
merged into TPSI and each outstanding share of TPSI common stock will be
converted into 1.736 shares of MacGregor Common Stock and each option or
warrant to purchase one share of TPSI Common Stock shall become an option or
warrant to purchase 1.736 shares of MacGregor Common Stock. Based on the
closing bid price of $3.1875 of MacGregor Common Stock on the NASDAQ Small Cap
Market ("NASDAQ") composite tape on January 16, 1996, the Exchange Ratio would
have resulted in TPSI shareholders receiving approximately $57,375,000 in
market value of MacGregor Common Stock, if the Merger had been effective on
that date. Based on the closing bid price of $5.00 of MacGregor Common Stock
on the NASDAQ Small Cap Market ("NASDAQ") composite tape on May 31, 1996, the
Exchange Ratio would have resulted in TPSI shareholders receiving approximately
$90,000,000 in market value of MacGregor Common Stock, if the Merger had been
effective on that date. Because the Exchange Ratio is fixed by the Merger
Agreement and the market price of MacGregor Common Stock is subject to
fluctuation, the market price of MacGregor Common Stock may increase or
decrease prior to the Merger, thereby increasing or decreasing the market value
of the shares of MacGregor Common Stock which TPSI shareholders will receive in
the Merger. Consummation of the Merger does not require compliance with any
federal or state regulatory requirements or the approval of any federal or
state regulatory authority.
24
<PAGE> 39
TPSI will record the transaction as an acquisition and recapitalization.
Accordingly, for accounting purposes, TPSI is assumed to be the acquirer.
Subsequent to the transaction, the historical financial statements will be
those of TPSI. MacGregor will change its fiscal year end to March 31.
Exchange of Shares; Fractional Shares. Holders of MacGregor Common Stock
will receive subsequent correspondence from Norwest Stock Transfer, South Saint
Paul, Minnesota, as exchange agent (the "Exchange Agent"), regarding the
exchange of new certificates for existing certificates for MacGregor Common
Stock.
Fractional shares of MacGregor Common Stock will not be issued. Instead,
any fractional shares of MacGregor Common Stock resulting from application of
the Exchange Ratio shall be rounded to the next higher or lower whole share, as
the case may be.
MANAGEMENT RECOMMENDATION AND RATIONALE FOR THE TRANSACTION
The Board of Directors of MacGregor believes that the Merger is fair to
and in the best interests of MacGregor and its shareholders. THE MEMBERS OF
MACGREGOR'S BOARD ALSO RECOMMEND THAT SHAREHOLDERS OF MACGREGOR VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
In reaching its conclusions to enter into the Merger Agreement and to
recommend approval of the Merger Agreement by MacGregor shareholders, at and
prior to the January 16, 1996, special meeting at which the MacGregor's Board
approved the Merger Agreement, the Board considered a number of factors of
which MacGregor's shareholders should be aware in determining whether to vote
for approval of the Merger Agreement, including, without limitation, the
following:
1. The amount of consideration to be received by the shareholders of
MacGregor in the Merger was considered in conjunction with the review of the
analysis presented by Summit, which is discussed in greater detail below,
regarding the fairness, from a financial point of view, to the shareholders of
MacGregor of the consideration to be received in connection with the Merger.
See: "The Merger-Opinion of MacGregor's Financial Advisor."
2. MacGregor's Board reviewed the historical market trends and prices of
MacGregor's Common Stock in its review of the Exchange Ratio proposed in the
Merger Agreement. MacGregor's Board also considered the fact that the market
value of MacGregor Common Stock increased significantly over the market price
of MacGregor Common Stock prevailing immediately prior to the announcement of
the Merger.
3. MacGregor's Board also believes the tax structure of the transaction is
favorable in that it allows MacGregor's shareholders to participate in the
Merger on a tax-deferred basis. See: "The Merger-Certain Federal Income Tax
Consequences."
In its evaluation of the Merger Agreement, MacGregor's Board was advised
by both R.J. Steichen & Co. and Summit. On March 20, 1996, Summit rendered an
opinion regarding the fairness, from a financial point of view, to the
shareholders of MacGregor of the consideration to be received in the Merger.
See: "The Merger-Opinion of MacGregor's Financial Advisor."
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<PAGE> 40
AFTER CONSIDERING ALL OF THE FACTORS DISCUSSED ABOVE MACGREGOR'S BOARD OF
DIRECTORS HAS DETERMINED TO APPROVE THE MERGER AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
After the mailing of this Proxy Statement and prior to the MacGregor's
Special Shareholder Meeting called to consider the Merger, the Board of
Directors of MacGregor will consider the fairness of the Merger to MacGregor
and its shareholders in light of circumstances as they may change during this
period. Changed circumstances after the date of this Proxy Statement which
might be relevant to MacGregor's Board of Directors in its future consideration
of the fairness of the Merger include changes in the market value of MacGregor
Common Stock and the prospects of MacGregor, changes in the value and prospects
of MacGregor, changes in the value of companies comparable to MacGregor and
changes in the value of recently completed acquisitions of other comparable
companies. MacGregor's Board of Directors further consideration of the
fairness of the Merger may include seeking an updated opinion from Summit on or
about the Effective Time of the Merger to the effect that, at such time, the
consideration to be received by MacGregor's shareholders pursuant to the Merger
Agreement is fair to the MacGregor's shareholders from a financial point of
view. In connection with any further review of the Merger, the Board of
Directors of MacGregor will review all factors that it then considers to be
relevant to its consideration of the fairness of the Merger. In light of the
nature and extent of these factors, MacGregor's Board of Directors is unable to
determine at present their relative importance.
In the event that the MacGregor Board of Directors, after the mailing of
this Proxy Statement, in the exercise of its fiduciary duties determines that
it must withdraw its recommendation and recommend against the approval of the
Merger, it will communicate its changed recommendation to the shareholders in
supplemental proxy materials. Shareholders will be resolicited in such
supplemental proxy materials, and will be afforded the opportunity to change
their votes without being required to attend the Meeting to do so. In the
event that MacGregor shareholders did not approve the Merger, MacGregor would
be entitled to terminate the Merger Agreement (and would not be required to pay
any termination fee to Company). See: "The Merger-Conditions for Merger and
Other Provisions."
OPINION OF MSF'S FINANCIAL ADVISOR
GENERAL. Summit was engaged by the MSF Board of Directors to undertake an
analysis of value relating to the merger of MacGregor and TPSI and to provide
an opinion as to whether the exchange ratio is fair, from a financial point of
view, to MSF and its shareholders. Summit was not instructed to seek other
potential parties interested in acquiring MacGregor. MSF determined the amount
of consideration to be paid in the Merger. Summit's role was to analyze and
provide an opinion as to the fairness of the exchange ratio to the MacGregor
shareholders from a financial point of view.
Summit was selected by the MSF Board of Directors from the candidates
identified to them by R.J. Steichen & Co. Summit was chosen because it is a
widely recognized investment banking firm in the Twin Cities with substantial
experience in the valuation of businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings, private placements and
valuations for estate, corporate and other purposes. There were no limitations
imposed on the scope of Summit's investigation by MSF. Summit will be paid a
fee of $18,500 for its services. Summit's fee is not contingent upon
completion of the Merger.
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<PAGE> 41
BACKGROUND. On March 20, 1996, Summit submitted to the MSF Board of
Directors its written opinion. The opinion states that, as of the date of the
opinion and based upon and subject to the matters discussed therein, it is
Summit's opinion that the 1.736 exchange ratio in the Merger is fair to MSF and
its shareholders from a financial point of view.
In conducting the review and in performing the analyses described below,
Summit did not attribute any particular weight to any information or analysis
considered by it, but rather made qualitative judgments as to the significance
and relevance of each factor and analysis. Accordingly, Summit believes that
the information reviewed and the analysis conducted must be considered as a
whole and that considering any portion of such information or analyses, without
considering all of such information and analyses, could create a misleading or
incomplete view of the process underlying the opinion.
A written report was also submitted by Summit to MSF's Board of Directors
on March 20, 1996. This report detailed Summit's equity valuation analysis of
TPSI based on two approaches. Summit utilized the comparable public company
and the discounted cash flow methods. For purposes of determining the equity
value of MSF, Summit utilized the net asset method.
COMPARABLE PUBLIC COMPANY ANALYSIS. Summit estimated the equity value per
share for TPSI using actual and estimated financial, operating and stock market
information of certain comparable public companies. Summit determined a range
of values within which it believed TPSI's common stock would trade in the
public market based on a comparison of TPSI's financial condition, operating
performance, and prospects with corresponding data for two groups of public
companies selected by Summit as having business operations and other
characteristics similar to those of TPSI. Summit used this analysis to derive
implied equity values for TPSI by multiplying certain ratios derived from the
comparable public companies by TPSI's own financial data.
Those public companies deemed to be the most comparable to the document
management software business of TPSI were Documentum, Inc., FileNet
Corporation, Infodata Systems, Inc., Interleaf, Inc., Open Text Corporation and
PC Docs Group International, Inc. Those public companies deemed to be the most
comparable to the printing/publishing business of TPSI were Consolidated
Graphics, Inc., Graphic Industries, Inc., IPI, Inc. and Merrill Corporation.
Summit calculated equity market values as multiples to latest fiscal year
net income, current fiscal year estimated net income, and next fiscal year
estimated net income for both the document management software and
printing/publishing industries. The respective multiples of the document
management software comparable public companies were between the following
ranges: (i) latest fiscal year net income: 8.5x to 46.2x (with a median of
44.3x); (ii) current fiscal year estimated net income: 28.8x to 41.3x (with a
median of 35.1x); and (iii) next fiscal year estimated net income: 17.7x to
27.7x (with a median of 20.8x). The respective multiples for the
printing/publishing comparable public companies were between the following
ranges: (i) latest fiscal year net income: 9.8x to 18.1x (with a median of
14.1x); (ii) current fiscal year estimated net income: 11.1x to 17.2x (with a
median of 11.3x); and (iii) next fiscal year estimated net income: 8.5x to
11.7x (with a median of 9.7x). Summit calculated aggregate value (defined as
equity market value plus net debt) as multiples to latest 12 months ("LTM")
revenue and LTM earnings before interest, taxes, depreciation and amortization
("EBITDA") of the comparable public companies. The respective multiples of the
document management software comparable public companies were between the
following ranges: (i) LTM revenue: .32x to 22.5x (with a median of 4.9x) and
(ii) LTM EBITDA: 1.7x to 24.0x (with a median of 19.7x). The respective
multiples for the printing/publishing comparable public companies were between
the following ranges: (i) LTM revenue: .62x to 2.4x (with a median of 1.4x)
and (ii) LTM EBITDA: 4.7x to 8.2x (with a median of 5.6x).
27
<PAGE> 42
Summit also presented an analysis of operating statistics of the
comparable public companies including, among other things, operating margins,
net profit margins, three-year historical revenue growth, return on equity, and
debt capitalization ratios, in each case as compared to TPSI.
Based on this analysis, Summit calculated an implied equity value per
share of between $0.40 and $1.23. Summit also calculated an implied equity
value per share assuming the exercise of TPSI options and warrants ("fully
diluted" basis). Based on this analysis, Summit calculated an implied equity
value per fully diluted share of between $0.33 and $0.98.
No company used in the comparable public company analysis is identical to
TPSI. Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather, it involves complex considerations and judgments
concerning the differences in financial and operating characteristics of the
comparable public companies and other factors that can affect the public
trading value of the comparable public companies to which TPSI is being
compared.
COMPARABLE MERGER AND ACQUISITION TRANSACTIONS. Summit reviewed publicly
available financial information for recent merger and acquisition transactions
involving document management software companies and printing/publishing
companies. Such analysis resulted in two comparable transactions, both of
which involved the sale of a privately held, document management software
company to publicly traded companies. These transactions, completed between
October, 1995, and January, 1996, were the acquisition of Odesta Systems
Corporation by Open Text Corporation and the acquisition of Saros Corporation
by FileNet Corporation. Summit compared selected financial data including
equity value as a multiple of LTM net income and aggregate value as a multiple
of LTM revenues and LTM EBITDA for the two acquisition transactions. Equity
value as a multiple of net income and aggregate value as a multiple of EBITDA
were not meaningful for Odesta Systems Corporation and Saros Corporation due to
operating losses for each company. Aggregate value as a multiple of LTM
revenue was 12.6x and 7.2x for Odesta Systems Corporation and Saros
Corporation, respectively. However, because the reasons for and the
circumstances surrounding each of the transactions analyzed were specific to
each transaction and because of the inherent differences between the business,
operations and prospects of TPSI, and the acquired companies in such
transactions, Summit believed that an appropriate use of a comparable
transaction analysis in this instance also would involve qualitative judgments
concerning differences between the characteristics of the merger and these
transactions.
Based on the foregoing and an insufficient number of comparable
transactions, Summit concluded that the comparable merger and acquisition
transaction method did not provide a reliable indication of value for TPSI.
DISCOUNTED CASH FLOW ANALYSIS. Summit performed a discounted cash flow
analysis of TPSI based upon estimates of projected financial performance
prepared by TPSI (the "Base Case Projections"). Summit calculated a range of
implied equity values of TPSI based upon the discounted present value of the
sum of (i) the projected three-year stream of unleveraged free cash flow, (ii)
the projected terminal value at the year 2000 based upon a range of unleveraged
free cash flow growth rates in perpetuity and (iii) an assumed cash balance net
of debt. In conducting this analysis, Summit applied discount rates ranging
from 21% to 23% and unleveraged free cash flow growth rates, in perpetuity,
ranging from 8.0% to 12.0%. To test the sensitivity of value to changes in
revenue growth and operating margins, Summit constructed its own set of
projections for TPSI (the "Conservative Case Projections"). Summit decreased
by one-half the estimated growth rate in revenue over the 1998 and 1999
forecast period, and decreased the operating margin 6.0 percentage points below
that used in the Base Case Projections. In calculating the projected terminal
value at the year 2000, Summit applied unleveraged free cash flow growth rates,
28
<PAGE> 43
in perpetuity, ranging from 6.0% to 10.0%. Summit then calculated ranges
of implied equity value per share by dividing the implied equity values by
TPSI's shares outstanding.
Based on this analysis, Summit derived an implied median equity value per
share of (i) $2.14 ($1.64 per fully diluted share) based on the Base Case
Projections and (ii) $0.79 ($0.66 per fully diluted share) based on the
Conservative Case Projections.
STOCK TRADING ANALYSIS. Summit reviewed MSF's stock price and volume
history from January 3, 1994 to September 28, 1995 (five trading days prior to
the announcement of the Merger). Summit's analysis indicated the stock trading
price generated market valuations for MSF that were not supportable based upon
MSF's operating and net losses, cash flow deficits and book value. In
conducting its analysis, Summit considered, among other things, MSF's (i)
fiscal 1995 net loss of $1,144,803 and cash flow deficit (net loss plus
depreciation and amortization expense) of $863,392; (ii) book value of
$1,272,635 or $0.15 per share (as of July 31, 1995); (iii) working capital
deficit of $2,166,528 (as of July 1, 1995); and (iv) projected net losses.
Summit noted that MSF's market value of $10 million (using the average bid
price for 30 day period ended September 28, 1995) equaled a multiple of 7.9x
the July 31, 1995 book value. Summit noted further that, based on generally
accepted valuation methodologies, the actual and projected financial
performance of MSF did not justify the public market trading values. Thus,
MSF's stock price was deemed by Summit to be trading based predominantly on
speculation.
NET ASSET VALUE. Summit calculated the implied equity value of MSF based
upon the value of MSF's net assets pursuant to the terms of the merger. MSF's
assets, as of the effective date of the Merger, are as follows: (i) $1.0
million cash and (ii) $1.91 million promissory note. Subtracting a $100,000
current liability, Summit calculated the value of MSF's net assets to be $2.81
million or $0.23 per share (based on outstanding shares of common stock as
defined pursuant to the terms of the Merger). Summit concluded that the value
of MSF's equity is a function of the value of MSF's net assets of $2.81 million
or $0.23 per share.
IMPLIED EXCHANGE RATIO. Summit compared the implied equity values per
share of TPSI to the implied equity value per share of MSF and calculated a
range of implied exchange ratios for MSF common stock. Based upon the
comparable public company method, Summit calculated an implied exchange ratio
for MSF common stock of 1.739 to 5.348 (1.435 to 4.261 based on TPSI's fully
diluted per share values). Based upon the discounted cash flow method, Summit
calculated an implied exchange ratio for MSF common stock of 3.435 to 9.304
(2.870 to 7.130 based on TPSI's fully diluted per share values). Summit
concluded, therefore, that the Implied Exchange Ratio based on Summit's
valuation analysis resulted in exchange ratios that exceed the Exchange Ratio
of 1.736 in the Agreement.
TREATMENT OF MACGREGOR AND TPSI OPTIONS AND EMPLOYEE STOCK OPTION PLANS.
At the Effective Time, there will be no options to purchase shares of
MacGregor Common Stock outstanding under MacGregor's existing Stock Option Plan
and options to purchase 3,315,780 shares of TPSI Common Stock, which will become
options to purchase approximately 5,756,194 shares of MacGregor Common Stock at
the Effective Time, outstanding under TPSI's existing 1994-97 Stock Option Plan.
Participants under the existing MacGregor and TPSI Stock Option Plans shall be
entitled to have the stock options outstanding under such plans exchanged,
pursuant to applicable exchange ratios, for stock options under the 1994-97
Stock Option and Compensation Plan. See: "Proposal Number V-Adoption and
Ratification of a MacGregor Stock Option Plan."
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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)Eas of the Effective
Time, MacGregor's balance sheet shall show a tangible net worth less
non-current assets of at least $3,000,000, (iii) MacGregor shall have paid or
otherwise satisfied all debt and all current liabilities, or otherwise removed
them from MacGregor's balance sheet, (iv) MacGregor shall, subject to its
shareholders' approval, have completed the sale of substantially all of its
assets to Hutch, (v) certain of MacGregor's affiliates (including Equitex,
Inc.) shall have agreed not to sell or otherwise transfer the shares of
MacGregor Common Stock held by them (other than shares previously acquired in
the open market, as more fully disclosed in the section entitled "Security
Ownership of Certain Beneficial Ownership and Management - Certain
Transactions"), (vi) shareholders who exercise statutory dissenter's rights
shall not aggregate more than 5% of the total outstanding MacGregor Common
Stock, and (vii) MacGregor shall be approved for listing in the NASDAQ
SmallCap Market(TM) on a consolidated post-merger basis.
Of the aforementioned conditions to the Merger, certain conditions were
required to have been completed, to the satisfaction of TPSI and its counsel,
on or before February 1, 1996, as follows: (a) MacGregor's balance sheet showing
tangible net worth of at least $3,000,000, with cash of at least $1,000,000 and
no liabilities: (b) MacGregor's satisfaction of any debt owing to BB&T Bank of
Greenville; (c) MacGregor's satisfaction of indebtedness and other amounts
payable to related parties; (d) MacGregor's satisfaction of accrued rent
obligations of MacGregor, MSP and CTS; (e) MacGregor's satisfaction of trade
payables and related accrued expenses; (f) MacGregor's payment of amounts due to
California Pro, Inc. and any other MacGregor affiliates; and (g) completion of
the sale of the MacGregor Rights, subject to shareholder approval, to Hutch.
As acknowledged in Section 7 of Amendment No. 1 to the Merger Agreement,
these conditions were deemed satisfied, as of the date of Amendment No. 1, by
MacGregor having undertaken and completed the following transactions on the
following dates, and having delivered the evidence thereof to TPSI on February
4, 1996.
With respect to the Merger Agreement requirement that MacGregor have
tangible net worth less non-current assets of at least $3,000,000, MacGregor
satisfied the $3,000,000 tangible net worth condition by: (i) removing all of
its operating company liabilities from its balance sheet as more fully described
in the following paragraphs, in exchange for the transfer to MacGregor from MSP
of the MacGregor Rights to be transferred to Hutch, in the transaction more
fully described in the section of the Proxy titled "The Sale of Substantially
All of MacGregor's Assets to Hutch;" and (ii) with the proceeds of the sale of
228,667 shares of its common stock previously pledged to BB&T Bank of
Greenville, CTS' lender, for an aggregate price of $274,800.80, resulting in the
repayment of the BB&T loan, thereby not only removing that liability from
MacGregor's consolidated balance sheet, but also satisfying the condition that
such obligation be repaid. With respect to the sale of the previously pledged
shares, the market price of the shares at the time the Company entered the BB&T
Pledge Agreement was approximately $1.00. The Pledge Agreement with BB&T
provided that Equitex would repurchase, or find a purchaser for, the pledged
shares, at not less than $1.00 per share (the number of shares pledged being
equal to the amount of the remaining indebtedness on a $1 per share basis). At
the time the BB&T loan became due, MacGregor sought to maximize the benefit to
it of the pledge arrangement by seeking buyers for the pledged shares at the
highest obtainable price. While the market price for unrestricted shares at
that point was in the $3.00 range, given MacGregor's inability to "auction" the
shares as in a public offering (which MacGregor was unable to afford at such
time) the highest offer MacGregor was able to elicit was $1.20 per share.
MacGregor considered that offer reasonable because these investors were being
asked to take on the following additional risks, as well to those outlined in
this Proxy Statement; (i) the shares were restricted and would not be freely
tradeable for two years (which timeframe differed significantly from the
immediate turnaround possibility of those paying $3.00 per share in the open
market, thereby necessitating a much higher risk-adjusted rate of return); (ii)
the cash which the purchasers were going to invest was subject to considerable
risk of loss in light of the "going concern" opinion rendered by MacGregor's
auditors; and (iii) the possibility that the Merger (which had been contemplated
since October, but was yet to be consummated), would not be consummated. The
shares were purchased by the following individuals at $1.20 per share; Wayne R.
Mills, 83,000; Russell Casement, 22,500; George Arellano, 19,167; Joseph
Hovorka, 15,000; Bertrand T. Ungar, 33,333; K. Keating, 50,833; and David Olson,
4,834.
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In order to further fulfill the condition that MacGregor's balance
sheet be free from liabilities and that accrued rental obligations be
satisfied, it was necessary for MacGregor to pay the obligations and
liabilities of MSP and CTS or otherwise remove such obligations and liabilities
from MacGregor's balance sheet. As of January 31, 1996, MSP and CTS had
aggregate accrued rental obligations, accrued trade payables, accrued legal and
accounting fees and asserted and non-asserted claims in the range of $500,000
to $1,200,000. MSF approached Resource Preservation, L.L.C. for the purpose of
having Resource Preservation, L.L.C. acquire the stock of MSP and CTS in order
to so remove such liabilities and obligations from MSF's balance sheet and to
liquidate MSP and CTS. To that end, MSF and MSP entered into a Stock Purchase
Agreement dated February 2, 1996 whereby MSF sold 394,300 shares of MacGregor
Common Stock, with a then current market value of $1,206,558, to MSP in
exchange for the transfer to MSF of the MacGregor Rights and MSP's rights under
the agreement with Hutch. In connection with such transfer, MacGregor also
forgave MSP certain intercompany loans due to MacGregor from MSP in the amount
of $2,318,429. Thereafter Resource Preservation, L.L.C. purchased from MSF all
of the shares of MSP (and MSP's then-wholly owned subsidiary CTS) in return for
the payment of $10 to MSF and the provision of liquidation services with
respect to the obligations and liabilities. MacGregor has accounted for the
transaction as having been completed as of February 2, 1996 the effective date
of the Stock Purchase Agreement transferring the MSP and CTS shares to Resource
Preservation, L.L.C.
The consummation of the purchase of MSP and CTS by Resource
Preservation, L.L.C. was conditioned on (1) MSP owning at the Closing all of
the shares of CTS. To meet this condition, MacGregor authorized the capital
contribution to MSP of the CTS shares MSF owned and as a result, CTS has become
a wholly-owned subsidiary of MSP; and (2) MSP having sufficient shares of
MacGregor Common Stock to satisfy the asserted and non-asserted liabilities and
claims of MSP and CTS within the foregoing range. This condition was satisfied
pursuant to the above referenced Stock Purchase Agreement between MSP and
MacGregor on February 2, 1996. The MacGregor Common Stock sold by MacGregor to
MSP is intended to provide MSP and CTS with sufficient capital to repay the
existing and potential liabilities of MSP and CTS and provide a reasonable fee
for liquidation services. Management considered alternatives to selling
MacGregor Common Stock to MSP, including bank financing and raising additional
equity and then contributing the funds to MSP. In that regard, management
concluded that it had no assets on which to borrow. Moreover, in the judgment
of management, MacGregor would not have been able to raise additional equity
without expanding or changing its line of business.
When Resource Preservation. L.L.C. purchased MSP and CTS, CTS owned no
assets. In light of the transfer of the MacGregor Rights to MSF in connection
with the Stock Purchase Agreement, MSP's only asset was the 394,300 shares of
MacGregor Common Stock. Resource Preservation, L.L.C. did not purchase the
MacGregor Rights when it purchased the stock of MSP on February 2, 1996, in
that the MacGregor Rights had already been transferred to MSF, effective as of
January 31, 1996. MSP and CTS had $176,379 and $584,406 in accrued liabilities
respectively at January 31, 1996. Such liabilities have been removed from
MacGregor's consolidated balance sheet as a result of such purchase. The
market value (based upon the closing price on January 31, 1996) of MacGregor
Common Stock purchased by MSP is $1,206,558 and on the date of the sale of MSP
and CTS exceeded the January 31, 1996 balance sheet liabilities of CTS and MSP
by approximately $673,867. However, MacGregor believes that the amount of
MacGregor Common Stock is reasonable taking into account the range of accrued
and potential liabilities; the fact that liabilities of such entities will
continue to accrue until fully satisfied, the two year restriction on
transfer to which such shares will be subject and the possibility that the
value of the MacGregor Common Stock could decline during the two year
restricted period. MSP will own approximately 3.33% of 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.
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As of January 31, 1996, the net book value of MSP and CTS were $475,135 and
negative $1,057,338 respectively. Taking into account MSP's transfer to MSF of
the MacGregor Rights in exchange for 394,300 shares of MacGregor Common Stock,
and the forgiveness by MacGregor of intercompany loans due to MacGregor from MSP
in the aggregate amount of $2,318,429 the net book values of MSP and CTS are
$1,030,582 and negative $584,406 respectively. Although the historical net book
values of the MSP and CTS Subsidiaries bear little relationship to the purchase
price to be paid by Resource Preservation, L.L.C., MacGregor believes this
relationship to be irrelevant. Rather, it is the relationship between the
amount of the liabilities and the current value of the assets which is
important. Utilizing this criterion, MacGregor believes that the terms of this
transaction, which fulfilled an important condition to the Merger by removing
all of its operating company liabilities, known and unknown, accrued and
unaccrued, were fair.
With respect to the conditions that MacGregor satisfy its indebtedness and
amounts owing to related parties, and satisfy amounts due and owing to
California Pro, Inc. and other affiliates, MacGregor converted the indebtedness
owed to those entities into additional common shares of MacGregor, all as is
more fully described in the sections of the Proxy titled, "Related Parties,"
and "Certain Transactions."
With respect to the condition regarding the sale of the MacGregor Rights to
Hutch, MSP entered an Agreement with Hutch Sports USA, Inc., effective as of
January 31, 1996, (subject tot he approval of MacGregor's Shareholders) all as
more fully described in the section of the Proxy titled, "The Sale of
Substantially All of MacGregor's Assets to Hutch," and thereafter transferred
its rights thereunder to MSF.
In addition to the foregoing, the obligations of MacGregor and TPSI to
effect the Merger are subject to the completion of satisfactory due diligence
and absence of material adverse changes in the business, operations and
condition (financial and otherwise) of the respective parties and the receipt
by MacGregor of a Fairness Opinion of Summit Investment Corporation.
FEES AND EXPENSES
If the Merger is not consummated, but is terminated in accordance with the
provisions of the Merger Agreement, MacGregor and TPSI shall equally share the
costs and out-of-pocket expenses related to the Merger. If, however, any party
(i) breaches any of its representations, warranties, covenants, conditions or
other obligations to the other pursuant to the Merger Agreement; or (ii) prior
to July 16, 1996 (a) receives an offer, whether written or oral, from any other
party (a "Third Party") and sells substantially all of its assets to or merges
or consolidates with such Third Party (or agrees to do so), (b) enters into a
binding or non-binding letter of intent with any such Third Party to merge,
consolidate, transfer assets or conduct any type of business combination, or
(c) agrees to the purchase by such Third Party of a controlling interest in its
stock, then the breaching party shall pay the non-breaching party the amount of
the non-breaching party's out-of-pocket expenses related to the Merger plus
$100,000, all in cash.
NO SOLICITATION
MacGregor will not directly or indirectly solicit, encourage or, except as
may be necessary to fulfill the fiduciary duties of the directors of MacGregor,
recommend the approval of any offer from, or provide any confidential
information to, any entity other than TPSI relating to a business combination
or the sale of MacGregor's assets or MacGregor Common Stock.
EFFECTIVE TIME OF THE MERGER
If the Merger Agreement is approved and adopted at the Meeting, and all
other conditions to the Merger have been met or waived, the parties expect the
Merger to be effective upon the filing of Articles of Merger with the Minnesota
Secretary of State. The time of such filing is referred to in this Proxy
Statement as the "Effective Time."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences of the Merger to the holders of MacGregor Common Stock.
At the closing of the Merger the law firm of Ross & Hardies will deliver its
opinion on the material federal income tax consequences of the Merger
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to the holders of MacGregor Common Stock. The opinion of Ross & Hardies will be
subject to various assumptions and qualifications and is based on current law.
Unlike a ruling from the IRS, an opinion of counsel is not binding on the IRS
and there can be no assurance that the IRS will not take a position contrary to
one or more of the positions reflected herein, or that the positions herein
would be upheld by the courts if challenged by the IRS. This discussion is
based on the current provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable Treasury Regulations, judicial authority and
administrative rulings and practice. No ruling from the IRS has been or will be
sought with respect to any aspect of the Merger. Furthermore, legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements set forth herein.
The following does not consider the tax consequences of the Merger under
state, local and foreign law or the tax consequences to MacGregor as the result
of various transactions required pursuant to the Merger Agreement. Moreover,
special considerations not described herein may apply to certain taxpayers,
such as financial institutions, broker-dealers, insurance companies, tax-exempt
organizations, investment companies and persons who are neither citizens nor
residents of the United States, or who are foreign corporations, foreign
partnerships or foreign estates or trusts as to the United States.
In rendering its opinion, Ross & Hardies relied upon the following
assumptions, based upon representations made by the respective parties: (i)
that MacGregor has no present intention to dispose of any of the TPSI shares
that it will receive in connection with the Merger; (ii) that following the
Merger IntraNet will hold at least ninety percent of the fair market value of
the net assets and at least seventy percent of the fair market value of the
gross assets held by Subsidiary and by TPSI, respectively, prior to the Merger;
(iii) that TPSI has no present intention to dispose of any of the assets that
it will hold immediately after the Merger, except for dispositions made in the
ordinary course of business; (iv) that neither TPSI or Subsidiary disposed of
any assets within the period beginning two years prior to the Merger, except
for dispositions made in the ordinary course of business; (v) that TPSI
disposed of no assets in contemplation of the Merger or in contemplation of an
acquisition by or with any other party; (vi) that TPSI and MacGregor intend
that IntraNet continue its present business for an indefinite period after the
Merger and have no current intent that IntraNet discontinue said business;
(vii) that no shareholder of TPSI has a present intention to dispose of more
than fifty percent of the shares of MacGregor stock that such shareholder will
receive in the Merger; (viii) that each shareholder will in fact retain at
least fifty percent of the shares of MacGregor stock that such shareholder will
receive in the Merger for a period of at least two years after the Merger; (ix)
that MacGregor and TPSI are engaging in the Merger for the business purposes
specified herein; and (x) that MacGregor currently owns no shares of TPSI.
EACH HOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER.
Ross & Hardies, counsel to MacGregor in this transaction, expects the
Merger, subject to the qualifications set forth above, to qualify as a tax-free
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code. As
such, in the opinion of Ross & Hardies, and subject to such qualifications, no
gain or loss will be recognized by the shareholders of MacGregor for tax
purposes upon consummation of the Merger.
DISSENTER'S RIGHTS
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Under Minnesota law, MacGregor's shareholders are entitled to dissenter's
rights in connection with the sale of the MacGregor Rights and the Merger. See:
"The Sale of Substantially all of the Assets of MacGregor to Hutch -
Dissenter's Rights."
CERTAIN RISK FACTORS TO CONSIDER
A decision to approve the Merger involves substantial risks. The risk
factors set forth below are not intended to be an exhaustive list of the
general or specific risks involved, but merely to identify certain risks that
are currently foreseen by MacGregor and TPSI. It must be recognized that other
risks, not now foreseen, might become significant in the future and that the
risks which are now foreseen might affect the merged entities to a greater
extent than is now foreseen or in a manner not now contemplated. Each
shareholder should carefully consider all information contained in this Proxy
and should give particular consideration to the following factors before
deciding to approve the Merger. Among the risks which shareholders should
consider are the following:
1. Dependence Upon Continued Market Expansion. The continued expansion of
TPSI's business is dependent on the continued expansion of the markets for
which its products were developed. As such, TPSI's future success is dependent
upon a continuation of the trend toward network-based computing environments
and the continued willingness of large businesses to reengineer the processes
they employ to create, store and manage data. In addition, TPSI's future
success is dependent upon the continued expansion of the on-demand printing
market. Any factors which have an adverse impact on the continued expansion of
these markets generally could have a material adverse impact on TPSI.
2. Dependence on Narrow Product Line; Technology Risks; Risk of Market
Acceptance. TPSI's future success will depend, to a large extent, on its
ability to increase sales from existing products and derive sales from new
products. There can be no assurance that TPSI will be able to further penetrate
the market with its existing products and to introduce and gain acceptance of
its new products. The market is highly competitive and characterized by rapid
innovation and technological change. TPSI's products were specifically designed
to meet the needs of the document management market, but other companies have
also introduced or announced the development of products designed to address the
same markets as TPSI's products. TPSI's ability to maintain a competitive
position will also depend on its ability to develop enhancements and upgrades to
its existing product line. In addition, technological advances that would make
TPSI's products less attractive to current and potential customers could
adversely impact the business of TPSI. TPSI's plans with respect to the
development of new products are subject to the risks inherent in the development
and marketing of complex software products, including the risks that the release
of the product may be delayed, errors may be found in the product after its
release despite extensive testing, and discovered errors may not be corrected in
a timely manner. Further, the commercial success of TPSI's products will depend
on the willingness of potential customers to perform and accept the use of
TPSI's products to create, manage and distribute unstructured business-critical
data.
3. Dependence on Development of New Products. TPSI's future strategy to
extend its product line will depend on its ability to design, develop and
market new and innovative products. There can be no assurance that TPSI will
be successful in introducing new products. TPSI devotes resources to research
and development and believes it will have sufficient resources to support its
research and development efforts. However, there can be no assurance that the
level of research and development expenses necessary for TPSI to remain
competitive will be as currently anticipated or that TPSI's revenues will be
sufficient to cover its research and development costs.
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4. Intellectual Property. In the absence of significant patent or
copyrights protection, TPSI may be vulnerable to competitors who attempt to
develop functionally equivalent products. Although TPSI believes that it has
all rights necessary to market its products without infringing upon any patents
or copyrights held by others, there can be no assurance that conflicting patent
or copyright rights do not exist.
TPSI relies upon trade secret protection for its confidential and
proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to TPSI's trade secrets or disclose such
technology, or that TPSI can meaningfully protect its trade secrets.
It is TPSI's policy to require its employees, consultants, and advisors to
execute confidentiality agreements upon the commencement of employment or other
relationships with TPSI. These agreements include standard non-disclosure and
non-competition provisions prohibiting employees or former employees from
disclosing TPSI's Confidential Information (as defined therein) and prohibiting
employees, and former employees for a period of one year following termination
of their employment with TPSI from organizing or participating in a Competing
Business (as defined therein) or developing or selling Competing Products (as
defined therein).
TPSI has applied for trademark registration for the following matters:
IntraNet and IntraNet Solutions. TPSI also intends to file trademark
applications for the following marks: IntraNet Web-Based Management System,
IntraNet WBMS, IntraNet Document Refinery, IntraNet Web Refinery and IntraNet
Web Vault. There can be no assurance that any trademarks which have been
applied for but not yet issued will be issued. In the absence of trademark
protection, TPSI may be unable to take advantage of the brand name recognition
it is attempting to build. Further, even if all trademarks applied for are
issued, there can be no assurance that such trademarks will prove valuable to
TPSI.
5. Significant Competition. Some of TPSI's competitors currently
marketing products into the document management market are more established
than TPSI and have the benefits of pre-existing relationships with potential
customers and greater name recognition than TPSI. Some of TPSI's current and
potential competitors have significantly greater technical, financial, and
marketing resources than TPSI. Although TPSI believes it competes effectively
with respect to such factors, there can be no assurance that TPSI will have the
financial resources, technical expertise or marketing, distribution or support
capabilities to compete successfully in the future.
6. Dependence Upon Key Vendor Relationships. TPSI is materially dependent
on Sun Microsystems, Inc. and Interleaf, Inc. for the supply of the hardware
and non-proprietary software products sold as part of its systems. TPSI does
not currently have a secondary source of supply for these products. Any
disruption in the relationship between TPSI and either of Sun Microsystems,
Inc. or Interleaf, Inc. would have a material adverse impact on TPSI.
7. Former Shareholder Lien. TPSI redeemed 50% of its outstanding shares
of its Common Stock from a former shareholder and director for $200,000 on July
31, 1995. TPSI paid $150,000 of the purchase price in cash and delivered a
$50,000 note to the former shareholder for the balance of the purchase price.
The note requires annual principal payments of $10,000 and matures in August,
2000. TPSI also entered into Consulting and Non-Competition Agreements with
the former shareholder. To secure the purchase price of the redeemed shares
and TPSI's monetary obligations under the agreements, TPSI pledged the redeemed
shares to the former shareholder as collateral. Although TPSI has and intends
to meet its monetary obligations to the former shareholder, in the event it
should fail to do so, the former shareholder may be able to assert a claim of
up to a 50% ownership interest in TPSI. TPSI and its
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subsidiaries will be the only asset of the post-merger entity. If TPSI were to
fail to make payment to the former shareholder and the former shareholder were
successful in obtaining a 50% ownership interest in TPSI, the value of the
shares of Common Stock of the post-merger entity would be reduced substantially.
MacGregor cannot currently estimate the potential loss in value.
8. Dependence on Key Personnel; Need for Additional Employees. TPSI is
currently greatly dependent on the personal knowledge and experience of Messrs.
Olson and Sjobeck. TPSI believes that its senior management team has knowledge
which, due to TPSI's relatively small size, is personal to such individuals and
has not been institutionalized. As such, the loss of any of these key
personnel could be detrimental to TPSI. To avoid the negative impact which the
loss of a senior manager could have on TPSI, as well as to achieve its business
plan, TPSI must hire additional employees at various operational levels. The
future development and success of TPSI will depend in part upon its ability to
attract new employees and retain its key personnel. There can be no assurance
that TPSI will be able to attract or retain such personnel or that the hiring
and retention of such personnel will result in the institutionalization of
vital information.
9. Potential Dilution Upon Exercise of Options and Warrants. TPSI
currently has options and warrants to purchase 3,472,530 shares of TPSI Common
Stock outstanding. Applying the Exchange Ratio, such options and warrants will
become rights to acquire approximately 6,028,312 shares of MacGregor Common
Stock upon approval of the Merger. The exercise price of these options and
warrants will range from $0.05 to $2.60 following the Merger. If such options
are exercised, the percentage ownership of MacGregor's current shareholders in
the post-merger entity will be reduced from approximately 40% to approximately
33%. In addition, TPSI has an additional 6,684,220 authorized but unissued
options under its current stock option plan. It is anticipated that MacGregor
will assume TPSI's obligations under this plan.
10. Fluctuations in Future Operating Results. TPSI's future operating
results may vary substantially from quarter to quarter. At its current stage of
operations, TPSI's quarterly revenues and results of operations may be
materially affected by the timing of the development, introduction and market
acceptance of TPSI's and its competitors' products. Product development and
marketing costs are often incurred in periods before any revenues are recognized
from the sales of products. Operating expenses are higher during periods in
which such product development costs are incurred and marketing efforts are
commenced. In addition, the irregular receipt of significant contracts could
add to quarter to quarter variation in operating results. Due to these and
other factors, including the general economy, stock market conditions and
announcements by TPSI or its competitors, the market price of the securities
offered hereby may be highly volatile.
11. Control by Founder. After completion of the Merger, TPSI's founder
will hold approximately 53% of the MacGregor's outstanding common stock. As
such, Mr. Olson will be able to exercise control over the business policies and
affairs of IntraNet.
12. Effects of Delisting from Nasdaq SmallCap Market; Lack of Liquidity of
Low Priced Stocks. If MacGregor fails to maintain the qualification for its
common stock to trade on the Nasdaq SmallCap Market, its securities would be
delisted from the Nasdaq SmallCap Market. Factors giving rise to such delisting
could include, but not be limited to, a reduction of MacGregor's assets to
below $1,000,000, stockholder's equity being reduced to below $2,000,000, a
minimum bid price being less than $1.00 per share, a reduction to one active
market maker or a reduction in the value of the MacGregor's publicly held
securities to less than $250,000. In such event, trading, if any, in the
common stock would thereafter be conducted in the over-the-counter markets in
the so-called "pink sheets" or the National
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Association of Securities Dealer's "Electronic Bulletin Board." Consequently,
the liquidity of the MacGregor's common stock would likely be impaired, not only
in the number of shares which could be bought and sold, but also through delays
in the timing of the transactions, reduction in security analysts' and the news
media's coverage if any, of MacGregor, and lower prices for MacGregor's
securities than might otherwise prevail. If MacGregor's common stock were to be
delisted from the Nasdaq SmallCap Market, it would become subject to Rule 15g-9
under the Securities Exchange Act of 1934, as amended, (the "Penny Stock
Rules"), which imposes additional sales practice requirements on broker-dealers
which sell such common stock to persons other than established customers and
certain institutional investors. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchasers
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, the Penny Stock Rules may adversely affect the ability of
broker-dealers to sell MacGregor's common stock and may adversely affect the
ability of IntraNet's shareholders to sell any of the shares of MacGregor Common
Stock in the secondary market.
13. Demand and Piggy-Back Registration Rights. In addition to the
registration rights applicable to MacGregor's currently outstanding Common
Stock, certain shareholders and warrant holders of TPSI, including, without
limitation, Robert F. Olson and TPSI's 1995 bridge loan financing investors,
will have the right following the merger, subject to certain conditions, to
participate in and demand registrations and to cause MacGregor to register
certain shares of Common Stock owned by them. MacGregor estimates that such
registration rights would encompass approximately 18 million shares of its
Common Stock on a post-merger basis. Pursuant to these registration rights, if
MacGregor proposes to register any of its Common Stock, other than in certain
specified instances, on its own behalf or on account of others, such holders
are entitled to notice of such registration and must be given the opportunity
to participate. In certain circumstances, the holders also have the right to
demand that MacGregor file a registration statement covering such shares.
These demand and piggyback registration rights are subject to certain customary
terms and limitations.
14. Need for Additional Financing. TPSI anticipates that the cash it will
obtain through the Merger will be adequate to satisfy its short-term operating
and capital requirements, assuming that TPSI performs substantially in
accordance with its current business plan, of which there can be no
assurance. Changes in TPSI's business or business plan could affect TPSI's
capital requirements. TPSI's future capital requirements will depend on many
factors, including, but not limited to, potential acquisitions, the cost of
manufacturing and marketing activities, its ability to successfully market its
products, managing its growth, the size of its research and development
programs, the length of time required to collect accounts receivable and
competing technological and market developments. TPSI currently has no
probable or pending acquisitions. TPSI could also be adversely affected if its
current credit facilities are terminated or the terms thereof are substantially
changed. There can be no assurance that TPSI will perform in accordance with
its business plan. There can be no assurance that TPSI will be able to raise
any additional funds required to conduct its operations, that any such funds
will be available on terms acceptable to TPSI or at all, or that existing
shareholders would not suffer substantial dilution as a result of subsequent
financings. If TPSI needs and is unable to raise additional working capital
before it generates positive cash flow from operations, it could be required to
curtail its operations.
The complete mailing address and telephone number for each of MacGregor
and TPSI are as follows:
<TABLE>
<S> <C>
MacGregor Sports & Fitness, Inc. IntraNet Integration Group, Inc.
8100 White Horse Road 9625 W. 76th Street
Greenville, South Carolina 29611 Suite 150
</TABLE>
37
<PAGE> 52
(864) 294-5230 Eden Prairie, Minnesota 55344
(612) 903-2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
MACGREGOR.
YEAR ENDED JULY 31, 1994 COMPARED TO YEAR ENDED JULY
31, 1995
Due to the distributorship agreement with Roadmaster and TPSI's future
plans, it is anticipated that the reported financial information indicated
herein will not be indicative of future operating results.
The independent auditor's report on the MacGregor's financial statements
for the year ended July 31, 1995, included a "going concern" explanatory
paragraph, which means that the auditors have expressed substantial doubt about
the MacGregor's ability to continue as a going concern. Management's plans in
regard to the factors which prompted the explanatory paragraph are discussed in
Note 2 to the MacGregor's July 31, 1995 financial statements.
Revenues were significantly less in fiscal year ended July 31, 1995
compared with July 31, 1994 as management reacted to the changing institutional
sporting goods market. As more and more sporting goods manufacturers and
distributors sell direct to the institutional accounts, those accounts no
longer require sporting goods dealers such as CTS. In December 1993, CTS
eliminated its team division sales organization and novated a government
contract. During the fourth quarter of the current fiscal year, management took
actions to curtail its retail operations.
RESULTS OF OPERATIONS. MacGregor's sales were $518,971 and $2,237,601 for
the fiscal years ended July 31, 1995 and 1994, respectively which were mostly
derived from CTS. The decline in revenues was attributable to the December 1993
decision to eliminate its unprofitable team sales division and the novation of
a government contract. The revenues in fiscal year July 31, 1994 attributed to
such activities were $1,022,148 and $212,791, respectively.
Gross profits were $572,500 and $365,403 or 14.0% and 16.3% of sales for
the fiscal years ended July 31, 1995 and 1994, respectively.
Royalty income decreased to $246,664 from $447,332 in year ended July 31,
1995 compared with July 31, 1994. During 1994, MacGregor received non-recurring
royalties of approximately $282,000 (see Note 11 to the financial statements).
In 1994, MacGregor earned royalties under its distribution agreement with
Roadmaster of $165,000 which increased by approximately $82,000 to $247,000 in
1995.
General and administrative expenses decreased to $517,246 in the year
ended July 31, 1995 from $1,758,205 in 1994. The decrease is directly
attributable to MacGregor's curtailment of CTS activities during 1994 and
continuing into 1995. During the year ended July 31, 1995, as further
discussed under Liquidity and Capital Resources, MacGregor wrote down its
trademark and license agreement by $500,000. Also, during the fiscal year ended
July 31, 1994 charges of $281,710 were incurred for the write-off of goodwill,
and $148,689 for the write-down of trademarks.
38
<PAGE> 53
MacGregor experienced net losses of $1,145,000 and $1,855,267 for the
fiscal years ended July 31, 1995 and 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES. At July 31, 1995, MacGregor's current
liabilities exceeded its current assets by approximately $2,167,000. As
discussed in Note 1 to the financial statements, MacGregor has entered into a
distribution agreement with Roadmaster. Under the terms of the distribution
agreement, MacGregor will receive royalties from Roadmaster Corporation,
including certain cumulative minimum royalties throughout the term of the
agreement. Through July 31, 1995, Roadmaster has paid 1994 and 1995 minimum
royalties totaling approximately $412,000 and has advanced approximately
$64,000 against future royalties. $300,000 of the proceeds were used to
terminate MacGregor's license with MacGregor Golf Company in exchange for its
releasing MacGregor from future minimum royalties of $395,000 and $520,000 for
the twelve months ended February 1995 and 1996, respectively. Additionally,
proceeds were used to pay quarterly minimum license payments to Equilink under
its license agreement and certain trade liabilities of MacGregor. In
connection with the Roadmaster distribution agreement, MacGregor has
established and implemented a program whereby the selling, general and
administrative expenses related to the former distribution operations of MSP
have been substantially eliminated.
In August through October 1995, MacGregor sold 308,000 shares of its
stock at an average price of $.59 for proceeds of $181,000, pursuant to prior
agreements as follows: Ralph Grills Family Ltd. Partnership, Wayne R. Mills,
and Bruce Reichert. The average price reflects a modest discount from the then
prevailing market price in light of the restricted nature of the shares.
MacGregor also received $50,000 from a shareholder in exchange for a 10% note.
The total proceeds of $231,000 were used to pay certain liabilities of
MacGregor, as well as MacGregor's obligation under its license from Equilink.
In February 1994, MacGregor issued 344,000 shares of Common Stock to BB&T
Bank of Greenville, CTS' lender ("BB&T") to collateralize $175,000 of BB&T's
then outstanding $400,000 line of credit to CTS. In October 1995, BB&T required
MacGregor to cause the shares to be purchased by Equitex's designee at a price
of $.50 per share. The proceeds of $172,000 reduced the BB&T indebtedness. In
October 1995, MacGregor agreed to issue 228,677 shares of its Common Stock to
CTS, as a capital contribution, and CTS pledged these shares to the bank as
collateral for its remaining indebtedness.
A prepayment of the minimum royalty payments due from Roadmaster for the
remainder of calendar year 1995 in the amount of $116,420 was received in
fiscal 1995 to enable MacGregor to pay certain current obligations.
MacGregor's business and operations have not been materially affected by
inflation.
NINE MONTHS ENDED APRIL 30, 1995 COMPARED TO NINE MONTHS ENDED APRIL 30, 1996
RESULTS OF OPERATIONS. There were no sales revenue for the three and nine
months ended April 30, 1996. Revenues from CTS retail operations for the three
and nine months ended April 30, 1995 were $129,931 and $450,450, respectively.
39
<PAGE> 54
Royalty income decreased by $76,665 and $34,998 for the three and nine
months ending April 30, 1996 compared with April 30, 1995 as MacGregor did not
record the minimum royalty under the Roadmaster agreement in the current
quarter. MacGregor did not record the royalties because the Hutch transaction
was considered by the parties and has been accounted for, as completed as of the
date the Hutch agreement was signed, January 31, 1996, and therefore no further
royalties would accrue after that date.
Operating expenses for three months ended April 30, 1996 and 1995 were
$1,459,109 and $194,236 respectively. Operating expenses for the nine months
ended April 30, 1996 were $3,164,998 compared with $575,311 for the nine months
ended April 30, 1995. The main reason for the increase in the comparable
quarters ended April 30 was that in 1996 MacGregor issued 595,200 warrants to
acquire shares of the Company's common stock. The exercise prices of such
warrants were $695,000 in the aggregate, which was approximately $1,090,400
below the trading price of the Company's common stock. The Company recognized
this amount as an expense of financial consulting and other services provided
the Company in connection with the Merger as further described in Note 3 to its
financial statements for the period. The increase is also attributable to the
facts that MacGregor accrued the remainder of office rent ($134,159) due for
its lease through March 31, 1998; and incurred additional accounting and legal
services of approximately $98,000.
For the nine month period, in addition to the above, MacGregor also
realized operating services provided by an affiliate of approximately $256,000,
and as further described below in Liquidity and Capital Resources, wrote down
its trademark and license agreement by $1,200,000.
Net loss for the quarter ended April 30, 1996 was $1,468,421 compared with
a net loss of $130,205 for the quarter ended April 30, 1995. Net loss for the
nine months ended April 30, 1996 was $2,953,874 compared with a net loss of
$368,516 for the nine months ended April 30, 1995. The main reasons for the
increase in the losses were the write-down of the trademark costs of $1,200,000
and the costs recorded to conclude the sale of the MacGregor Rights. This was
partially offset by gains realized on certain extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES. At April 30, 1996, MacGregor had current
assets of $81,336 with no current liabilities. As discussed in Note 5 to the
financial statements, MacGregor has entered into a distribution agreement with
Roadmaster. However, the level of cash flow from the royalties under the
distribution agreement does not provide assurance on an ongoing basis that
MacGregor will have sufficient cash flow to pay for its operating and other
expenses. Additionally, it does not provide a capital base for MacGregor to
engage in other business opportunities. Under the terms of the definitive
agreement for MacGregor to sell its MacGregor Rights, as further discussed in
Note 4 to the financial statements, MacGregor will receive $1,000,000 in cash
at closing and a $1,910,000 note, payable in twelve equal installments. This
transaction will enable MacGregor to meet the one of the conditions necessary
to effect the Merger as described in Note 3 to the financial statements. As a
result of the agreement to sell the MacGregor Rights, MacGregor has reduced the
carrying amount of its intangible assets by $1,200,000.
From August, 1995 through April, 1996, MacGregor sold 1,200,667 shares of
its stock at prices from $.50 to $1.25 for proceeds of $992,800 and received
$164,000 from a shareholder in exchange for a 10% note. The total proceeds of
$1,156,800 were used to repay the $164,000 shareholder note, pay off its
indebtedness to BB&T Bank of $402,786, and certain liabilities of MacGregor, as
well as to fulfill MacGregor's obligation under its license from Equilink.
In February, 1994, MacGregor issued 344,000 shares of Common Stock to BB&T
to collateralize $175,000 of the $400,000 line of credit to CTS. In October,
1995, BB&T required MacGregor to cause the shares to be purchased by Equitex's
designee at a price of $.50 per share. The
40
<PAGE> 55
proceeds of $172,000 reduced the BB&T indebtedness. In October, 1995,
MacGregor agreed to issue 228,667 shares of its Common Stock to CTS, and CTS
pledged these shares to the bank as collateral for its remaining indebtedness
of approximately $225,000. In February, 1996, BB&T required MacGregor to cause
the shares to be purchased by Equitex's designee. Of the total proceeds of
$274,800, $230,786 inclusive of interest accrued was used to pay off in full
the remaining indebtedness to BB&T.
As disclosed in MacGregor's statement of cash flow for the nine months
ended April 30, 1996, the Class A preferred stock, the Class C preferred stock
and certain other liabilities were converted to MacGregor's Common Stock.
TPSI.
YEAR ENDED MARCH 31, 1995 COMPARED TO THE YEAR ENDED MARCH
31, 1996
REVENUES. Total revenues increased to $14.2 million in 1996 from $10.4
million in 1995, or $3.8 million (36.3%). This increase related primarily to
increases in hardware integration of $3.2 million ($5.0 million in 1995
compared to 8.2 million in 1996) and on-demand printing services $800,000
($700,000 in 1995 and $1.5 million in 1996). TPSI's on-demand printing
subsidiary formed in August of 1994, IDG, operated for only eight months of the
comparable 1995 period. TPSI's software, technical and support revenues
declined slightly $200,000 ($4.7 million in 1995 compared to $4.5 million in
1996) primarily due to a focus on development of proprietary software products.
COST OF REVENUES. Cost of hardware integration revenues were $4.4 million
in 1995 and $6.8 million in 1996. Cost of hardware integration revenues as a
percent of hardware integration revenues was 86.7% in 1995 compared to 82.9% in
1996. Higher margins on hardware integration revenues were achieved
primarily through taking advantage of larger vendor discounts and other
volume incentives.
Cost of software, technical services, and support revenues were $2.9
million in 1995 and $2.8 million in 1996. Cost software, technical services,
and support revenues as a percent of software, technical services, and support
revenue was 60.8% in 1995 compared to 61.9% in 1996. Lower margins on
software, technical services and support were primarily due to competitive
pricing on non-custom software products and lower technical service billings.
Cost of on-demand printing services revenue were $400,000 in 1995 compared
to $1.1 million in 1996. Cost of on-demand printing services revenues as a
percent of on-demand printing services revenue were 53.6% in 1995 compared to
73.4% in 1996. Lower margins on on-demand printing services were primarily due
to large fixed costs associated with a second high speed laser printing
device added in January, 1995.
OPERATING EXPENSES.
SALES AND MARKETING. Sales and marketing expenses were $1.2 million in
1995 compared to $1.8 in 1996. Sales and Marketing expenses as a percent of
total revenues were 11.9% in 1995 compared to 12.8% in 1996. Sales and
marketing expenses increased as a percent of revenues primarily due to
increases in staffing and marketing programs.
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<PAGE> 56
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $300,000, from $900,000 in 1995 compared to $1.2 million in 1996. General
and administrative expenses as a percent of total revenue were 8.8% in 1995
compared to 8.3% in 1996. Increases in general and administrative expenses
were primarily attributable to growth in the business infrastructure including
an overall 46% increase in staffing.
RESEARCH AND DEVELOPMENT. Research and development expenses were $500,000
in 1995 compared to $300,000 in 1996. Research and development expenses as a
percent of total revenue were 3.3% in 1995 and 3.5% in 1996. Total research
and development expenses increased $200,000 in 1996 compared to 1995 due to a
focus on development of proprietary software products.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$100,000 in 1995 compared to $159,000 in 1996. Depreciation and amortization
expense increased by $59,000 in 1996 compared to 1995 primarily due to the
acquisition of office and computer equipment.
INTEREST EXPENSE. Interest expense was $100,000 in 1995 compared to
$200,000 in 1996. Interest increased by $100,000 in 1996 compared to 1995
primarily due to increased borrowings on TPSI's working capital
revolving line of credit.
LIQUIDITY AND CAPITAL RESOURCES. Since its inception, TPSI has
funded its operations primarily through revolving working capital and term
loans through banking institutions and capital equipment leases. In December
1995, TPSI issued $550,000 of unsecured convertible notes to a limited
number of accredited investors. The unsecured notes accrue interest rate of
10%, are due on August 30, 1996, and are convertible into TPSI common stock
at $1.50 per share.
As of March 31, 1996 TPSI had cash and cash equivalents of $37,513.
Net cash used in operating activities for the year ended March 31,1995 was
$35,000 compared to net cash used in operations for the year ended March 31,
1996 of $300,000. Capital expenditures for the years ended March 31, 1995 and
1996, including equipment financed with capital lease obligations, were $1.1
million and $500,000 respectively. Capital expenditures for the year ended
March 31, 1995 were primarily production equipment related to the start up of
the on-demand printing operations and general office and computer equipment.
In July 1995, TPSI repurchased 50% of the outstanding common stock of
TPSI for $200,000. TPSI paid $150,000 at the close of this
transaction and is obligated to pay an additional $10,000 per year for five
years. In addition, TPSI entered into a non-compete arrangement with
this former stockholder for $200,000 in consideration. TPSI also
acquired certain assets of a printing business in Denver, Colorado in December
1995 for $200,000. TPSI allocated the purchase price $75,000 to
inventory and equipment, $40,000 to a non-compete agreement and $85,000 to
goodwill.
TPSI's revolving working capital line of credit allows for
borrowings of up to $1.5 million based on available collateral at the bank's
base lending rate plus 2.5%. At March 31, 1996, TPSI had advances of
$1.1 million, which are due on demand. At March 31, 1996, TPSI also had
a term loan outstanding in the amount of $208,337. The term loan requires
monthly principal payments of $8,333 plus interest at the bank's base lending
rate plus 2.5%. At March 31, 1996 TPSI also had a demand note payable
to its majority stockholder in the amount of $27,500 which accrues interest
at a rate of 12%.
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<PAGE> 57
services production equipment with capital lease obligations. These leases
require total monthly payments of $19,556 and carry interest rates between
14.6% and 16.6%.
TPSI also has had a long-term consulting agreement with a former
stockholder that requires monthly payments of $10,300 through July 2000.
TPSI believes that the approximately $3.0 million in gross proceeds
to be derived from the anticipated reverse merger with MacGregor Sports and
Fitness, Inc., along with its existing line of credit, will meet its immediate
anticipated needs for working capital and capital expenditures through
TPSI's third quarter ending December 31, 1996. TPSI however plans to
expand its IDG distribution concept to regional centers throughout the United
States over the next three years. TPSI also plans to evaluate several
potential acquisitions, primarily in complimentary software development areas,
which it believes is necessary to expand its presence in the document
management marketplace. Future financings, if needed to pursue such objectives,
may result in dilution to holders of Common Stock. It is anticipated that
funds required for future acquisitions and expansion will be provided from
operating cash flow, the proceeds expected from future financings and proceeds
from future borrowings. However, there can be no assurance that suitable
acquisition candidates will be identified by TPSI in the future, that
suitable financing for any such acquisitions or expansion can be obtained by
TPSI or that any such acquisition or expansion will occur.
Current Directors and Executive Officers of MacGregor.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
NAME AGE POSITION WITH MACGREGOR EMPLOYMENT
<S> <C> <C> <C>
Henry Fong 59 Chairman of the Board, President, Chief
Director Executive Officer, and
Director of Roadmaster
Industries
Michael S. Casazza 46 President, Chief Executive President and Chief
Officer and Director Executive Officer,
California Pro Sports,
Inc.
Robert C. Engelstad 63 Director Chief Executive Officer
of Pet Food Warehouse,
Inc.
David C. Johnston 62 Director Retired tax partner,
Arthur Andersen & Co.
Barry S. Hollander 38 Chief Financial Officer Treasurer and Chief
Financial Officer,
California Pro Sports,
Inc.
</TABLE>
43
<PAGE> 58
Current Directors and Executive Officers of TPSI.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
NAME AGE POSITION WITH TPSI EMPLOYMENT
<S> <C> <C> <C>
Robert F. Olson 40 Chairman, President, Chairman, President,
Chief Executive Officer Chief Executive Officer
and Director and Director of TPSI
Chief Financial Officer,
Chief Financial Officer, Secretary and Director of
Jeffrey J. Sjobeck 36 Secretary and Director TPSI
</TABLE>
Proposed Directors and Executive Officers of IntraNet Following the
Merger.
<TABLE>
<CAPTION>
POSITION WITH
NAME AGE INTRANET PRINCIPAL OCCUPATION OR EMPLOYMENT
<S> <C> <C> <C>
Henry Fong 59 Chairman of the President, Chief Executive Officer
Board, Director and Director of Roadmaster
Industries
Robert F. Olson 40 President, Chief President, Chief Executive
Executive Officer Officer, Chairman of the Board and
and Director Director of TPSI
Jeffrey J. Sjobeck 36 Chief Financial Chief Financial Officer, Secretary
Officer, Secretary and Director of TPSI
and Director
Ronald E.
Eibensteiner 45 Director President of Wyncrest Capital, Inc.
Private Investor and Business
David D. Koentopf 52 Director Consultant
</TABLE>
44
<PAGE> 59
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 1, 1996, the ownership of
MacGregor's Common Stock by each person or entity known by MacGregor to be the
beneficial owner of more than five percent (5%) of MacGregor's issued and
outstanding Common Stock and by each Executive Officer and Director of
MacGregor and TPSI and by all Executive Officers and Directors of MacGregor as
a group:
<TABLE>
<CAPTION>
BEFORE THE MERGER FOLLOWING THE MERGER
---------------------------- ----------------------------
Name and Address Number of Shares Percentage Number of Shares Percentage
- --------------------------- ---------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Henry Fong(1)(2)
7315 E. Peakview Avenue
Englewood, CO 80111 3,158,717 26.43% 3,158,717 10.44%
Equitex, Inc. (1)(3)
7315 E. Peakview Avenue
Englewood, CO 80111 2,544,046 21.74% 2,544,046 8.46%
Michael S. Casazza
139 Sun Meadow Road
Greer, SC 29650 0 0% 0 0%
Barry S. Hollander
109 Brook Bend Court
Mauldin, SC 29662 0 0% 0 0%
Robert C. Engelstad
265 Lindawood Lane
Wayzata, MN 55391 200,000 1.71% 200,000 .67%
David C. Johnston
787 Northpoint Drive
Salt Lake City, UT 84102 250,000 2.14% 250,000 .83%
California Pro Sports, Inc.
8102 White Horse Road
Greenville, SC 29611 223,861 1.91% 223,861 .75%
Roadmaster Corporation
Radio Tower Rd. at East St.
Olney, IL 62450 140,610 1.20% 140,610 .47%
Robert F. Olson (7)
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 (4)
Suite 266, IDS Center
80 South 8th Street
Minneapolis, MN 55402 0 0 739,029 2.46%
John R. Coleman (5)
1840 Crosby Road
Wayzata, MN 55391 0 0 165,241 .55%
Jeffrey J. Sjobeck (6)
1175 Benton Way
Arden Hills, MN 55112 0 0 43,273 .14%
All Officers and Directors
as a group (5 and 6
persons respectively) (1) 3,608,717 30.20% 20,622,451 66.76%
</TABLE>
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<PAGE> 60
(1) Mr. Fong, who owns no shares in his own name, may be, through his control
of certain entities, as described below, deemed to be a beneficial owner
of shares held by such entities. The shares of such entities are,
therefore, duplicated in the table above, and include 250,200 shares of
Common Stock subject to warrants exercisable within 60 days.
(2) Henry Fong is President and a Director of Equitex, Inc., and President
and Chairman of Roadmaster Industries, Inc. and Chairman of California Pro
Sports, Inc. The MacGregor shares held by such entities may be deemed to
be beneficially owned by Mr. Fong. California Pro Sports, Inc. owns
223,861 Common Shares, Equitex, Inc. owns 2,544,046 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) 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.
(5) Includes 115,756 shares of common stock and 49,485 shares of common stock
subject to currently exercisable warrants.
(6) Includes 43,273 shares of common stock subject to currently exercisable
options.
(7) Includes 500,000 shares of common stock subject to warrants exercisable
within 60 days.
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<PAGE> 61
PROPOSAL NUMBER III:
AMENDMENT AND RESTATEMENT OF MACGREGOR'S ARTICLES OF INCORPORATION
IN THEIR ENTIRETY
GENERAL
Subject to approval of the Merger by MacGregor's shareholders, MacGregor's
Board of Directors has approved three amendments to MacGregor's Articles of
Incorporation and directed that such amendments be submitted to the holders of
MacGregor Common Stock for their approval. The proposed amendments are as
follows: (1) to amend MacGregor's Articles of Incorporation to change
MacGregor's name from "MacGregor Sports & Fitness, Inc." to "IntraNet
Solutions, Inc.", (2) to amend MacGregor's Articles of Incorporation by
revoking MacGregor's right to issue any class of capital stock other than
Common Stock, and (3) to amend MacGregor's Articles of Incorporation to change
the par value of MacGregor Common Stock from $0.02 per share to $0.01 per
share.
In the event the amendments are approved, MacGregor will file Amended and
Restated Articles of Incorporation with the Minnesota Secretary of State which
Amended and Restated Articles of Incorporation will reflect the amendments for
which approval is hereby sought as well as all previous amendments to
MacGregor's Articles of Incorporation. Approval of the amendments is sought in
a single vote and holders of MacGregor Common Stock will not be given an
opportunity to vote on the amendments separately. As such, all of the proposed
amendments must be approved or disapproved as a whole. If the amendments are
not approved, MacGregor will not file the attached Amended and Restated
Articles of Incorporation.
MANAGEMENT RECOMMENDATION AND RATIONALE FOR THE AMENDMENTS
The Board of Directors of MacGregor believes that the proposed amendments
to MacGregor's Articles of Incorporation are in the best interests of MacGregor
and its shareholders and are necessary to facilitate the transactions
contemplated by the Merger Agreement.
In reaching its conclusion to recommend amendment of the Articles of
Incorporation, the Board considered the following factors, among others:
1. With respect to proposed amendment number 1, the
Board believes the change of parent's name from "MacGregor
Sports & Fitness, Inc." to "Intranet Solutions, Inc." will
better reflect the composition and focus of MacGregor and its
subsidiaries subsequent to the Merger;
2. With respect to proposed amendment number 2, the
Board believes that MacGregor will benefit by having a
simplified capital structure and that limiting its authorized
classes of capital stock to one class of Common Stock will
eliminate any potential series of preferred stock as currently
authorized, allow MacGregor to operate more efficiently and
provide better return to MacGregor's shareholders; and
3. With respect to proposed amendment number 3, the
Board believes that changing the par value of MacGregor Common
Stock from $0.02 per share to $0.01 per
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<PAGE> 62
share will result in a simplified capital structure and
reduce administrative and other fees required in
connection with qualifying MacGregor as a foreign corporation
in various jurisdictions.
Pursuant to MacGregor's Articles of Incorporation prior to the Amendment
thereof, MacGregor's Board of Directors is authorized to fix the rights,
preferences, privileges and restrictions, including voting rights, of unissued
shares of MacGregor's preferred stock and to issue such stock without any
further vote or action by MacGregor's shareholders. The ability of MacGregor's
Board of Directors could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of MacGregor. MacGregor's Board of Directors does not believe
the anti-take over attributes of the preferred stock are valuable at this time
and may, in fact, limit the price that certain investors are willing to pay in
the future for shares of MacGregor Common Stock.
AFTER CONSIDERING THE FACTORS DISCUSSED ABOVE, MACGREGOR'S BOARD OF
DIRECTORS HAS DETERMINED TO APPROVE THE AMENDMENTS AND UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE SAME.
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<PAGE> 63
PROPOSAL NUMBER IV:
ELECTION OF A NEWLY CONSTITUTED BOARD OF DIRECTORS
OF MACGREGOR CONSISTING OF FIVE (5) MEMBERS
The Merger Agreement provides for the election of five (5) new MacGregor
directors: Robert F. Olson, Henry Fong, Jeffrey J. Sjobeck, Ronald E.
Eibensteiner and David D. Koentopf. Such election by the shareholders of
MacGregor is a condition to the consummation of the Merger. In the event the
Merger Agreement is not approved by the shareholders of MacGregor, the members
of MacGregor's current Board of Directors will continue to serve until their
successors are duly elected and qualified. In the event MacGregor's
shareholders do not elect all nominees, the Merger cannot become effective
absent a waiver of the condition to closing requiring the election of all
nominees.
The nominees for election (or re-election), and their current affiliations
with MacGregor or TPSI are set forth below. All such nominees have consented
to serve as directors and to assume office at the Effective Time of the Merger.
ROBERT F. OLSON. Mr. Olson, age 40, has served as TPSI's Founder,
President, Chief Executive Officer and Chairman of the Board of Directors since
its inception in April 1990. From 1987 to 1990, Mr. Olson served as the
General Manager of the Greatway Communications Division of Anderberg-Lund
Printing Company, an electronic publishing sales and services organization.
From 1981 to 1987, Mr. Olson was involved in several electronic publishing
service and resale start-up organizations in general management and marketing
capacities. From 1979 to 1981, Mr. Olson served as Large Account Sales
Representative of Burroughs Corporation.
HENRY FONG. Mr. Fong, age 59, a founder and promoter of the entity that
merged with and into MacGregor on December 30, 1991, served as its Chairman of
the Board of Directors and Treasurer from February, 1991, until the merger, at
which time he was elected Chairman of the Board and Secretary of MacGregor.
From July 1989 until September 1990, he served as a Director of MacGregor
Sports, Inc., the wholly-owned operating subsidiary of MacGregor Sporting Goods
Corporation, which on February 15, 1991, filed for protection under Chapter 11
of the United States Bankruptcy Code. Mr. Fong has been the President, a
Director and controlling shareholder of Equitex, Inc., a Denver-based business
development company, since January 1983. He has been the President, Chief
Executive Officer and a Director of Roadmaster Industries, Inc., since 1987.
Equitex and Roadmaster are subject to SEC reporting requirements.
JEFFREY J. SJOBECK. Mr. Sjobeck, age 36, has served as Director of TPSI
since June 1995 and Chief Financial Officer of TPSI since December 1994. From
June 1993 to November 1994, Mr. Sjobeck served as Chief Financial Officer of
Innovative Gaming Corporation of America. From June 1990 to May 1993, Mr.
Sjobeck served as Controller and Chief Financial Officer of James Phillips
Company. From October 1984 to May 1990, Mr. Sjobeck was employed in the Audit
and Accounting division of Coopers & Lybrand LLP. From August 1982 to
September 1984, Mr. Sjobeck was an accountant for Larson, Allen & Weishair &
Co.
RONALD E. EIBENSTEINER. Since 1983, Mr. Eibensteiner, age 45, has been
involved in the formation of several technology companies and, as president of
Wyncrest Capital, Inc., has been a seed investor in numerous development stage
companies. Mr. Eibensteiner is a co-founder and a director of Diametrics
Medical, Inc., a manufacturer of blood gas systems; IVI Publishing, Inc., an
electronic publisher of health and medical titles in interactive multimedia
formats; Reality Interactive, an electronic
49
<PAGE> 64
publisher of Quality information for Fortune 5000 companies; and
was Chairman of Prodea Software Corporation, a data warehousing software
company, until its sale to Platinum Technology, Inc. in January, 1996.
Mr. Eibensteiner is also currently Chairman of Rezound Media, Inc. and a
Director of Bank Windsor. He also co-founded Arden Medical Systems, Inc. in
1983 and served as its Chief Financial Officer until its sale to Johnson &
Johnson in 1987.
DAVID D. KOENTOPF. Since 1993, Mr. Koentopf, age 52, has been a private
investor and business consultant to several companies primarily in industrial
and health care related industries. Mr. Koentopf is currently Chairman of the
Board of Everest Medical Corporation, a manufacturer of electrosurgical
instruments and related medical devices. Mr. Koentopf serves as a director of
Arden Industrial Products, Inc., a national distributor of fasteners to the
industrial market, and LifeRate Systems, Inc., a developer of software
operating systems for the health care industry. From 1985 to 1992, Mr.
Koentopf served as President and Chief Operating Officer of Lifetouch, Inc.,
the largest school photography business in the United States. From 1975 to
1985, Mr. Koentopf served in a number of executive positions for Steiger
Tractor, Inc., including President and Chief Executive Officer from 1979 to
1985.
MacGregor does not have standing audit, nominating or compensation
committees of the Board of Directors. In fiscal year 1995, the Board of
Directors had one special meeting, which was attended telephonically by all of
the directors.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------------------------
Annual Compensation Awards Payouts
--------------------------------- -------------------- -------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Name and Annual Restricted Other
Principal Compensa- Stock Options/ LTIP Compen-
Position Year Salary $ Bonus $ tion $ Award(s) $ SARs (#) Payouts $ sation ($)
- -------- ---- -------- ------- ------ ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael S. Casazza,
CEO 1995 None
1994 48,000
1993 134,000
==== =======
</TABLE>
CERTAIN TRANSACTIONS
As set forth in the foregoing table entitled Security Ownership Of Certain
Beneficial Owners And Management, and in the Section of this Proxy Statement
titled "Proposal Number I - The Sale of Substantially all of the MacGregor's
Assets To Hutch -- Related Parties", transactions between MacGregor and Mr.
Henry Fong are considered to be related party transactions. During the past
two years, MacGregor has engaged, or in the course of the transactions
contemplated by the Plan and Agreement of Merger will engage, in various
transactions as follows:
In April of 1995, Equitex, Inc. converted $1,000,000 of the indebtedness
owed to it by MacGregor into Class C Preferred Stock, and MacGregor agreed to
pay the remaining outstanding balance of principal and interest in the amount
of $805,254 subsequent to July 31, 1995. In contemplation of the Merger, and
in order to fulfill the conditions to the Merger that all preferred shares
be converted to
50
<PAGE> 65
MacGregor Common Stock, and that all outstanding indebtedness of MacGregor be
eliminated, Equitex agreed, as of January 31, 1996, to convert the Class C
preferred shares into 1,000,000 MacGregor Common Stock, and did so in May of
1996. In addition, to satisfy the remaining balance of its indebtedness to
Equitex (which has been outstanding since 1991, pursuant to various agreements
between the parties), MacGregor agreed in October of 1995, when the amount of
the indebtedness was $824,021 to convert its indebtedness to shares of common
stock. On the conversion date of January 31, the amount of the indebtedness
(including accrued interest) was approximately $916,000. In conversion of that
amount, therefore, MacGregor issued an additional 653,775 shares of Common
Stock. The indebtedness was converted at the rate of $1.40 per share, which
Management believes approximates the fair market price of the newly issued
restricted MacGregor Common Stock at the time of the conversion based on the
price MacGregor was able to obtain from the sale of a large block of similarly
restricted stock to unrelated third parties. Those shares (which were similarly
restricted in that as unregistered shares they would not be freely tradeable
for two years) were sold at at price of $1.20 per share to the following
individuals in February of 1996: Wayne R. Mills, 83,000; Russell Casement,
22,500; George Arellano, 19,167; Joseph Hovorka, 15,000; Bertrand T. Ungar,
33,333; K. Keating, 50,833 and David Olson, 4,834.
In addition to the conversion of the Class C Shares into shares of
MacGregor Common Stock, Equitex engaged in the following transactions on the
following dates: On May 21, 1996 Equitex sold warrants for the purchase of
87,000 shares of MacGregor Common Stock with an expiration date of October 31,
1996 and an exercise price of $1.00, for a price of $3.50 per share. Between
the dates of May 15 and May 24, 1996 Equitex sold 347,000 shares of MacGregor
Common Stock at prices ranging from $3.33 to $5.125. All of the warrants and
shares of MacGregor Common Stock sold by Equitex in the referenced transactions
had previously been acquired by Equitex from time to time in the open market and
were sold in the open market. They thus were not subject to the agreement not
to sell referenced in the Section entitled "Conditions to the Merger;
Termination." Such sales yielded aggregate proceeds of $1,655,345.
In addition, MacGregor has agreed with Hutch Sports USA, Inc., a
wholly-owned subsidiary of Roadmaster, to undertake the transaction described
in the Section of this Proxy Statement titled "Proposal Number I - The Sale of
Substantially All Of MacGregor's Assets to Hutch."
Henry Fong is also Chairman of California Pro. Michael S. Casazza, the
President of MacGregor and Barry Hollander, Chief Financial Officer of
MacGregor, hold those same offices at California Pro. MacGregor has physically
occupied office space leased by California Pro, and has used office equipment,
employees and other facilities and services of California Pro in connection
with the MacGregor operations. In consideration of the provision of those
services, MacGregor incurred indebtedness of $313,000 to California Pro during
the quarter ended January 31, 1996. MacGregor similarly determined to convert
the amount of such indebtedness, as of January 31, 1996, to MacGregor Common
Stock at $1.40 per share, which Management believes approximates the fair
market price of newly issued restricted MacGregor Common Stock at the time of
the conversion based on the price MacGregor was able to obtain from the sale of
a larger block of similarly restricted stock to unrelated third parties.
On April 5, 1996 MacGregor issued 395,200 warrants for the purchase of
shares of MacGregor Common Stock, at an exercise price of $1.00 per share, of
which 250,000 were issued to Mr. Fong. $790,400, the difference between the
quoted market price of the common stock at the date of grant and the exercise
price of the warrants was recognized as compensation expense by MacGregor and
its statement of operations for the three months ended April 30, 1996.
51
<PAGE> 66
PROPOSAL NUMBER V:
ADOPTION OF INTRANET SOLUTIONS, INC. 1994-1997 STOCK OPTION PLAN
MacGregor (and IntraNet subsequent to the consummation of the Merger) has
determined to adopt, approve and set in place, as a condition to and
simultaneously with the effectiveness of the Merger, a 1994-1997 Stock Option
and Compensation Plan (the "Plan") for officers, directors (excluding outside
directors), employees and certain key consultants and advisors of MacGregor.
The purpose of the Plan is to enhance IntraNet shareholder value and to advance
the interests of IntraNet by furnishing a variety of economic incentives (the
"Incentives") designed to attract, retain and motivate those persons eligible
for Incentives under the Plan. Incentives under the Plan may consist of
opportunities to purchase or receive shares of IntraNet Common Stock, $.01 par
value per share, monetary payments or both. The Plan submitted to MacGregor
shareholders for approval is substantially equivalent to a plan previously
adopted and approved by the Board of Directors and shareholders of TPSI (the
"Existing Plan") MacGregor believes it is in the best interests of MacGregor,
and its shareholders, that MacGregor's shareholders adopt and approve the Plan
to continue to provide the Incentives already existing and granted under the
Existing Plan to certain TPSI employees, and certain other eligible
participants subsequent to the Merger. The foregoing is merely a summary of
the proposed Plan, and MacGregor shareholders are directed and encouraged to
review the complete and entire set of specific terms and conditions provided
for in such Plan as set forth in Exhibit H attached hereto and incorporated
herein by reference.
The Plan shall be administered by either a stock option committee of
disinterested persons of the Board of Directors of IntraNet (the "Committee"),
or by the entire IntraNet Board of Directors until such time as a Committee is
formed and established. The Committee, or the Board, as the case may be, will
have complete and final authority with respect to the interpretation and
administration of the Plan. MacGregor estimates that, immediately after the
Effective Date of the Merger approximately 70 persons, currently or soon to be
in its employ, or in key consulting relations with MacGregor (or with its
subsidiaries or affiliates), will be eligible to participate in the Plan.
Eligibility for Incentives under the Plan will be determined by the Committee,
or the Board, as the case may be, with respect to both individuals and groups
based on a variety of criteria, including, but not limited to, pay grade, job
performance, job responsibility, length of service and various other factors
that the Committee, or the Board, may deem appropriate at the time of granting
any Incentives.
To date, MacGregor estimates that grants of Incentives to 60 persons
currently in the employ of TPSI, or otherwise eligible under the Existing Plan
have been made by TPSI in the form of non-statutory or non-qualified stock
options. MacGregor estimates that such non-statutory or non-qualified stock
options represent incentives and options to acquire 3,315,780 shares of TPSI
Common Stock that will, upon consummation of the Merger, be eligible to be
substituted for comparable IntraNet non-qualified stock options to acquire
approximately 5,756,194 shares of IntraNet Common Stock. Anticipated receipt
of benefits under the Plan by certain officers, directors and employees of
MacGregor and TPSI as of June 1, 1996 is set forth below:
52
<PAGE> 67
INTRANET SOLUTIONS, INC.
1994-1997 STOCK OPTION AND COMPENSATION PLAN
<TABLE>
<CAPTION>
Name and Position Dollar Value(1) Options Granted(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Michael S. Casazza, Chief Executive Officer -0- -0-
- ------------------------------------- --------------- -------------------
Barry S. Hollander, Chief Financial Officer -0- -0-
- ------------------------------------- --------------- -------------------
Henry Fong, Chairman of the Board -0- -0-
- ------------------------------------- --------------- -------------------
Executive Officer Group -0- -0-
- ------------------------------------- --------------- -------------------
Non-Executive Officer Director Group -0- -0-
- ------------------------------------- --------------- -------------------
Non-Executive Officer Employee Group -0- -0-
- ------------------------------------- --------------- -------------------
Henry Fong, Nominated Director -0- -0-
- ------------------------------------- --------------- -------------------
Robert F. Olson, Nominated Director -0- -0-
- ------------------------------------- --------------- -------------------
Jeffrey J. Sjobeck, Nominated Director $ 877,697 186,916/324,486
- ------------------------------------- --------------- -------------------
Ronald E. Eibensteiner, Nominated Director -0- -0-
- ------------------------------------- --------------- -------------------
David A. Koentopf, Nominated Director -0- -0-
- ------------------------------------- --------------- -------------------
OTHER PERSONS WHO RECEIVED, OR WILL
RECEIVE, 5% OF PLAN OPTIONS OR RIGHTS: - -
- ------------------------------------- --------------- -------------------
Vernon Hanzlik $ 3,908,494 809,968/1,406,104
- ------------------------------------- --------------- -------------------
John Huddock $ 3,221,418 518,552/1,073,806
- ------------------------------------- --------------- -------------------
All employees as a group, including
executive officers (58 persons) $11,335,741 2,592,228/4,500,108
=========================================== =============== ===================
</TABLE>
- ----------------
(1) Assumes an estimated fair market value of $3.00 per share for common
shares underlying non-qualified stock options granted to date.
(2) Sets forth both the number of options granted as of June 1, 1996 for
persons who have received, or will, receive at least 5% of Plan options
and the effect of the Merger on the number of such Options.
Incentives under the Plan may be granted in any one or more or any
combination of the following forms, as determined by the Committee, or the
Board, as the case may be: (a) incentive stock options; (b) non-statutory or
non-qualified stock options; (c) stock appreciation rights; (d) stock awards;
(e) restricted stock awards; (f) performance shares; and (g) cash awards
(collectively hereinafter the "Incentives"). Prices and expiration dates of,
and material conditions to, the granting of options under the Plan shall be
determined by the Committee, or the Board, based on its assessment of
employment, tax and other financial factors affecting IntraNet from time to
time. Incentives granted under the Plan shall
53
<PAGE> 68
generally not be transferable. Subject to certain adjustments set forth in
Section 11.6 of the Plan, the maximum number of shares of Common Stock that
may be issued under the Plan is 10,000,000.
As referenced above, the number of participants that have received grants
of non-qualified stock options and other Incentives since the adoption and
approval of the Existing Plan is approximately 60 persons. Participants in the
Existing Plan shall be entitled to have substituted for any stock options or
other Incentives held by them on the Effective Date of the Merger an equal
number and kind of Incentives under the Plan, subject to adjustment in
proportion to any changes in the number of outstanding shares of TPSI Common
Stock pursuant to the Merger, in accordance with Section 11.6 of the Plan. As
summarized above, and as set forth elsewhere in this Proxy Statement,
MacGregor estimates that the number of existing TPSI Incentives under the
Existing Plan will result in Plan equivalents granted subsequent to the Merger
of non-qualified stock options representing the right to acquire approximately
5,756,194 shares of IntraNet Common Stock.
Each existing and outstanding non-qualified stock option agreement
provides for the granting of options which do not qualify as "Incentive Stock
Options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Under the Plan, the IntraNet Board may grant
options in replacement of options surrendered as a result of the Merger.
Generally, an optionee may pay the exercise price to exercise a stock option in
the form of cash or the surrender of shares of Common Stock. Options granted
under the Plan shall be exercisable for up to a ten (10) year period from the
date of grant, or, in case the optionee ceases to be employed by IntraNet for
any reason, generally six (6) months after the date of such termination of
employment.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the federal income tax consequences to
participants who may receive awards under the Plan. This summary is based upon
the provisions of the Code in effect as of January 1, 1996, and regulations and
interpretations with respect to the applicable provisions of the Code as of
that date.
Non-Qualified Stock Options. A participant who is granted a non-qualified
stock option will not recognize income and IntraNet will not be allowed a
deduction at the time such option is granted. Except as discussed below under
"Participants Subject to Section 16 of the Act," when a participant exercises a
non-qualified stock option, the difference between the option price and any
higher market value of the stock on the date of exercise will be ordinary
income to the participant and will be allowed as a deduction for federal income
tax purposes to IntraNet or it subsidiary. The capital gain holding period of
the shares acquired will begin one day after the date such stock option or
stock appreciation right is exercised. When a participant disposes of shares
acquired by the exercise of the option, any amount received in excess of the
fair market value of the shares on the date of exercise will be treated as
short-term or long-term capital gain, depending upon the holding period of the
shares. If the amount received is less than the market value of the shares on
the date of exercise, the loss will be treated as short-term or long-term
capital loss, depending upon the holding period of the shares.
Incentive Stock Options. A participant who is granted an incentive stock
option also will not recognize income and IntraNet will not be allowed a
deduction at the time such an option is granted. When a participant exercises
an incentive stock option while employed by IntraNet or its subsidiary or
within the three-month (one year, in the case of disability) period after
termination of employment, no ordinary income will be recognized by the
participant at that time but the excess of the fair market value of the shares
acquired by such exercise over the option price will be an item of tax
preference for
54
<PAGE> 69
purposes of any federal alternative minimum tax applicable to
individuals. If the shares acquired upon exercise are not disposed of until
more than two years after the date of grant and one year after the date of
transfer of the shares to the participant (statutory holding periods), the
excess of the sale proceeds over the aggregate option price of such shares will
be long-term capital gain. Except in the event of death, if the shares are
disposed of prior to the expiration of the statutory holding periods (a
"Disqualifying Disposition"), the excess of the fair market value of such
shares at the time of exercise over the aggregate option price (but not more
than the gain on the disposition if the disposition is a transaction on which
a loss, if sustained, would be recognized) will be ordinary income at the time
of such Disqualifying Disposition (and IntraNet or its subsidiary will be
entitled to a federal tax deduction in a like amount).
Payment of Option Price in Shares. If a participant pays the exercise
price of a non-qualified or incentive stock option with currently-owned shares
of IntraNet's Common Stock and the transaction is not a Disqualifying
Disposition, the shares received equal to the number of shares surrendered are
treated as having been received in a tax-free exchange. The shares received in
excess of the number surrendered will not be taxable if an incentive stock
option is being exercised, but will be taxable as ordinary income to the extent
of their fair market value if a non-qualified option is being exercised. The
participant does not recognize income and IntraNet receives no deduction as a
result of the tax-free portion of the exchange transaction. If the use of
previously-acquired incentive stock option shares to pay the exercise price of
another incentive stock option constitutes a Disqualifying Disposition, the tax
results are as described under the heading "Incentive Stock Options."
Stock Appreciation Rights ("SARS"). A participant who receives stock
appreciation rights will not recognize income and IntraNet will not be allowed
a deduction at the time such stock appreciation rights are granted. Except as
discussed below under the heading "Participants Subject to Section 16 of the
Act," when a participant exercises stock appreciation rights, the amount of
cash and the fair market value of the shares of IntraNet Common Stock received
will be ordinary income to the participant and will be allowed as a deduction
for federal income tax purposes to IntraNet or its subsidiary.
Participants Subject to Section 16 of the Act. If a participant who is
subject to the insider trading rules of Section 16(b) of the Securities
Exchange Act of 1934 (the "Act") receives shares by reason of the exercise of a
non-qualified option or stock appreciation right, the participant will
recognize ordinary income equal to the excess of the fair market value of the
shares received over the amount paid for the shares, if any, on the first day
the sale of such shares at a profit is no longer subject to section 16(b) of
the Act, which may be the earlier of: (i) the date of exercise; or (ii) six
months less one day from the date of exercise of the option (the "Recognition
Date"), and IntraNet or its subsidiary will be entitled to a deduction of a
like amount for federal income tax purposes at that time. The income when
recognized will include any appreciation in the value of the stock prior to the
Recognition Date, and the capital gain holding period will not begin until the
Recognition Date. However, if the Recognition Date is not the date of
exercise, such a participant may elect to have the normal rules described with
respect to non-qualified stock option or stock appreciation rights apply by
filing a Section 83(b) election with the Internal Revenue Service within 30
days after the exercise of the non-qualified stock option or stock appreciation
right.
Restricted Stock Awards. A recipient of a restricted stock award will be
subject to tax at ordinary income rates on the fair market value of IntraNet's
Common Stock at the time the restricted shares are transferable or are no
longer subject to restrictions. However, a recipient who so elects under
Section 83(b) of the Code within 30 days of the date of the grant will have
ordinary taxable income on the date of the grant equal to the fair market value
of the shares as if such shares were unrestricted and could be sold
immediately. If the restricted shares subject to such election are forfeited,
the recipient will not be entitled to any deduction, refund or loss for tax
purposes with respect to the forfeited restricted shares.
55
<PAGE> 70
The holding period to determine whether the recipient has long-term or
short-term capital gain or loss upon sale of the restricted shares is
measured from the date the restriction period expired. However, if the
recipient timely elects to be taxed as of the date of the grant, the holding
period commences on the date of the grant and the tax basis will be equal to
the fair market value of the restricted shares on the date of the grant.
The Plan will become effective upon its adoption by shareholders holding a
majority of the outstanding shares of MacGregor Common Stock and the Plan shall
remain in effect until all Incentives granted under the Plan have either been
satisfied by the issuance of shares of IntraNet Common Stock or the payment of
cash or have been terminated under the terms and conditions of the Plan and all
restrictions imposed on shares of IntraNet Common Stock in connection with
their issuance under the Plan have lapsed. However, no Incentives may be
granted after December 31, 1997. Incentives may be accelerated under certain
circumstances described in the Plan at Section 11.12. Pursuant to Section 11.7
of the Plan, except in the case of stock awards or cash awards, the terms of
each Incentive shall be stated in an agreement approved by the Committee, or
the Board of Directors, as the case may be. Such Committee or the Board may
also determine to enter into agreements with holders of options to reclassify
or convert certain outstanding options, within the terms of the Plan, as
Incentive Stock Options or as non-statutory or non-qualified stock options, and
in order to eliminate SARS with respect to all or part of such options and any
other previously issued options.
56
<PAGE> 71
PROPOSAL NUMBER VI:
THE RATIFICATION AND APPOINTMENT OF LUND KOEHLER COX & COMPANY, PLLP
AS MACGREGOR'S INDEPENDENT AUDITORS FOR THE FISCAL YEARS ENDING
MARCH 31, 1997 AND MARCH 31, 1998
MacGregor's auditor prior to the Merger is Gelfond Hochstadt Pangburn &
Co. A representative of this firm will be available by conference telephone
call at the meeting, and will have the opportunity to make a statement and to
answer any appropriate questions. The independent auditor's report on the
MacGregor's financial statements for the year ended July 31, 1995, included a
"going concern" explanatory paragraph, which means that the auditors have
expressed substantial doubt about the MacGregor's ability to continue as a
going concern. Management's plan in regard to the factors which prompted the
explanatory paragraph are discussed in Note 2 to the MacGregor's July 31, 1995
financial statements.
MacGregor has selected Lund Koehler Cox & Company, PLLP, as its
independent public accountants to perform an audit of the financial statements
of MacGregor for the years ending March 31, 1997 (including any applicable
transition periods created by the Merger) and March 31, 1998, and to
perform such other appropriate and specified accounting services requested by
MacGregor, for its then operating companies, assuming the Merger is approved.
Lund Koehler Cox & Company, PLLP has served as the independent public
accountants for TPSI since 1992. MacGregor wishes to emphasize that it is not
changing independent public accountants due to any disagreements with its
current independent public accountants during the preceding two fiscal years
and the most recent interim audit period. Rather, MacGregor has selected Lund
Koehler Cox & Company, PLLP based on its familiarity with TPSI's current
business and operations. A representative from Lund Koehler Cox & Company,
PLLP, will be present at the Special Meeting. The representative will have the
opportunity to make a statement if the representative desires to do so, and
will be available to answer any appropriate questions.
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<PAGE> 72
PROPOSAL NUMBER VII:
A PROPOSAL TO ADJOURN THE MEETING TO A LATER DATE TO PERMIT
FURTHER SOLICITATION OF PROXIES IN THE EVENT AN INSUFFICIENT
NUMBER OF SHARES OF MACGREGOR COMMON STOCK IS PRESENT, IN PERSON
OR BY PROXY, AT THE MEETING TO APPROVE THE MERGER AGREEMENT
AND THE MATTERS SUMMARIZED ABOVE
In the event that there are not sufficient votes to approve and ratify the
Merger Agreement at the time of the Meeting, the proposal concerning the Merger
Agreement could not be approved unless the Meeting were adjourned in order to
permit further solicitation of proxies from MacGregor shareholders. In order
to allow proxies that have been received by MacGregor at the time of the
Meeting to be voted for such adjournment, if necessary, MacGregor is submitting
the question of adjournment under such circumstances to its shareholders as a
separate matter for their consideration. If it is necessary to adjourn the
Meeting and the adjournment is for a period of less than 30 days, no notice of
the time and place of the adjourned meeting is required to be given to
shareholders other than an announcement of such time and place at the Meeting.
A majority of the shares represented and voting at the Meeting is required to
approve any such adjournment, provided that a quorum is present. THE BOARD OF
DIRECTORS OF MACGREGOR RECOMMENDS THAT MACGREGOR SHAREHOLDERS VOTE FOR THE
PROPOSAL TO ADJOURN THE MEETING IF NECESSARY TO PERMIT FURTHER SOLICITATION OF
PROXIES.
OTHER BUSINESS
No business, other than set forth herein, is expected to come before the
Special Meeting. Should any other matter requiring a vote of the shareholders
arise, including any question related to any adjournment of the meeting, the
persons named in the enclosed proxy will vote thereon according to their best
judgment and the best interests of MacGregor and its shareholders.
EXPERTS
The consolidated financial statements and notes thereto of MacGregor
included herein, other than the quarterly report for the quarter ending April
30, 1996, have been audited by Gelfond Hochstadt Pangburn & Co., independent
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
The consolidated financial statements of TPSI as of March 31, 1995 and
1996 and for each of the years in the three-year period ended March 31, 1996,
included herein, have been audited by Lund Koehler Cox & Company, PLLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
58
<PAGE> 73
CERTAIN LEGAL MATTERS
The legality of MacGregor's Common Stock to be issued in connection with
the Merger is being passed upon for MacGregor by Ross & Hardies, General
Counsel to MacGregor. The opinion of counsel described under "The
Merger-Certain Federal Income Tax Consequences" will also be rendered by Ross &
Hardies, which opinion is subject to various assumptions and qualifications and
is based upon current law.
BY ORDER OF THE BOARD OF DIRECTORS
Henry Fong,
Chairman
59
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
EXHIBIT A: Financial Statements of MacGregor Sports & Fitness, Inc. F-1
EXHIBIT B: Financial Statements of IntraNet Integration Group, Inc. F-29
(formerly known as Technical Publishing Solutions, Inc.)
EXHIBIT C: Unaudited Pro Forma Condensed Financial Statements of F-42
Intranet Integration Group Inc. Following the Merger
EXHIBIT D: Agreement and Plan of Merger, as amended E-1
EXHIBIT E:* Amended and Restated Articles of Incorporation of MacGregor E-49
Sports and Fitness, Inc.
EXHIBIT F:* Fairness Opinion of Summit Investment Corporation E-52
EXHIBIT G:* Dissenter's Rights Pursuant to Minnesota Law E-55
EXHIBIT H:* Proposed 1994-1997 Stock Option Plan for MacGregor E-61
Sports & Fitness, Inc.
</TABLE>
* previously filed
60
<PAGE> 75
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
YEARS ENDED JULY 31, 1995 AND 1994
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent auditors' report F-1
Consolidated financial statements:
Balance sheet F-2
Statements of operations F-3
Statements of shareholders' equity F-4
Statements of cash flows F-5
Notes to consolidated financial statements F-7
</TABLE>
<PAGE> 76
INDEPENDENT AUDITORS' REPORT
Board of Directors
MacGregor Sports and Fitness, Inc.
Greenville, South Carolina
We have audited the accompanying consolidated balance sheet of MacGregor Sports
and Fitness, Inc. and subsidiaries as of July 31, 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the two-year period ended July 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MacGregor Sports
and Fitness, Inc. and subsidiaries as of July 31, 1995, and the results of their
operations and their cash flows for each of the years in the two-year period
ended July 31, 1995, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company has suffered recurring net
losses, and at July 31, 1995 its current liabilities exceed its current assets.
These factors raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Gelfond Hochstadt Pangburn & Co.
Denver, Colorado
November 30, 1995
F-1
<PAGE> 77
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 2,846
Trade receivables, net of allowance for doubtful
accounts of $4,000 1,329
Inventories 6,450
-------------
Total current assets 10,625
-------------
Furniture and equipment 8,414
Less accumulated depreciation 6,723
-------------
1,691
-------------
Trademarks and license agreements, net of
accumulated amortization of $1,099,612
(Notes 1, 2, and 4) 4,272,492
-------------
$ 4,284,808
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit (Note 5) $ 380,677
Notes payable, shareholders (Note 6) 91,306
Current portion of long-tem debt, shareholder (Note 6) 27,000
Investment fees payable to related party (Note 10) 281,500
Accrued interest and other, related parties (Note 10) 379,180
Accounts payable and accrued expenses 953,013
Deferred royalty revenue 64,477
-------------
Total current liabilities 2,177,153
-------------
Long-term debt, shareholder (Note 6) 225,020
-------------
Commitments (Notes 4, 7, 10, and 11)
Class A 10% mandatory redeemable convertible preferred stock,
liquidation preference $610,000 plus unpaid dividends,
if and when declared; 610 shares issued and
outstanding (Note 7) 610,000
-------------
Shareholders' equity (Note 7):
Class C convertible preferred stock, liquidation
preference $1,000,000 plus dividend preference
of $70 per share per year, issued and
outstanding 1,000 shares 1,000,000
Common stock, par value $.02; authorized 25,000,000
shares, issued and outstanding 8,249,423 shares 164,988
Additional paid-in capital 7,397,429
Warrants 3,588
Deficit (7,293,370)
-------------
1,272,635
-------------
$ 4,284,808
=============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 78
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Sales $ 518,971 $ 2,237,601
Cost of Sales (446,471) (1,872,198)
-------------- ----------------
Gross profit 72,500 365,403
-------------- ----------------
Royalty Income:
Related party 246,664 165,548
Other 281,784
-------------- ----------------
246,664 447,332
-------------- ----------------
Operating expenses:
General and administrative 517,246 1,758,205
Depreciation and amortization 281,411 349,736
Write off of goodwill (Note 8) 281,710
Write down of trademark costs (Note 2) 500,000 148,689
-------------- ----------------
1,298,657 2,538,340
-------------- ----------------
Operating loss (979,493) (1,725,605)
-------------- ----------------
Other income (expense):
Interest expense:
Related parties (36,204) (113,276)
Other (112,650) (51,585)
Other (16,456) 35,199
-------------- ----------------
(165,310) (129,662)
-------------- ----------------
Net loss $ (1,144,803) $ (1,855,267)
============== ================
Loss per common share $ (.14) $ (.26)
============== ================
Weighted average number of common shares 8,169,622 7,376,483
============== ================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 79
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JULY 31, 1995 AND 1994
<TABLE>
<CAPTION>
Additional
Class C preferred Stock Common stock paid-in
Shares Amount Shares Amount capital
------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
Balances,
August 1, 1993 6,857,283 $ 137,146 $ 6,709,271
Common stock
issued in connection with
the termination of marketing
agreement (Note 9) 185,640 3,713 136,287
Common stock
issued in conversion of 385,000
shares of Class B preferred
stock (Note 7) 385,000 7,700 377,300
Common stock
issued as collateral for line
of credit (Note 5) 344,000 6,880 (6,880)
---------- ---------------- --------------
Net loss
Balances,
July 31, 1994 7,771,923 $ 155,439 $ 7,215,978
Common stock
issued in conversion of
accounts payable (Note 7) 477,500 9,549 181,451
Class C preferred stock
issued in conversion of notes
payable,shareholder (Note 7) 1,000 $ 1,000,000
Net loss
---------- -------------- ---------- ---------------- ---------------
Balances,
July 31, 1995 1,000 $ 1,000,000 8,249,423 $ 164,988 $ 7,397,429
========== ============== ========== ================ ===============
<CAPTION>
Warrants Deficit Total
-------- ------- -----
<S> <C> <C> <C>
Balances,
August 1, 1993 $ 3,588 $ (4,293,300) $ 2,556,705
Common stock
issued in connection with
the termination of marketing
agreement (Note 9) 140,000
Common stock
issued in conversion of 385,000
shares of Class B preferred
stock (Note 7) 385,000
Common stock
issued as collateral for line
of credit (Note 5)
Net loss (1,855,267) (1,855,267)
----------- ------------- ----------------
Balances,
July 31, 1994 $ 3,588 $ (6,148,567) $ 1,226,438
Common stock
issued in conversion of
accounts payable (Note 7) 191,000
Class C preferred stock
issued in conversion of notes
payable,shareholder (Note 7) 1,000,000
Net loss (1,144,803) (1,144,803)
----------- ------------- ----------------
Balances,
July 31, 1995 $ 3,588 $ (7,293,370) $ 1,272,635
=========== ============= ================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 80
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,144,803) $ (1,855,267)
-------------- --------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Proceeds from distribution agreement (Note 1) 1,626,523
Proceeds from sale of certain CTS assets (Note 8) 150,000
Write off of trademark license costs (Note 2) 500,000 148,689
Write off of goodwill (Note 8) 281,710
Marketing expense incurred on issuance of common
stock (Note 9) 140,000
Depreciation and amortization 281,411 349,737
Write off of obsolete inventory 17,440
Loss on sale of furniture and equipment 19,374 22,250
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivables 16,458 1,129,502
Inventories 247,568 402,809
Prepaid expenses 17,680 83,824
(Increase) decrease in liabilities:
Accounts payable and accrued expenses 101,041 (941,646)
Deferred royalty revenue (101,953) (112,514)
-------------- --------------
Total adjustments 1,099,019 3,280,884
-------------- --------------
Net cash provided by (used in) operating activities (45,784) 1,425,617
-------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (2,000)
Sale of furniture and equipment 12,056
Proceeds from sale of property and
equipment in connection with
distribution agreement (Note 1) 4,477
Proceeds from sale of certain CTS
equipment (Note 8). 58,000
-------------- --------------
Net cash provided by (used in) investing activities 12,056 60,477
-------------- --------------
Cash flows from financing activities:
Increase (decrease) in bank overdraft (17,474) 15,152
Net payments under revolving credit arrangement (13,073) (1,102,895)
Proceeds from issuance of notes payable 31,383 27,000
Principal payments of notes payable $ $ (389,613)
-------------- --------------
Net cash provided by (used in) financing activities $ 836 $ (1,450,356)
-------------- --------------
</TABLE>
(Continued)
F-5
<PAGE> 81
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Increase (decrease) in cash $ (32,892) $ 35,738
Cash, beginning of period 35,738
------------- ------------
Cash, end of period $ 2,846 $ 35,738
------------- ------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 36,833 $ 78,627
============= ============
Supplemental disclosure of noncash investing and financing activities:
During 1994, the Company issued 344,017 shares of common stock to its lender
as additional collateral for its revolving credit arrangement. In addition,
the Company converted 385,000 shares of its Class B redeemable convertible
preferred stock to 385,000 shares of common stock.
During 1995, accounts payable of $191,000 were converted to 477,500 shares of
common stock (Note 7) and $1,000,000 of notes payable, shareholder were
converted to 1,000 shares of Class C preferred stock (Note 6).
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 82
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
BUSINESS OF THE COMPANY AND PRINCIPLES OF CONSOLIDATION:
MacGregor Sports and Fitness, Inc. (the "Company" or "MSF"), through
its wholly-owned subsidiary, MacGregor Sports Products, Inc.
("MSP") owns the worldwide rights to the use of the MacGregor name
(Note 4) and markets and distributes a broad range of sports,
recreational, and fitness products under its distribution agreement
with Roadmaster Corporation. Carolina Team Sports, Inc. ("CTS") is
also a wholly-owned subsidiary. Significant intercompany balances and
transactions have been eliminated.
ORGANIZATION AND MERGER:
The Company was formed on December 31, 1991 through a merger between
Vida Ventures, Ltd. ("Vida") and Sports Acquisition Corporation
("SAC"). SAC was formed in February 1991, and on May 9, 1991, it
acquired certain assets of MacGregor Sporting Goods, Inc. ("MSI"). The
primary assets acquired were worldwide rights to use the MacGregor name
on sporting, recreational, and fitness products.
INVENTORIES:
Inventories consist of sports, recreational, and fitness
products held for resale, and are stated at the lower of cost or
market. Cost is determined using the first-in, first-out (FIFO)
method.
FURNITURE, EQUIPMENT, AND DEPRECIATION:
Furniture and equipment are recorded at cost. The assets are
depreciated over their estimated useful lives of five to seven years
using the straight-line method.
TRADEMARKS AND LICENSE AGREEMENTS:
Trademark and license agreements relate to costs incurred in
acquiring use of the MacGregor trademark (the "MacGregor Rights")
(Note 4) and are being amortized using the straight-line method over
25 years.
F-7
<PAGE> 83
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
INTANGIBLE ASSETS (CONTINUED):
The Company periodically evaluates the carrying amount of its
intangible assets. The Company determined that the net realizable
value of the MacGregor license agreements at July 31, 1994 was less
than the carrying amount and the difference of $148,689 was charged to
operations. As further discussed in Note 2, at July 31, 1995, the
Company determined that the carrying value of its intangible assets
should be reduced by an additional $500,000. During the year ended
July 31, 1994, the Company also determined that goodwill related to the
acquisition of Carolina Team Sports, Inc. had been impaired and
$281,710 was charged to operations (Note 8). At July 31, 1995, no
remaining goodwill is included in the financial statements.
DISTRIBUTION AGREEMENT:
Effective October 7, 1993, the Company entered into an
agreement with Roadmaster Corporation ("RMC") whereby RMC acquired the
exclusive rights to distribute MacGregor products, subject to certain
worldwide territorial limitations and restrictions set forth in the
Company's other licensing agreements. The agreement continues for a
period of five years, with an option to renew for an additional five
year term with a minimum annual royalty. The agreement provides that
RMC will pay the Company on a quarterly basis percentage-based
royalties on net revenues generated from sales of the MacGregor
products with minimum cumulative royalties. The agreement pertains
only to distribution of MacGregor products. RMC did not acquire the
MacGregor Rights. The chairman of the Company's Board of Directors, is
also the president and chairman of the board, and indirectly a
controlling shareholder of RMC's parent company. RMC is also a
shareholder of the Company.
Under the agreement, the Company received cash of approximately
$1,631,000 in exchange for all of the accounts receivable, inventory
and certain equipment with book values of $427,000, $623,000, and
$30,000, respectively, resulting in a $551,000 write off of the
carrying value of the MacGregor license costs (Note 2). The purchase
price included payment of the revolving line of credit in the amount
of $440,000 (note 5), payment in the amount of $276,000 to satisfy
commissions owed to and to settle the exclusive representation
agreement with a company which had been marketing the Company's
products, $186,000 for the reduction of certain notes payable, and
$729,000 for the reduction of certain accounts payable and accrued
expenses.
F-8
<PAGE> 84
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
2. RESULTS OF OPERATIONS, LETTER OF POTENTIAL INTEREST TO ACQUIRE LICENSE
RIGHTS AND MANAGEMENT'S PLANS:
The accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates continuity of operations,
and the realization of assets and liquidation of liabilities in the
ordinary course of business. The Company incurred net losses of
approximately $1,145,000 and $1,855,000 for the years ended July 31,
1995 and 1994, respectively. Further, at July 31, 1995, the
Company's current liabilities exceeded its current assets by
approximately $2,167,000. Therefore, the continuity of operations and
realization of assets and liquidation of liabilities is subject to
uncertainty. However, management believes that the going concern basis
is appropriate based on the events and plans described below.
In December 1994, the Company entered into a letter of
potential interest with an affiliate. Under the terms of the letter, as
amended in November 1995, the Company will grant the affiliate an
option to extend the existing distribution agreement (Note 1) for two
additional five-year periods with increased mimimum royalty
requirements. In addition, the Company will grant the affiliate an
option to acquire all of its interests in and to the MacGregor
trademark and other related trademarks and rights (the "MacGregor
Rights") for a cash payment of $675,000 plus a three-year note
representing the then existing present value of the remaining minimum
payments under the distribution agreement, including all extensions.
Management and the affiliate believe that the foregoing structure
recognizes a value for the MacGregor rights at an amount in excess of
$4,200,000. In response to the November 1995 amendment to the letter
of interest, the Company has reduced the carrying amount of its
intangible assets at July 31, 1995 by $500,000. Management intends to
use the proceeds of the distribution agreement and sale, should it
occur, to pay current obligations and investigate mergers, acquisitions
and other potential investment opportunities.
Management believes that the proceeds from the extended royalty
agreement, and sale of the MacGregor Rights, should it occur, when
considered with the curtailment of CTS operations discussed in Note 8
will enable the Company to meet its current obligations and continue
operations. If unanticipated factors arise that would cause the cash
flow of the Company to fall short of needed levels, or if the Company
is unable to complete the sale of the MacGregor Rights under the terms
of the letter of potential interest, management has developed
alternative plans to continue operations. These plans include:
F-9
<PAGE> 85
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
2. RESULTS OF OPERATIONS, LETTER OF POTENTIAL INTEREST TO ACQUIRE LICENSE
RIGHTS AND MANAGEMENT'S PLANS (CONTINUED):
a. Equitex, Inc. (a principal shareholder of the Company) providing
financing, or causing financing to be provided, of any
expenses of the Company. The Company would assign its rights to
future Roadmaster Corporation royalty streams to Equitex,
Inc. (Equitex) to the extent that such expenses were so funded
by Equitex.
b. Investigating merger possibilities.
c. Investigating increases in ownership equity to provide funds to
meet current obligations.
d. Investigating the sale of the MacGregor Rights to other
parties.
Management believes that these plans would be adequate and will enable
the Company to effectively continue its operations.
3. INCOME TAXES:
Effective August 1, 1993, SFAS No. 109, "Accounting for Income
Taxes," was adopted. SFAS No. 109 requires a company to recognize
deferred tax liabilities and assets for the expected future tax
consequences of events that have been recognized in a company's
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between
the financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
F-10
<PAGE> 86
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
3. INCOME TAXES (CONTINUED):
The following is a summary of the Company's deferred tax assets at July
31, 1995:
<TABLE>
<S> <C>
Deferred royalties $ 22,000
Operating loss carry forward 1,703,000
Other 10,000
Less valuation allowance (1,735,000)
-----------
$
===========
</TABLE>
At July 31, 1995, the Company has available, operating loss
carryforwards of approximately $5,000,000 which may be utilized to
offset future taxable income through 2010.
A reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
July 31,
1995 1994
---- ----
<S> <C> <C>
Statutory income tax (benefit) (34%) (34%)
State taxes (4%) (4%)
Non-deductible amortization 12% 5%
Deferred tax benefit not recognized 26% 33%
---- ----
==== ====
</TABLE>
F-11
<PAGE> 87
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
4. MACGREGOR TRADEMARK AND LICENSE AGREEMENTS:
In connection with the acquisition of assets from MSI, the Company acquired
the worldwide rights to the use of the MacGregor name. Conditions for the
continuation of the licenses include MSP maintaining a ratio of current
assets to current liabilities of 1.2 to 1, on a quarterly basis. The
Company was not in compliance with this condition at July 31, 1995, and has
not received a waiver of the noncompliance at July 31, 1995. If necessary
for the continuation of the Company's licenses, Equitex has agreed to
provide or cause to be provided such current assets as may be needed. For
the purpose of computing the ratio, current assets and current liabilities
are calculated so that revolving loan debt secured in whole or in part by
current assets is classified as a current liability. Other conditions
include furnishing the Licensors with financial statements, notifying the
Licensors of changes in ownership or management of the Company, and
attaining certain levels of sales of licensed products.
5. LINES OF CREDIT.
At July 31, 1995, CTS had two lines of credit with maximum borrowing limits
of $225,000 and $175,000. At July 31, 1995, $380,677 was outstanding under
the lines. Interest is at the bank's prime rate plus 0.5 percent (9.75% at
July 31, 1995). In February 1994, the Company issued 344,000 shares of its
common stock to CTS, and CTS pledged these shares to the bank as additional
collateral for the lines. The shares were issued to and held by CTS, who
pledged the shares of stock to the bank for its loan outstanding at that time
of $175,000. The shares were valued at $.50 per share, which was within the
range of the market value of MacGregor shares at that time. In October 1995,
BB&T required the Company to cause 344,000 shares of its common stock to be
purchased by Equitex's designee at $.50 per share. The proceeds of $172,000
reduced the BB&T indebtedness. Also in October, the Company agreed to issue
228,677 shares of its common stock to CTS, and CTS agreed to pledge these
shares to the bank as collateral for its remaining indebtedness.
F-12
<PAGE> 88
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
6. NOTES PAYABLE AND LONG-TERM DEBT:
The Company was indebted to certain shareholders in the amount of $91,306 at
July 31, 1995. The notes are unsecured, bear interest at the prime rate plus
2 percent (10.75% at July 31, 1995) or 10%, and are due on demand.
Notes payable, shareholder, represents promissory notes to Equitex. The
notes are unsecured and bear interest at 2 percent above the prime rate
(10.75% at July 31, 1995). During the year ended July 31, 1995, $1,000,000
of notes were converted into 1,000 shares of the Company's Class C
convertible preferred stock (Note 7). At July 31, 1995, $27,000 of the
notes are due on demand and the balance of $225,020 are due in August 1996.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY:
CLASS A REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In May 1991, the Company issued 610 shares of Class A convertible preferred
stock. The stock has a liquidation preference of $1,000 per share and a
dividend preference of $100 per share per year, payable monthly if and when
dividends are declared, and then accumulate to the extent the Company does
not pay monthly dividends. Each share of Class A preferred stock is
convertible into 272 shares of common stock. To the extent that the Company
has adequate cash flow available, it can redeem the Class A convertible
preferred stock in increments of 25 percent of the number of shares of
Class A convertible preferred shares initially outstanding from time to
time. If the Company completes a public offering of at least $4,000,000,
the Class A convertible preferred stock will be redeemed at a rate of 25
percent per month for four months, commencing with the month that the
public offering is completed. The Company has no current plans to complete
a public offering and has not redeemed any of the Class A convertible
preferred stock.
F-13
<PAGE> 89
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (CONTINUED):
CLASS B REDEEMABLE CONVERTIBLE PREFERRED STOCK:
During the year ended July 31, 1994, the Company's 385,000 shares of $1.00
per share liquidation preference, Class B redeemable convertible preferred
stock were converted to 385,000 shares of the Company's common stock.
CLASS C CONVERTIBLE PREFERRED STOCK:
Equitex, a principal shareholder of the Company, converted $1,000,000 of
indebtedness into 1,000 shares of the Company's Class A convertible
preferred stock during 1995 (Note 6). The Class C convertible preferred
stock is not redeemable and has no voting rights. The Class C convertible
preferred stock has a liquidation preference of $1,000 per share, a dividend
preference of $70 per share per year, if and when declared, and (commencing
May 1, 1996) is convertible into common stock at the lesser of $1.00 per
share or 80% of the average market price for the Company's common stock at
the time of conversion. The Company has the option of paying the dividends
by issuing shares of the Company's common stock at a value equal to 80%
of the average market price.
STOCK OPTION PLAN:
Effective December 2, 1991, the Company established a Stock Option Plan for
employees, directors, and key consultants. The Company reserved 750,000
shares of common stock for issuance under the plan. The plan contains
provisions for both an incentive ("ISOP") as well as a nonstatutory stock
option plan, with options expiring ten years from the date of grant. No more
than one-half of the maximum number of shares authorized under the plan may
be reserved for issuance upon exercise of nonstatutory stock options. The
ISOP provides that options will be granted at an exercise price no less than
the fair market value of the Company's stock on the date of grant. The
aggregate fair market value of the shares subject to exercise for the first
time by any optionee during any calendar year may not exceed $100,000.
Directors and key consultants who are not employees of the Company are not
eligible to participate in the ISOP. As of July 31, 1995, 150,000 options
had been granted under the ISOP.
Prior to August 1, 1993, options to purchase 150,000 shares of common stock
had been granted under the ISOP and are available for exercise. The exercise
price of options to purchase 50,000 shares of common stock is $2.2375 per
share and to purchase 100,000 shares of common stock is $1.00 per share.
During the years ended July 31, 1995 and 1994, no options were granted,
exercised or cancelled under the ISOP. The non-statutory plan provides that
options may be granted at exercise prices no less than 85 percent of the
fair market value of the Company's stock on the date of grant. As of July
31, 1995, no options have been granted under the non-statutory plan.
F-14
<PAGE> 90
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (CONTINUED)
WARRANTS AND OTHER OPTIONS:
In connection with the asset purchase of May 9, 1991, SAC, a privately owned
company prior to its merger with Vida, issued the financial institution
which provided the Company's revolving and term notes, a warrant
allowing the institution to purchase 237,575 shares of non-voting common
stock at a price of $.0735 per share. The exercise price of the warrant at
the date of issue in 1991 equaled or exceeded fair market value of the
Company's common stock at that date. The warrant expires May 9, 2001. At
July 31, 1995, no warrants had been exercised.
At December 31, 1991, the Company issued warrants to purchase up to 75,000
shares of the Company's common stock at $2.25 per share. The warrants,
issued as compensation for having introduced the management to SAC to the
management of Vida, are fully exercisable on the date of the grant, and
expire on December 29, 1996. At July 31, 1995, no warrants had been
exercised.
As of July 31, 1995, the Company has outstanding for public sale 800,000
warrants, with each warrant entitling the holder thereof the right to
purchase one common share at an exercise price of $1.00 for a period of 24
months through October 31, 1997. The Company may call the warrants for
redemption at a price of $.05 per warrant upon 30 days prior written notice
at any time. At July 31, 1995, no warrants had been exercised.
In connection with a public offering, completed in October 1990, the Company
issued and sold to the underwriter, for $100, warrants to purchase an
aggregate of 120,000 common shares. Underwriters' warrants for 80,000
shares are exercisable through November 18, 1995, at an initial exercise
price of 107 percent of the public offering price per Unit which consisted
of one share of common stock and one redeemable warrant. Underwriters'
warrants for 40,000 shares are exercisable for two years through November
18, 1995, at $6.00 per share. The common shares issued upon exercise of the
underwriter's warrants will not be freely tradeable upon issuance, but may
become tradeable upon registration at the demand of the holders thereof.
F-15
<PAGE> 91
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(CONTINUED):
WARRANTS AND OTHER OPTIONS (CONTINUED):
During 1993 and 1992, the Company entered into note and warrant
purchase agreements, primarily with certain of its shareholders,
whereby the Company received proceeds of $536,000 upon the issuance of
$536,000 of 10 percent promissory notes and 154,800 detachable
warrants. The notes were paid during the years ended July 31, 1995 and
1994. The warrants are exercisable at $2.00 per warrant to acquire one
share of common stock over a five-year period expiring July 1997. The
Company allocated $3,488 of the total proceeds to the warrants. At
July 31, 1995, no warrants had been exercised.
CONVERSION OF ACCOUNTS PAYABLE TO COMMON STOCK:
In September 1994, $191,000 of accounts payable with third parties were
converted at the per share market price to 477,500 shares of the
Company's Common Stock.
OTHER COMMON STOCK ISSUANCES:
In August through October 1995, the Company sold an additional 308,000
shares of its common stock at an average price of $.59 for proceeds of
$181,000. Additionally, a shareholder purchased a $50,000 note with 10%
interest. The proceeds of $231,000 were used to pay certain liabilities
of the Company, as well as the Company's obligation under its license
from Equilink.
8. CAROLINA TEAM SPORTS, INC.:
In 1992, the Company acquired the net assets of CTS. CTS was a regional
sporting goods dealership servicing Georgia, North and South Carolina,
as well as governmental agencies throughout the United States and
Europe.
F-16
<PAGE> 92
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
8. CAROLINA TEAM SPORTS, INC. (CONTINUED):
During the years ended July 31, 1995 and 1994, CTS realized declining gross
profits and incurred operating losses. In response to the losses, during
fiscal 1994, management reorganized the operations of CTS, terminated its
governmental agency contracts and certain other sales contracts that were
unprofitable, and sold certain equipment and inventory to an unrelated
third party for $208,000 resulting in a loss of approximately $22,000.
Management determined that the goodwill of CTS, arising from the
acquisition, was permanently impaired and during the year ended July 31,
1994, operations were charged with approximately $282,000 for the
elimination of the goodwill. During the year ended July 31, 1995, the
Company ceased operations of CTS, its remaining retail sporting goods
dealership was closed, and its furniture and equipment was sold for a loss
of approximately $19,000.
9. TERMINATION OF MARKETING AGREEMENT:
Prior to October 1993, the Company's products were being marketed under an
agreement with a third party. For these services, the Company paid
agreed-upon commissions and agreed to grant, through 1996 based upon the
third party attaining certain sales goals, options to purchase up to 309,400
shares of the Company's common stock. In October 1993, in conjunction with
acquiring the Roadmaster agreement the marketing and option agreements were
terminated in exchange for 185,640, shares of the Company's common stock.
The Company recognized $140,000 of expense upon the issuance of common
stock.
10. RELATED PARTIES:
During the year ended July 31, 1994, the Company incurred approximately
$25,000 of expenses for certain administrative services performed for the
Company by Equitex.
Prior to August 1, 1992, the Company entered into an agreement with Equitex
to pay Equitex an investment banking fee for services provided to the
Company in securing its credit facilities. The total amount due of
$281,500 is payable when the Company has available funds. The Company
entered into a management agreement effective May 9, 1991, with the Company
to pay Equitex a fee of $10,000 per month for a period of twenty-four
months. The management fee will be payable, and $30,000 shall accumulate
or accrue, when the Company achieves net income of $60,000 in any
three-month period. Because the Company has never achieved net income of
$60,000 in any three-month period, no amounts have been accrued under the
agreement.
F-17
<PAGE> 93
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
10. RELATED PARTIES (CONTINUED):
Accrued interest and other payables, related parties, consists of
approximately $314,947 of accrued interest due under the shareholder notes
payable and approximately $64,232 due to Equitex and other related parties
for reimbursement of general and administrative expenses paid by those
parties on behalf of the Company. Expenses incurred by related entities on
behalf of the Company were approximately $56,800 in 1995 and $7,500 in 1994.
11. COMMITMENTS:
OTHER LICENSE AGREEMENTS:
In May 1992, MSP entered into a licensing agreement which granted to the
licensor royalties in consideration of granting MSP the right for the
manufacture, purchase for resale, and distribution of golf gloves and pull
carts under the MacGregor name. Royalty expense of approximately $173,000
was incurred during the year ended July 31, 1994. During 1994, the license
agreement was terminated.
On December 7, 1992, the Company executed a perpetual sublicense agreement
and a marketing agreement through June 30, 1994 with a distributor of a
patented two-wheel drive bicycle. The Company received a non-refundable
royalty prepayment of $200,000 and $100,000 for marketing services through
June 30, 1994. Accordingly, the Company recorded the $300,000 received as a
deferred liability, and amortized the marketing agreement into income.
During 1994, the Company believed the sublicensee committed breaches of the
sublicense which would constitute a termination or grounds for termination
of the sublicense. The sublicensee, to the best of the Company's knowledge,
has ceased attempting to distribute the licensed product and accordingly,
the Company has recorded the balance of the unamortized non-refundable
royalty prepayment and the unamortized portion of the marketing agreement
into income. Revenues of approximately $282,000 were recorded for the year
ended July 31, 1994.
F-18
<PAGE> 94
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
11. COMMITMENTS (CONTINUED):
OTHER LICENSE AGREEMENTS (CONTINUED):
In June 1994, the Company paid $300,000 to terminate the Company's license
with MacGregor Golf Company in exchange for its releasing the Company from
future minimum royalties of $395,000 and $520,000 for the twelve months
ended February 1995 and 1996, respectively.
OPERATING LEASES:
The Company leases office and warehouse space under an operating lease
expiring May 1998. Total rent expense was approximately $35,352 and $128,700
for the years ended July 31, 1995 and 1994, respectively. Future minimum
rental payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JULY 31,
-----------
<S> <C>
1996 $ 70,000
1997 70,000
1998 46,667
1999
--------
$186,667
========
</TABLE>
12. MAJOR CUSTOMERS AND EXPORT SALES:
During the years ended July 31, 1995 and 1994, no single customer accounted
for more than 10% of sales, and there were no significant export sales.
13. LOSS PER SHARE:
Loss per share is computed based on the weighted average number of
shares actually outstanding. Outstanding warrants, options and convertible
preferred stock are not considered in the calculations as they would
decrease loss per share.
F-19
<PAGE> 95
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996 AND JULY 31, 1995
ASSETS
<TABLE>
<CAPTION>
APRIL 30, 1996 JULY 31, 1995
-------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
CASH $ 4,646 $ 2,846
TRADE RECEIVABLES, NET OF
ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $4,000 AT JULY 31, 1995 1,329
INVENTORIES 6,450
ROYALTY RECEIVABLE, RELATED PARTY 77,190
---------- ----------
TOTAL CURRENT ASSETS 81,836 10,625
---------- ----------
OFFICE FURNITURE AND EQUIPMENT 8,414
LESS ACCUMULATED DEPRECIATION
AND AMORTIZATION (6,723)
---------- ----------
1,691
---------- ----------
OTHER ASSETS:
TRADEMARKS AND LICENSE AGREEMENTS
NET OF ACCUMULATED AMORITZATION
($2,439,225, APRIL 30, 1996; $1,099,612
JULY 31, 1995) 2,932,879 4,272,492
---------- ----------
$3,014,715 $4,284,808
========== ==========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
APRIL 30, 1996 JULY 31, 1995
-------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
LINES OF CREDIT $ $ 380,677
NOTES PAYABLE, SHAREHOLDERS 91,306
CURRENT PORTION OF LONG-TERM DEBT,
SHAREHOLDER 27,000
INVESTMENT FEES PAYABLE TO RELATED PARTY 281,500
ACCRUED INTEREST AND OTHER, RELATED PARTY 379,180
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 953,013
DEFERRED ROYALTY REVENUE 64,477
------------ -----------
TOTAL CURRENT LIABILITIES 2,177,153
-----------
LONG-TERM DEBT, SHAREHOLDER 225,020
------------ -----------
CLASS A 10% MANDATORY REDEEMABLE
CONVERTIBLE PREFERRED STOCK, LIQUIDATION
PREFERENCE $610,000 PLUS UNPAID DIVIDENDS, IF
AND WHEN DECLARED; ISSUED AND OUTSTANDING -
0 SHARES AT APRIL 30, 1996 AND 610 SHARES
AT JULY 31, 1995. 610,000
------------ -----------
SHAREHOLDERS' EQUITY:
CLASS C CONVERTIBLE PREFERRED STOCK,
LIQUIDATION PREFERENCE OF $1,000 PLUS
DIVIDEND PREFERENCE OF $70 PER SHARE
PER YEAR, ISSUED AND OUTSTANDING 0 SHARES
AT APRIL 30, 1996 AND 1000 SHARES AT
JULY 31, 1995. 1,000,000
COMMON STOCK, PAR VALUE $.02; AUTHORIZED
25,000,000 SHARES, ISSUED AND OUTSTANDING
11,698,003 SHARES AT APRIL 30, 1996
AND 8,249,423 SHARES AT JULY 31, 1995 233,960 164,988
ADDITIONAL PAID-IN CAPITAL 11,934,013 7,397,429
WARRANTS 1,093,988 3,588
DEFICIT (10,247,246) (7,293,370)
------------ -----------
3,014,715 1,272,635
------------ -----------
$ 3,014,715 $ 4,284,808
============ ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-20
<PAGE> 96
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
APRIL 30, 1996 APRIL 30, 1995
-------------- ---------------
<S> <C> <C>
SALES $ $ 129,931
COST OF SALES 111,447
------------ ----------
GROSS PROFIT 18,484
------------ ----------
ROYALTY INCOME:
RELATED PARTY 76,665
------------ ----------
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE 1,422,448 124,715
DEPRECIATION AND AMORTIZATION 36,661 69,521
------------ ----------
1,459,109 194,236
------------ ----------
OPERATING LOSS (1,459,109) (99,087)
------------ ----------
OTHER INCOME (EXPENSE):
INTEREST EXPENSE:
RELATED PARTY (6,301) (26,657)
OTHER (3,092) (8,507)
OTHER 81 4,046
------------ ----------
(9,312) (31,118)
------------ ----------
NET LOSS $(1,468,421) $ (130,205)
============ ==========
LOSS PER COMMON SHARE $ (.13) $ (.02)
============ ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 11,599,113 8,249,423
============ ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-21
<PAGE> 97
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
APRIL 30, 1996 APRIL 30, 1995
--------------- --------------
<S> <C> <C>
SALES $ $ 450,450
COST OF SALES 328,239
================ ==================
GROSS PROFIT 122,211
================ ==================
ROYALTY INCOME:
RELATED PARTY 141,667 176,665
================ ==================
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE 1,824,539 355,790
DEPRECIATION AND AMORTIZATION 140,459 219,521
WRITE DOWN OF TRADEMARK COSTS (NOTE 4) 1,200,000
================ ==================
3,164,998 575,311
================ ==================
OPERATING LOSS (3,023,331) (276,435)
================ ==================
OTHER INCOME (EXPENSE):
INTEREST EXPENSE:
RELATED PARTY (38,338) (80,952)
OTHER (12,830) (28,149)
OTHER 838 17,020
================ ==================
(50,330) (92,081)
================ ==================
LOSS BEFORE EXTRAORDINARY ITEM (3,073,661) (368,516)
================ ==================
EXTRAORDINARY ITEM, GAIN FROM
EXTINGUISHMENT OF DEBT 119,787
================ ==================
NET LOSS $ (2,953,874) $ (368,516)
================ ==================
LOSS PER COMMON SHARE: BEFORE
EXTRAORDINARY ITEM $ (.32) $ (.05)
================ ==================
LOSS PER COMMON SHARE: $ (.31) $ (.05)
================ ==================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 9,652,274 8,143,312
================ ==================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-22
<PAGE> 98
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED APRIL 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
APRIL 30, 1996 APRIL 31, 1995
-------------- --------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (610,322) $ (1,414)
================== =================
CASH FLOWS FROM FINANCING ACTIVITIES:
NET PAYMENTS UNDER REVOLING CREDIT AGREEMENTS (380,677) (13,158)
PROCEEDS FROM ISSUANCE OF SHARES OF COMMON STOCK 992,799
PROCCEDS FROM ISSUANCE OF NOTE PAYABLE, SHAREHOLDER 164,000
PAYMENTS TO NOTES PAYABLE, SHAREHOLDER (164,000)
INCREASE (DECREASE) IN BANK OVERDRAFT (16,153)
================== =================
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 612,122 (29,311)
================== =================
INCREASE (DECREASE) IN CASH 1,800 (27,897)
================== =================
CASH, BEGINNING OF PERIOD 2,846 35,738
================== =================
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,646 $ 7,841
================== =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR INTEREST $ 42,148 $ 24,535
================== =================
SUPPLEMENTAL SCHEDULE OF NON CASH FINANCING ACTIVITY:
DURING THE QUARTER ENDED OCTOBER 31, 1994, $191,000 OF
ACCOUNTS PAYABLE WITH THIRD PARTIES WERE CONVERTED
477,500 SHARES OF THE COMPANY'S COMMON STOCK.
DURING THE QUARTER ENDED OCTOBER 31, 1995, THE COMPANY
ISSUED 228,667 SHARES OF COMMON STOCK TO ITS SUBSIDIARY,
CTS, AS ADDITIONAL COLLATERAL TO BE PLEDGED FOR ITS
LINE OF CREDIT ARRANGEMENT.
DURING THE QUARTER ENDED OCTOBER 31, 1995, $42,056 OF
NOTES PAYABLE SHAREHOLDERS WERE CONVERTED TO
42,056 SHARES OF THE COMPANY'S COMMON STOCK.
DURING THE QUARTER ENDED JANUARY 31, 1996, 1,000 SHARES
OF CLASS C CONVERTIBLE PREFERRED SHARES, LIQUIDATION
PREFERENCE OF $1,000 PER SHARE WERE CONVERTED TO
1,000,000 SHARES OF THE COMPANY'S COMMON STOCK.
DURING THE QUARTER ENDED JANUARY 31, 1996, DIVIDENDS OF
$280,000 WERE DECLARED ON THE CLASS A MANDATORY
REDEEMABLE CONVERTIBLE PREFERRED STOCK AND THE
OUTSTANDING 610 SHARES OF CLASS A PREFERRED STOCK
AND CUMULATIVE DIVIDENDS (TOTAL LIQUIDATION PREFERENCE
OF $890,000) WERE CONVERTED TO 277,920 SHARES OF THE
COMPANY'S COMMON STOCK. THE PREFERRED STOCK WAS
CONVERTED AT THE PRESCRIBED CONVERSION RATE OF 272
SHARES OF COMMON STOCK TO 1 SHARE OF PREFERRED STOCK
RESULTING IN 165,920 SHARES OF COMMON STOCK. THE
CUMULATIVE DIVIDENDS WERE CONVERTED AT AN AGREED
UPON VALUE OF $2.50 PER SHARE OF COMMON STOCK RESULTING
IN 112,000 SHARES OF COMMON STOCK.
DURING THE QUARTER ENDED APRIL 30, 1996, $1,960,699
LIABILITIES WERE CONVERTED TO 1,271,936 SHARES OF
COMMON STOCK (NOTE 8).
DURING THE QUARTER ENDED APRIL 30, 1996 THE COMPANY
ISSUED 200,000 WARRANTS TO ACQUIRE 200,000 SHARES OF
THE COMAPNY'S COMMON STOCK IN RETURN FOR CONSULTING
SERVICES PROVIDED.
DURING THE QUARTER ENDED APRIL 30, 1996 THE COMPANY
ISSUED 395,200 WARRANTS TO PURCHASE 395,200 SHARES
OF THE COMPANY'S COMMON STOCK FOR SERVICES
PROVIDED.
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-23
<PAGE> 99
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED APRIL 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS C ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS DEFICIT TOTAL
------ ------ ------ ------ ------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1995 1,000 $1,000,000 8,249,423 $164,988 $7,397,429 $ 3,588 $(7,293,370) $1,272,635
Common stock issued as collateral
for line of credit 228,667 4,573 (4,573)
Common stock issued in conversion of
notes payable shareholders 42,056 841 41,215 42,056
Common stock issued in conversion
of Class C convertible
preferred shares (1,000) (1,000,000) 1,000,000 20,000 980,000
Common stock issued in conversion
of Class A redeemable convertible
preferred stock 165,920 3,318 608,682 610,000
Class A dividends declared (280,000) (280,000)
Common stock issued in payment
of accrued Class A dividends 112,000 2,240 277,760 280,000
Common Stock issued in payment
of $1,053,005 of accounts payable and
accrued expenses, $324,924 accrued
interest and other retained parties,
$281,500 investment fees related
party, $252,020 long-term debt
shareholder, $49,250 notes payable
shareholders (Note 8). 1,271,936 25,439 1,935,260 1,960,699
Common stock sold at:
200,000 shares at $.50 200,000 4,000 96,000 100,000
126,000 shares at $.75 128,000 2,560 93,440 96,000
200,000 shares at $1.25 200,000 4,000 246,000 250,000
Sale of previously issued common stock
(344,000 shares) 172,000 172,000
(228,667 shares) 274,800 274,800
Common stock issued in exercise
of employee stock option 100,000 2,000 98,000 100,000
Warrants issued in connection
of services provided 1,090,400 1,090,400
Net Loss (2,953,874) (2,953,874)
------ -------- ---------- -------- ----------- ---------- ------------ ----------
Balance, April 30, 1996 0 0 11,698,002 $233,959 $11,934,013 $1,093,988 $(10,247,244) $3,014,715
====== ======== ========== ======== =========== ========== ============ ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-24
<PAGE> 100
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED
APRIL 30, 1996 AND 1995
(UNAUDITED)
1. THE INTERIM FINANCIAL STATEMENTS:
MacGregor Sports and Fitness, Inc. (the "Company" or "MSF"), through
its wholly-owned subsidiary, MacGregor Sports Product, Inc. ("MSP")
owns the worldwide rights to the use of the MacGregor name for a
broad range of sports. Roadmaster Corporation (an affiliate of the
Company), through a distribution agreement, markets these recreational
and fitness products. Carolina Team Sports ("CTS") is also a
wholly-owned subsidiary. CTS had no significant operations during the
nine months ended April 30, 1996.
The interim financial statements have been prepared by MSF and, in
the opinion of management, reflect all material adjustments
(including normal recurring adjustments) which are necessary to a fair
statement of results for the interim periods presented. Certain
information and footnote disclosures made in the last annual report on
Form 10-KSB have been condensed or omitted for the interim statements.
It is the Company's opinion that, when the interim statements are read
in conjunction with the July 31, 1995, annual report on Form 10-KSB,
the disclosures are adequate to make the information presented not
misleading.
2. ORGANIZATION
The Company was formed on December 30, 1991 through a merger between
Vida Ventures, LTD. ("VIDA") and Sports Acquisition Company ("SAC").
SAC was formed in February 1991, and on May 9, 1991, it acquired
certain assets of MacGregor Sporting Goods, Inc. ("MSI"). The
primary assets were worldwide rights to use the MacGregor name on
sporting, recreational and fitness products.
F-25
<PAGE> 101
3. AGREEMENT AND PLAN OF THE MERGER:
On January 16, 1996, the Company entered an agreement and plan
of a merger with Technical Publishing Solutions, Inc., a Minnesota
Corporation ("TPSI"). TPSI is a technology company focused on
document-based information management systems. Under the merger
agreement, MSP will be merged with and into TPSI with TPSI as the
surviving corporation and further, with the result that TPSI will
become a wholly-owned subsidiary of MSF. Each of the owners of issued
and outstanding TPSI common stock will be entitled to receive
approximately 1.74 shares of MSF's common stock in exchange and
conversion for each share of TPSI common stock held and each option or
warrant to purchase one share of the common stock of TPSI outstanding
will become an option or warrant to purchase approximately 1.74 shares
of MSF common stock. For accounting purposes, the exchange will be
treated as an acquisition of the Company by TPSI and as a
recapitalization of TPSI. Included under the terms and conditions of
the agreement are:
a. The balance sheet of the Company is to have at least $3 million
of liquid tangible net worth and cash of at least $1.0 million.
b. The Company is to have paid or otherwise satisfied all debt and
all current liabilities, or otherwise removed them from the
Company's balance sheet.
c. The Company may not have more than 12,000,000 million shares of
common stock outstanding. Included in this amount would be any
shares subject to an option or warrant with exercise prices of
less than $1.00 per share. The Company may not have more than
2,200,000 outstanding warrants and options.
d. The Company is to, subject to its shareholder approval, have
completed the sale of substantially all of its assets (Note 4).
e. Certain other requirements including a satisfactory due
diligence and approval by the Company's stockholders.
To meet the above requirements, it is necessary for the Company to
satisfy all of its obligations or otherwise remove those liabilities
from its balance sheet. The Company intends to sell stock or take
other actions as management determines necessary to meet this
requirement.
TPSI will record the transaction as an acquisition and
recapitalization. Accordingly, for accounting purposes, TPSI is
assumed to be the acquirer. Subsequently to the transaction, the
historical financial statements will be those of TPSI.
MacGregor will change its fiscal year end to March 31. Accordingly,
assuming the Merger closes prior to July 31, 1996, the end of the
Company's current fiscal year, MacGregor will not file a year-end
report on Form 10-KSB for the fiscal year ended July 31, 1996, but will
file forms 10-QSB for the fiscal quarters ending June 30, September 30
and December 31 of 1996, and its next year-end annual report for the
year ended March 31, 1997.
F-26
<PAGE> 102
4. AGREEMENT TO SELL LICENSE RIGHTS:
In February 1996, the Company entered an agreement with an affiliate.
Under the terms of the agreement, the Company will sell all of its
interests in and to the MacGregor trademark and other related trademarks
and rights (the "MacGregor Rights") for cash at closing of $1,000,000
plus $1,910,000 to be paid in twelve equal monthly installments. In
response to the agreement, the Company reduced the carrying amount of
its intangible assets at January 31, 1996 by $1,200,000. Previously, the
Company was anticipating realizing approximately $4 million on its sale
of the MacGregor Rights. However, in late 1995, due to the competitive
retail environment that the MacGregor trademarks operate in, Management
believes the $2.9 million sales price stated in the agreement is the
maximum amount a buyer would offer. Management has investigated the sale
of the MacGregor Rights to other parties and believes the proposed
transaction offers the best outcome for the Company and its
shareholders.
5. DISTRIBUTION AGREEMENT:
Effective October 7, 1993, the Company entered an agreement with
Roadmaster Corporation ("RMC") by which RMC acquired the exclusive
rights to distribute MacGregor products, subject to certain worldwide
territorial limitations and restrictions set forth in the Company's
other licensing agreements. The agreement continues for five years, with
an option to renew for an additional five year term with a minimum
annual royalty. The agreement provides that RMC will pay the Company on
a quarterly basis percentage-based royalties on net revenues generated
from sales of the MacGregor products with minimum cumulative royalties.
Under the agreement, the Company received cash of approximately
$1,631,000 in exchange for accounts receivable with a book value of
$427,000, $623,000 of inventory, and $30,000 of equipment, resulting in
a $551,000 write off the carrying value of the MacGregor license costs.
The purchase price included payment of the revolving line of credit for
$440,000, payment for $276,000 to satisfy commissions owed and to settle
the exclusive representation agreement with a company that had been
marketing the Company's products, $186,000 for the reduction of certain
notes payable, and $729,000 for the reduction of certain accounts
payable and accrued expenses.
Roadmaster markets its products (principally bicycles and fitness
equipment) under the brand names of Roadmaster and Vitamaster.
Roadmaster, through its independent representatives and key account
managers, sells its and MacGregor's products to retail sporting good
stores and large retailers such as discount stores, department stores
and other mass merchant outlets.
F-27
<PAGE> 103
6. LOSS PER SHARE:
Loss per share is computed based on the weighted average number of
shares actually outstanding. Outstanding warrants, options and
convertible preferred stock are not considered in the calculation as
they would decrease loss per share.
7. EXTRAORDINARY ITEM:
During the nine months ended April 30, 1996, the Company settled
certain trade payables and accrued expenses related to the Company's
former CTS operations and realized a gain on debt extinguishment of
$119,787.
8. During the quarter ended April 30, 1996, the following liabilities
were converted to 1,271,963 shares of common stock.
<TABLE>
<S> <C>
Accounts payable and accrued expenses $1,053,005
Accrued interest and other, related parties 324,924
Investment fees payable to related party 281,500
Long-term debt, shareholder 252,020
Notes payable shareholders 49,250
----------
$1,960,699
==========
</TABLE>
9. SUBSEQUENT EVENT:
During March 1996, the Company finalized an agreement to issue a
consultant warrants to acquire 200,000 shares of the Company's common
stock in return for services provided to the Company. The exercise
price of the warrants was, in the aggregate, $200,000 below the trading
price of the Company's common stock on the date of issue of
approximately $3.00 per share. The warrants expire five years from
the date of issuance. As a result of this transaction, the Company
recognized an expense of $300,000 during the month of March 1996.
During April 1996, the Company finalized an agreement to issue warrants
to acquire 395,200 (250,200 of which were issued to the Chairman of the
Board) shares of the Company's common stock in return for services
provided to the Company. The exercise price of the warrants was, in
the aggregate $790,400 below the trading price of the Company's common
stock on the date of issue of approximately $3.00 per share. As a
result of this transaction, the Company recognized the expense of
$790,400 during the month of April 1996.
F-28
<PAGE> 104
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To IntraNet Integration Group, Inc.:
We have audited the accompanying consolidated balance sheets of IntraNet
Integration Group, Inc. (formerly known as Technical Publishing Solutions,
Inc.) and Subsidiaries as of March 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended March 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our 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 IntraNet
Integration Group, Inc. and Subsidiaries as of March 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1996 in conformity with generally accepted
accounting principles.
LUND KOEHLER COX & COMPANY, PLLP
Minneapolis, Minnesota
May 14, 1996
F-29
<PAGE> 105
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1995 1996
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $9,239 $37,513
Accounts receivable, net 2,099,570 3,102,394
Inventories 246,634 324,523
Prepaid expenses and other 87,607 418,438
---------- ----------
Total current assets 2,443,050 3,882,868
Property and equipment, net 1,435,782 1,539,318
Intangible assets, net 0 290,680
---------- ----------
$3,878,832 $5,712,866
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Revolving credit facility $233,162 $1,108,098
Convertible promissory notes 0 550,000
Current portion of long-term debt 154,996 127,496
Current portion of capital lease obligations 121,310 148,045
Current portion of stock redemption payable 0 9,500
Accounts payable 1,731,295 2,701,244
Sales tax payable 109,296 68,147
Accrued expenses 104,792 247,105
---------- ----------
Total current liabilities 2,454,851 4,959,635
Deferred income taxes 80,000 38,000
Stock redemption payable, net of current portion 0 30,008
Long-term debt, net of current portion 200,004 108,341
Capital lease obligations, net of current portion 736,253 598,065
---------- ----------
Total liabilities 3,471,108 5,734,049
Commitments and contingencies
Stockholders' equity (deficiency):
Common stock, $.001 par value, 100,000,000 shares authorized,
20,000,000 and 10,000,000 shares issued and outstanding, re 20,000 10,000
Additional paid-in capital 9,343 7,289
Retained earnings (deficit) 396,160 (22,265)
Unearned compensation (17,779) (16,207)
---------- ----------
Total stockholders' equity (deficiency) 407,724 (21,183)
---------- ----------
$3,878,832 $5,712,866
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE> 106
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended March 31,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Hardware integration $3,489,188 $5,015,758 $8,198,800
Software, technical services and support 3,756,035 4,738,648 4,522,054
On-demand printing services 0 692,255 1,514,888
---------- ---------- ----------
Total revenues 7,245,223 10,446,661 14,235,742
---------- ---------- ----------
Cost of revenues:
Hardware integration 3,011,789 4,350,199 6,795,594
Software, technical services and support 2,212,125 2,879,454 2,799,650
On-demand printing services 0 371,037 1,113,009
---------- ---------- ----------
Total cost of revenues 5,223,914 7,600,690 10,708,253
---------- ---------- ----------
Gross profit 2,021,309 2,845,971 3,527,489
---------- ---------- ----------
Operating expenses:
Sales and marketing 954,444 1,244,995 1,827,003
General and administrative 524,607 916,253 1,188,364
Research and development 300,877 341,740 496,066
Depreciation and amortization 50,792 109,274 159,340
---------- ---------- ----------
Total operating expenses 1,830,720 2,612,262 3,670,773
---------- ---------- ----------
Income (loss) from operations 190,589 233,709 (143,284)
Interest expense (23,143) (97,033) (230,293)
---------- ---------- ----------
Income (loss) before income taxes 167,446 136,676 (373,577)
Provision for (benefit of) income taxes 64,000 64,553 (125,770)
---------- ---------- ----------
Net income (loss) $103,446 $72,123 ($247,807)
========== ========== ==========
Net income (loss) per common share
and common share equivalents $0.01 $0.00 ($0.02)
========== ========== ==========
Weighted average
common shares outstanding 20,000,000 20,467,290 12,916,667
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE> 107
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Retained
-------------------------- Paid-in Earnings Unearned
Shares Amount Capital (Deficit) 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 -- -- 5,236 -- (5,236) 0
Stock options compensation
earned -- -- -- -- 6,808 6,808
Repurchase of common
stock (10,000,000) (10,000) (7,290) (170,618) -- (187,908)
Net loss -- -- -- (247,807) -- (247,807)
---------- ------- -------- -------- -------- --------
Balance - March 31, 1996 10,000,000 $10,000 $7,289 ($22,265) ($16,207) ($21,183)
========== ======= ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-32
<PAGE> 108
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------
1994 1995 1996
---------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $103,446 $72,123 ($247,807)
Adjustments to reconcile net income (loss) to
cash flows from operating activities:
Depreciation and amortization 50,792 158,160 327,221
Stock option compensation earned 0 11,564 6,808
Deferred income taxes 28,000 47,766 (66,000)
Changes in operating assets and liabilities 46,824 (325,039) (314,831)
-------- -------- ---------
Cash flows from operating activities 229,062 (35,426) (294,609)
-------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment 0 0 126,286
Purchase of property and equipment (317,056) (363,512) (429,193)
Acquisition of intangible assets 0 0 (325,000)
-------- -------- ---------
Cash flows from investing activities (317,056) (363,512) (627,907)
-------- -------- ---------
Cash flows from financing activities:
Net advances on revolving credit facility 120,000 103,162 874,936
Proceeds from convertible promissory notes 0 0 550,000
Proceeds from long-term debt 100,000 640,000 0
Payments on long-term debt (55,367) (456,655) (119,163)
Payments on capital lease obligations (1,225) (16,074) (204,983)
Repurchase of common stock 0 0 (150,000)
-------- -------- ---------
Cash flows from financing activities 163,408 270,433 950,790
-------- -------- ---------
Increase (decrease) in cash and cash equivalents 75,414 (128,505) 28,274
Cash and cash equivalents, beginning of period 62,330 137,744 9,239
-------- -------- ---------
Cash and cash equivalents, end of period $137,744 $9,239 $37,513
======== ========= =========
Supplemental cash flows information:
Cash paid for interest $22,220 $97,768 $226,533
Cash paid for income taxes $57,422 $22,387 $19,396
Noncash financing and investing activities:
Equipment acquired with capital lease obligation $116,045 $758,817 $93,530
Common stock redeemed with note payable, net $0 $0 $37,908
Detail of changes in operating assets and liabilities:
Accounts receivable, net ($630,027) ($748,428) ($1,002,824)
Inventories 151,008 (199,530) (77,889)
Prepaid expenses and other (25,142) (75,955) (306,831)
Accounts payable 568,695 628,468 969,949
Sales tax payable 15,023 56,968 (41,149)
Accrued expenses (32,733) 13,438 143,913
-------- -------- ---------
Net changes in operating assets and liabilities $46,824 ($325,039) ($314,831)
======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-33
<PAGE> 109
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996
(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND PRINCIPLES OF CONSOLIDATION - IntraNet Integration
Group, Inc. (formerly known as Technical Publishing Solutions, Inc.) ("IIGI" 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 IntraNet Integration Group, Inc. and its
wholly-owned subsidiaries DocuPro Services, Inc. and IntraNet Solutions, Inc.
All significant intercompany transactions have been eliminated.
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 $30,000 as of March 31, 1995 and 1996.
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 $34,320 at March 31, 1996. Goodwill is amortized
on a straight-line basis over eight years. The Company's two covenants 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 March 31, 1996, management believes all recorded intangible assets
will be realized.
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.
F-34
<PAGE> 110
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1995 AND 1996
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.
LONG-LIVED ASSETS - During fiscal 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" (Statement No. 121). Statement No. 121 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. The adoption of Statement No. 121 did not have a material
impact on the Company's financial position or results of operations.
F-35
<PAGE> 111
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1995 AND 1996
(2) CONTEMPLATED REVERSE MERGER
On January 16, 1996, IIGI and its then 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, IIGI's stockholders
will receive approximately 60% of the then outstanding common stock of MSF in
exchange for their IIGI common stock. IIGI 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 March 31, 1996:
(IN THOUSANDS)
<TABLE>
<CAPTION>
IIGI MSF PRO FORMA
ASSETS HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets $3,883 $ 82 $ 8 (A) $6,683
2,910 (B)
(200)(C)
Property and equipment, net 1,539 0 1,539
Intangible assets, net 291 2,933 (2,933)(B) 291
------ ------ ------ ------
$5,713 $3,015 ($ 215) $8,513
====== ====== ====== ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities $4,960 $ 0 $4,960
Long-term liabilities 774 0 774
------ ------ ------ ------
5,734 0 5,734
Stockholders' equity (21) 3,015 8 (A) 2,779
(23)(B)
(200)(C)
------ ------ ------ ------
$5,713 $3,015 ($ 215) $8,513
====== ====== ====== ======
</TABLE>
Pro forma adjustments to reflect:
(A) Sale of 2,000 shares of common stock by MSF at $4 per share 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-36
<PAGE> 112
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1995 AND 1996
(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 covenant 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 year ended March 31, 1996.
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
<TABLE>
<S> <C> <C>
March 31, March 31,
1995 1996
---------- ----------
Equipment and furniture $1,497,724 $2,007,626
Vehicles 147,861 0
Leasehold improvements 8,210 13,429
---------- ----------
Total property and equipment 1,653,795 2,021,055
Less: accumulated depreciation 218,013 481,737
---------- ----------
Total property and equipment, net $1,435,782 $1,539,318
---------- ----------
</TABLE>
Property and equipment includes items under capital leases of $851,309 and
$852,346, net of accumulated depreciation of $55,369 and $147,803, as of March
31, 1995 and 1996.
(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 $1,108,098 were outstanding as of March 31, 1995 and
1996. 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 10.75% as
of March 31, 1995 and 1996). 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 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-37
<PAGE> 113
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1995 AND 1996
(6) LONG-TERM DEBT AND CAPITAL LEASES
LONG-TERM DEBT -
<TABLE>
<S> <C> <C>
March 31, March 31,
1995 1996
-------- --------
Note payable - bank,
monthly installments of
$8,333 plus interest at
the bank's base lending
rate plus 2.5%
(effective rates of
11.5% and 10.75% at
March 31, 1995 and
1996), due March 1998,
secured by
substantially all
Company assets and
guaranteed by a
stockholder. $300,000 $208,337
Notes payable -
stockholders, due on
demand, interest at
12%, unsecured and
subordinated to bank
indebtedness. 55,000 27,500
-------- --------
Total long-term debt 355,000 235,837
Less: current maturities 154,996 127,496
-------- --------
Long-term debt, net $200,004 $108,341
======== ========
</TABLE>
Future maturities of long-term debt are $127,496 and $108,341 for the years
ending March 31, 1997 and 1998.
CAPITAL LEASE OBLIGATIONS - The Company has certain assets under capital lease
obligations. The leases require total monthly payments of $19,556 and carry
interest rates between 14.6% and 16.6%. The minimum lease payments required
under the capital leases together with the present value of the minimum lease
payments are as follows for the years ending March 31,:
<TABLE>
<S> <C>
1997 $246,568
1998 246,568
1999 243,595
2000 164,998
2001 38,409
--------
Total 940,138
Less: amount representing interest 194,028
--------
Present value of future minimum lease payments 746,110
Less: current portion 148,045
--------
Long-term portion $598,065
========
</TABLE>
F-38
<PAGE> 114
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1995 AND 1996
(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 16, 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 6,000,000 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 March 31, 1996:
<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 2,163,132 $0.08 - $1.50
---------
Outstanding as of March 31, 1996 3,315,780
---------
</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, 1996, 1,100,048 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, 1995 and 1996 were $52,000,
$48,162 and $0.
F-39
<PAGE> 115
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1995 AND 1996
(9) INCOME TAXES
Provision for income taxes consisted of the following components for the years
ended March 31,:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- ----------
<S> <C> <C> <C>
Current:
Federal $25,000 $12,787 ($59,770)
State 11,000 4,000 0
------- ------- ----------
Total 36,000 16,787 (59,770)
Deferred 28,000 47,766 (66,000)
------- ------- ----------
Total provision $64,000 $64,553 ($125,770)
======= ======= ==========
</TABLE>
The tax effects of temporary differences giving rise to the deferred items
consisted of the following at:
<TABLE>
<CAPTION>
March 31, March 31,
1995 1996
--------- ---------
<S> <C> <C>
Net current deferred tax assets:
Allowance for uncollectible accounts $0 $12,000
Inventory 0 12,000
------- ---------
Net current deferred tax assets $0 $24,000
------- ---------
Net long-term deferred tax liabilities
(assets):
Net operating loss carryforwards $0 ($71,000)
Amortization of intangible assets 0 (9,000)
Depreciation of fixed assets 80,000 118,000
------- ---------
Net long-term deferred tax liabilities $80,000 $38,000
======= =========
</TABLE>
Deferred tax liabilities and deferred tax assets reflect the net tax effects of
temporary differences between the approximate carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes. The net current deferred tax assets as of March 31, 1996, are
included in prepaid expenses and other in the consolidated balance sheet. At
March 31, 1996, the Company had a net operating loss carryforward of
approximately $177,000, which, if not used, expires in 2011.
F-40
<PAGE> 116
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1995 AND 1996
(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, $220,020 and
$254,662 for the years ended March 31, 1994, 1995 and 1996. Minimum remaining
rental commitments under operating leases are as follows for the years ending
March 31,:
<TABLE>
<S> <C>
1997 $182,961
1998 106,247
1999 73,290
--------
Total $362,498
========
</TABLE>
In April 1996, the Company entered into a seven year operating lease agreement
for approximately 34,000 square feet of office and warehouse space for its
Minneapolis operations. The lease requires monthly payments of approximately
$20,000.
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. Royalties (including prepaid
royalties) are due based on 15% of product sales until a total of $250,000 has
been paid and 10% thereafter. At March 31, 1996, the Company had prepaid
$50,000 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
MAJOR SUPPLIERS - The Company utilizes a single supplier to provide the
majority of its computer hardware sales. Purchases from this supplier were
approximately 39%, 54% and 68% of total product purchases during the years
ended March 31, 1994, 1995 and 1996. The Company has a supply and resale
agreement with this supplier that expires June 30, 1996 and is annually
renewable.
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 product purchases during the years ended March 31, 1994 and 1995 and
13% for 1996. The Company has a supply and resale agreement with this supplier
that expires January 1, 1998.
F-41
<PAGE> 117
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
On January 16, 1996, Intranet Integration Group, Inc. (IIGI 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, IIGI's stockholders will receive
approximately 60% of the then outstanding common stock (approximately 18,000,000
shares) of MSF in exchange for their IIGI 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 March 31, 1996 gives effect to the transaction as if it had
occurred effective April 1, 1995. The following unaudited condensed balance
sheet as of March 31, 1996 gives effect to the transaction as if it had occurred
on March 31, 1996.
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 Intranet Integration Group, Inc.
F-42
<PAGE> 118
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
<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 $ 4,646 8,164 (A) $ 1,090,000
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 81,836 2,918,164 3,000,000
PROPERTY AND EQUIPMENT, NET 0 0
INTANGIBLE ASSETS, NET 2,932,879 (2,932,879)(B) 0
-------------------- ----------- -----------------
$ 3,014,715 ($14,715) $ 3,000,000
==================== =========== =================
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility $ 0 $ 0 $ 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 0 0
Accounts payable and other 0 0
-------------------- ----------- -----------------
Total current liabilities 0 0 0
LONG-TERM LIABILITIES 0 0
-------------------- ----------- -----------------
Total liabilities 0 0 0
-------------------- ----------- -----------------
STOCKHOLDERS' EQUITY:
Common stock, at par 233,960 163 (A) 234,123
Additional paid-in capital 11,934,013 8,001 (A) 11,942,014
WARRANTS 1,093,988 1,093,988
Retained earnings (deficit) (10,247,246) (22,879)(B) (10,270,125)
Unearned compensation 0 0
-------------------- ----------- -----------------
Total stockholders' equity 3,014,715 (14,715) 3,000,000
-------------------- ----------- -----------------
$ 3,014,715 ($14,715) $ 3,000,000
==================== =========== =================
Shares of MSF common stock outstanding 11,700,003
=================
<CAPTION>
INTRANET
MACGREGOR SPORTS INTEGRATION PRO FORMA
AND FITNESS, INC. GROUP, INC. ADJUSTMENTS
(AS ADJUSTED) (HISTORICAL) (NOTE 5) PRO FORMA
----------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,090,000 $ 37,513 ($200,000)(E) $ 927,513
Accounts receivable, net 0 3,102,394 3,102,394
Royalty receivable - related party 0 0 0
Note receivable 1,910,000 0 1,910,000
Inventories 0 324,523 324,523
Prepaid expenses and other 0 418,438 418,438
---------------- ------------ ----------- -----------
Total current assets 3,000,000 3,882,868 (200,000) 6,682,868
PROPERTY AND EQUIPMENT, NET 0 1,539,318 1,539,318
INTANGIBLE ASSETS, NET 0 290,680 290,680
---------------- ------------ ----------- -----------
$ 3,000,000 $ 5,712,866 ($200,000) $ 8,512,866
================ ============ =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility $ 0 $ 1,108,098 $0 $ 1,108,098
Convertible promissory notes 0 550,000 550,000
Current portion of long-term debt 0 127,496 127,496
Current portion of capital lease
obligations 0 148,045 148,045
Accrued interest payable 0 0 0
Accounts payable and other 0 3,025,996 3,025,996
---------------- ------------ ----------- -----------
Total current liabilities 0 4,959,635 0 4,959,635
LONG-TERM LIABILITIES 0 774,414 774,414
---------------- ------------ ----------- -----------
Total liabilities 0 5,734,049 0 5,734,049
---------------- ------------ ----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, at par 234,123 10,000 52,877 (D) 297,000
Additional paid-in capital 11,942,014 7,289 (9,229,014)(D) 2,520,289
(200,000)(E)
WARRANTS 1,093,988 0 (1,093,988)(D) 0
Retained earnings (deficit) (10,270,125) (22,265) 10,270,125 (D) (22,265)
Unearned compensation 0 (16,207) (16,207)
---------------- ------------ ----------- -----------
Total stockholders' equity 3,000,000 (21,183) (200,000) 2,778,817
---------------- ------------ ----------- -----------
$ 3,000,000 $ 5,712,866 (200,000) $ 8,512,866
================ ============ =========== ===========
Shares of MSF common stock outstanding 11,700,003 18,000,000 29,700,003
================ =========== ===========
</TABLE>
See notes to condensed pro forma financial statements.
F-43
<PAGE> 119
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 1996 (NOTE 3)
<TABLE>
<CAPTION>
INTRANET
MACGREGOR SPORTS INTEGRATION PRO FORMA
AND FITNESS, INC. GROUP, INC. ADJUSTMENTS
(HISTORICAL) (HISTORICAL) (NOTE 5) PRO FORMA
----------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES $280,188 $14,235,742 ($280,188)(F) $14,235,742
COST OF REVENUES 118,231 10,708,253 (118,231)(F) 10,708,253
----------- ----------- ---------- -----------
Gross profit 161,957 3,527,489 (161,957) 3,527,489
OPERATING EXPENSES 1,097,946 3,670,773 (1,097,946)(F) 3,670,773
----------- ----------- ---------- -----------
Income (loss) from operations (935,989) (143,284) 935,989 (143,284)
OTHER INCOME (EXPENSE) (1,823,559) (230,293) 1,823,559(F) (230,293)
----------- ----------- ---------- -----------
Income (loss) before extraordinary item (2,759,548) (373,577) 2,759,548 (373,577)
EXTRAORDINARY ITEM, GAIN FROM
EXTINGUISHMENT OF DEBT 119,787 0 (119,787)(F) 0
----------- ----------- ---------- -----------
Income (loss) before income taxes (2,639,761) (373,577) 2,639,761 (373,577)
PROVISION FOR (BENEFIT OF) INCOME TAXES 0 (125,770) 0 (F) (125,770)
----------- ----------- ---------- -----------
NET LOSS ($2,639,761) ($247,807) $2,639,761 ($247,807)
=========== =========== ========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 9,333,677 29,700,003
=========== ===========
LOSS PER SHARE BEFORE EXTRAORDINARY ITEM ($0.30) ($0.01)
=========== ===========
LOSS PER SHARE ($0.28) ($0.01)
=========== ===========
</TABLE>
See notes to condensed pro forma financial statements.
F-44
<PAGE> 120
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(1) DESCRIPTION OF THE TRANSACTION
On January 16, 1996, IntraNet Integration Group, Inc., (IIGI or the Company) and
its then 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, IIGI's stockholders will receive
approximately 60% of the then outstanding common stock of MSF (approximately
18,000,000 shares) in exchange for their IIGI common stock. The Company plans
to record this transaction as an acquisition and recapitalization. The
following unaudited pro forma condensed statements of operations for the twelve
month period ended March 31, 1996 give effect to the transaction as if it had
occurred effective April 1, 1995. The unaudited condensed balance sheet as of
March 31, 1996 gives effect to the transaction as if it had occurred on
March 31, 1996.
(2) MACGREGOR SPORTS AND FITNESS PERIODS OF PRESENTATION
The MacGregor Sports and Fitness, Inc. balance sheet is as of April 30, 1996,
the end of its third fiscal quarter. MacGregor believes presentation of its
April 30, 1996 balance sheet does not materially change the pro forma
presentation since it approximates its financial position at March 31, 1996.
(3) PRO FORMA CONDENSED STATEMENT OF OPERATIONS PERIOD OF PRESENTATION
MacGregor Sports and Fitness, Inc. has a July 31 fiscal year end and IntraNet
Integration Group, Inc. has a March 31 fiscal year end. For purposes of the
pro forma condensed statement of operations, a twelve month period beginning
April 1, 1995 and ending March 31, 1996 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 the sale of approximately 2,000 shares of common stock at
$4.00 per share to provide the level of current assets required by
the merger agreement.
(B) To record the sale of trademark rights for $2,910,000 payable
$1,000,000 in cash at closing and $1,910,000 in promissory note
payable in twelve equal installments plus interest at the prime rate.
(C) To record the collection of royalties receivable from the licensee as
a condition of the trademark rights sale.
(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
April 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
April 1, 1995. Accordingly, the adjustment reflects the removal of
these revenue and expense items.
F-45
<PAGE> 121
EXHIBIT D
================================================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MACGREGOR SPORTS AND FITNESS, INC.,
MG ACQUISITION SUBSIDIARY, INC.
AND
TECHNICAL PUBLISHING SOLUTIONS, INC.
================================================================================
January 16, 1996
- 1 -
<PAGE> 122
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1. Articles of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
7. Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
8. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
9. The Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
10. The Company Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
11. The Company Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
12. Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
13. Company Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
14. Parent Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
15. Parent Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
16. Parent Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II. CHANGE OF NAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III. GOVERNING LAW; ARTICLES OF INCORPORATION;
AUTHORIZED SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV. PRINCIPAL OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE V. DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE VI. CONVERSION AND ISSUANCE OF SHARES IN THE
REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1. Parent Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. Conversion of Company Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Surrender of the Company's Certificates . . . . . . . . . . . . . . . . . . . . . . . . 5
5. Adjustment Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6. Survival and Limitation of the Parent Convertible Securities . . . . . . . . . . . . . 6
7. Survival and Conversion of the Company Stock Options and Warrants . . . . . . . . . . . 6
8. Dissenting Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9. Parent Common Stock; Demand and Piggy-Back Registration Rights . . . . . . . . . . . . 7
10. Parent Fiscal Year Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VII. EFFECT OF THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VIII. ACCOUNTING MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
- i -
<PAGE> 123
<TABLE>
<S> <C>
ARTICLE IX. APPROVAL OF SHAREHOLDERS; FILING OF ARTICLES OF
MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE X. PARENT'S AND SUBSIDIARY'S REPRESENTATIONS AND
WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2. Authorization and Validity of Agreement . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4. Information and Completeness of Disclosure . . . . . . . . . . . . . . . . . . . . . . 9
5. Disclosure of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7. Good Title to Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8. Good Title to Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10. Inventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
13. Vendor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
14. Condition of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
15. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
16. Litigation and Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
17. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
18. Disclosures in Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
19. Compliance with Securities Act of 1933 . . . . . . . . . . . . . . . . . . . . . . . . . 12
20. No Approvals or Notices Required; No Conflict With Other Instruments . . . . . . . . . . 12
21. Directors' Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
22. Stock Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
23. Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
24. Licenses; Compliance With Laws and Regulations . . . . . . . . . . . . . . . . . . . . . 13
25. Product Liability Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
26. SEC Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 13
27. Banks and Other Depositories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
28. Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
29. Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
30. Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
31. Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
32. Tax Reports and Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
33. Absence of Other Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
34. Taxes Concerning Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
35. Employment Contracts; Collective Bargaining Agreements . . . . . . . . . . . . . . . . . 16
36. Administration of Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
37. Warranties; Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
38. Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
39. Recommendation and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
- ii -
<PAGE> 124
<TABLE>
<S> <C>
ARTICLE XI. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2. Authorization and Validity of Agreement . . . . . . . . . . . . . . . . . . . . . . . . 17
3. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4. Information and Completeness of Disclosure . . . . . . . . . . . . . . . . . . . . . . 18
5. Disclosure of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7. Good Title to Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8. Good Title to Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10. Inventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
13. Vendor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
14. Condition of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
16. Litigation and Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
17. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
18. No Approvals or Notices Required; No Conflict With Other Instruments . . . . . . . . . . 21
19. Directors' Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
20. Stock Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
21. Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
22. Licenses; Compliance With Laws and Regulations . . . . . . . . . . . . . . . . . . . . . 21
23. Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
24. Banks and Other Depositories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
25. Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
26. Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
27. Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
28. Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
29. Tax Reports and Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
30. Absence of Other Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
31. Taxes Concerning Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
32. Employment Contracts; Collective Bargaining Agreements . . . . . . . . . . . . . . . . . 24
33. Administration of Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
34. Warranties and Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
35. Product Liability Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
36. Recommendation and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE XII. INVESTMENT BANKERS; FAIRNESS OPINION . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE XIII. CONDUCT OF BUSINESSES PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . 26
1. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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ARTICLE XIV. ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
1. Access and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2. Company 1994-1997 Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3. Expenses; "Break-Up" Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE XV. CONDITIONS PRECEDENT TO PARENT'S OBLIGATIONS . . . . . . . . . . . . . . . . . . 28
1. Approval of the Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2. Compliance With This Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3. No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4. No Litigation or Governmental Proceedings . . . . . . . . . . . . . . . . . . . . . . . 29
5. Statutory Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6. Representations and Warranties of the Company to be True . . . . . . . . . . . . . . . 29
7. Opinion of Counsel of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8. Auditors Examination; Tax-Free Reorganization Status . . . . . . . . . . . . . . . . . 30
9. Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XVI. CONDITIONS PRECEDENT TO THE COMPANY'S
OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
1. Completed Transactions; Other Financial Matters . . . . . . . . . . . . . . . . . . . . 31
2. Securities Outstanding; Registration Rights . . . . . . . . . . . . . . . . . . . . . . 31
3. NASDAQ Maintenance and Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4. Affiliate "Lock-Up" Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5. Approval of the Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6. Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7. Compliance With This Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8. No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9. No Litigation or Governmental Proceedings . . . . . . . . . . . . . . . . . . . . . . . 33
10. Statutory Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11. Representations and Warranties to be True . . . . . . . . . . . . . . . . . . . . . . . 33
12. Opinion of Legal Counsel of Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13. Opinion of Tax Counsel of Parent. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
14. No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
15. Securities Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16. Options and Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
17. Delivery of Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
18. NASDAQ Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
19. Employment Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
20. Indemnification Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
21. SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
22. Auditors Examination; Tax-Free Reorganization . . . . . . . . . . . . . . . . . . . . . 37
23. Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE XVII. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
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ARTICLE XVIII. CLOSING; DELIVERIES AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . 37
1. Closing and Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2. Closing Deliveries by the Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3. Closing Deliveries by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE XIX. TERMINATION AND ABANDONMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE XX. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
1. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5. Subsidiary Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
EXHIBIT INDEX
Exhibit A Restated Articles of Incorporation of MacGregor Sports & Fitness, Inc.
Exhibit B Restated Articles of Incorporation of Technical Publishing Solutions, Inc.
Exhibit C Disclosure Schedule of MacGregor Sports & Fitness, Inc.
Exhibit D Disclosure Schedule of Technical Publishing Solutions, Inc.
(and Company Subsidiaries)
Exhibit E-1 Interim Affiliate "Lock-Up" Agreement
Exhibit E-2 Twelve-Month Affiliate "Lock-Up" Agreement
Exhibit F Fairness Opinion of Summit Investment Corporation
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MACGREGOR SPORTS AND FITNESS, INC.,
MG ACQUISITION SUBSIDIARY, INC.
AND
TECHNICAL PUBLISHING SOLUTIONS, INC.
THIS AGREEMENT AND PLAN OF MERGER (hereafter the "Agreement"), entered into
this 16th day of January, by and among MACGREGOR SPORTS AND FITNESS, INC., a
Minnesota corporation (hereafter "Parent"), MG ACQUISITION SUBSIDIARY, INC., a
Minnesota corporation (hereafter "Subsidiary") and TECHNICAL PUBLISHING
SOLUTIONS, INC., a Minnesota corporation (hereafter the "Company") (Parent,
Subsidiary and the Company being hereafter sometimes collectively referred to
as the "Constituent Corporations.").
WITNESSETH:
WHEREAS, the Parent is a corporation duly-organized and existing under the
laws of the State of Minnesota, having been incorporated on November 17, 1989,
Subsidiary is a duly-organized and existing corporation under the laws of the
State of Minnesota, wholly owned by Parent and newly and solely formed for the
purpose of effecting the transactions contemplated by this Agreement, and the
Company is a corporation duly- organized and existing under the laws of the
State of Minnesota, having been incorporated on March 16, 1990;
WHEREAS, the Constituent Corporations desire to adopt and implement this
Agreement providing for the reorganization of the Constituent Corporations (the
"Reorganization") pursuant to that certain Letter of Intent dated October 3,
1995 between Parent and the Company and in accordance with the provisions of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended, in the
manner hereinafter set forth; and
WHEREAS, the Boards of Directors of the Constituent Corporations deem it
advisable for the general welfare and advantage of the Constituent
Corporations, and their respective shareholders, that all issued and
outstanding shares of common stock of the Company be converted into and
exchanged solely for voting shares of Parent, and that the Company subsequently
shall become a wholly-owned subsidiary of Parent for the purpose of effecting a
reverse triangular merger under Sections 368(a)(1)(A) and (a)(2)(E) of the Code
(as defined below) and the Constituent Corporations respectively desire to
effect such exchange and reorganization pursuant to this Agreement and the laws
of the State of Minnesota.
NOW, THEREFORE, in consideration of the representations, warranties and
mutual agreements herein contained, the parties hereby agree, in accordance
with the applicable provisions of the laws of the State of Minnesota, that all
the issued and outstanding shares of the Company shall be acquired by Parent,
and subsequent to the Effective Date, shall be deemed a wholly-owned subsidiary
of Parent, and that the Parent and the Company shall continue each of their
respective corporate existences subject to the change of corporate name
provided for in Article II of this Agreement. The terms and conditions of the
Reorganization and the manner of carrying the same into effect are as follows:
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ARTICLE I.
DEFINITIONS
For the purposes of this Agreement, the following words and phrases shall
have the meanings set forth below:
1. Articles of Merger. Articles of Merger shall refer to the articles of
merger (in the form agreed to by the parties) to be filed with the Minnesota
Secretary of State pursuant to Section 641 of the Minnesota Business
Corporation Act.
2. Closing. Subject to the conditions herein provided, Closing shall refer
to: the issuance and delivery of the Shares to the Company, and its
shareholders, as of the Closing Date; the execution of Articles of Merger
between Subsidiary and the Company; and all further acts necessary for
consummating this Agreement.
3. Closing Date. Closing Date shall refer to the date that is no more than
three (3) business days after the special meetings of shareholders of Parent
and Subsidiary referred to in Article IX hereof, or such other date to which
the parties may agree.
4. Code. Code shall refer to the Internal Revenue Code of 1986, as amended.
5. Disclosure Schedule. The Disclosure Schedule shall refer to that schedule
of certain items that are required to be disclosed pursuant to this Agreement,
as provided by each of Parent and the Company.
6. Effective Date. The Effective Date shall be the date and time on which the
Articles of Merger are filed by the Constituent Corporations with the Office of
the Secretary of State of Minnesota.
7. Employee Plans. Employee Plans shall mean any disability, medical, dental
or other health insurance plan; life insurance or other death benefit plan;
pension, profit sharing, retirement or other deferred compensation plan; stock
option, bonus or other incentive compensation plan; or vacation, sick leave or
severance plan; including, without limitation, any employee welfare benefit
plan or employee pension benefit plan as defined in ERISA, whether or not any
of the foregoing are funded.
8. ERISA. ERISA shall refer to the Employee Retirement Income Security Act
of 1974, as amended.
9. The Company Common Stock. The Company Common Stock shall refer to the
authorized shares of Common Stock of the Company, no par value.
10. The Company Financial Statements. The Company Financial Statements
shall refer to the consolidated audited balance sheets of the Company as of
March 31, 1995, with the related consolidated statements of operation,
stockholders equity and cash flows for the year then ended and the notes to
them and the unaudited consolidated balance sheet of the Company as of December
31, 1995, with the related statements of operation, stockholders' equity and
cash flows for the three (3) and nine (9) month periods then ended.
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<PAGE> 129
11. The Company Options. The Company Options shall refer to the options and
warrants to acquire the Company Common Stock described in the Disclosure
Schedule.
12. Shares. Shares shall refer to those shares of the Parent's Common Stock
that shall be issued by Parent held by Subsidiary for issuance to the Company,
and its shareholders, as the consideration for the acquisition of the common
stock of the Company pursuant to this Agreement.
13. Company Subsidiaries. Company Subsidiaries shall refer collectively to
IntraNet Solutions, Inc. and DocuPro Services, Inc., both of which are
wholly-owned subsidiaries of the Company.
14. Parent Common Stock. Parent Common Stock shall refer to the authorized
shares of Common Stock of Parent, par value $.02.
15. Parent Financial Statements. Parent Financial Statements shall refer to
the audited consolidated balance sheets of Parent as of July 31, 1995, 1994 and
1993 with the related consolidated statements of operation, stockholders'
equity and changes in cash flows for the years then ended and the notes to them
and the unaudited consolidated balance sheets of Parent as of January 31, 1996
with the related statements of operation, stockholders' equity and cash flows
for the three (3) and six (6) month periods then ended.
16. Parent Options. Parent Options shall refer to the options and warrants
to acquire Parent Common Stock described in the Disclosure Schedule.
ARTICLE II.
CHANGE OF NAME
As of the Effective Date, the Restated Articles of Incorporation of the
Parent shall be amended, or shall then reflect, that the name of Parent shall
be "IntraNet Solutions, Inc."
ARTICLE III.
GOVERNING LAW; ARTICLES OF
INCORPORATION; AUTHORIZED SHARES
The laws of the State of Minnesota shall govern the Parent and the
interpretation and enforcement of this Agreement. Subject to approval of the
shareholders of Parent, the Articles of Incorporation of Parent shall be
restated in their entirety, as set forth in Exhibit A attached hereto. As
restated, these Articles of Incorporation shall remain in effect as the
Restated Articles of Incorporation of the Parent subsequent to this
Reorganization and until the same may be further altered or amended by its
shareholders in accordance with the provisions thereof. Pursuant to said
Restated Articles of Incorporation, the authorized shares of the Parent on the
Effective Date shall be 50,000,000 authorized shares of Common Stock, with $.01
value.
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ARTICLE IV.
PRINCIPAL OFFICE
The principal office and registered office of the Parent shall be changed,
prior to the Effective Date, to 5500 Lincoln Drive, Suite 110, Minneapolis,
Minnesota 55436.
ARTICLE V.
DIRECTORS AND OFFICERS
The following individuals shall be appointed and elected to serve as the
executive officers and directors of the Parent as of the Closing Date:
Directors
Henry Fong Chairman of the Board
Robert F. Olson Director
Jeffrey J. Sjobeck Director
[TPSI Nominee] Director
[MSF Nominee] Director
Executive Officers
Robert F. Olson Chief Executive Officer; President
Jeffrey J. Sjobeck Chief Financial Officer
John Coleman Vice President, Sales and Marketing
Jeffrey J. Sjobeck Secretary
The existing officers and directors of the Parent and Subsidiary not named
above and holding office on the Closing Date shall be deemed to have resigned
as of the Closing Date.
ARTICLE VI.
CONVERSION AND ISSUANCE OF SHARES IN THE REORGANIZATION
The manner of carrying into effect the Reorganization, and the manner and
basis of issuing the Parent's Shares to the sole shareholder of the Company
shall be as follows:
1. Parent Common Stock. No shares of the Parent Common Stock issued and
outstanding on the Effective Date shall be converted or otherwise affected as a
result of the
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Reorganization, but all of such common shares shall remain issued shares of
Common Stock of the Parent.
2. Conversion of Company Shares. At the Effective Date, by virtue of the
merger of the Subsidiary with and into the Company, each share of Company
Common Stock issued and outstanding shall be acquired by Parent and exchanged
for Parent Common Stock, and each shareholder of the Company shall be entitled
to receive for each one (1) share of Company Common Stock held of record on the
Effective Date approximately 1.4 shares, subject to adjustment as summarized
below, of Parent Common Stock, with the result that the shareholders of the
Company shall hold in the aggregate at least 55% of the total outstanding
shares of Parent Common Stock (calculated on a fully diluted basis assuming
that the total outstanding shares of Parent include: all convertible
securities of Parent on an as-if-converted basis; all options and warrants
exercisable at a price of less than $1.00 per share; and all Olson Warrants to
be issued pursuant to Article XVI, paragraph 6). Certificates representing
fractional shares will not be issued. In the event that the exchange ratio
generates fractional shares, fractions of .5 or greater will be rounded to the
next higher whole number of shares, and fractions smaller than .5 will be
rounded to the next lower whole number. Each issued share of the Company
Common Stock held in the Company's treasury at the Effective Date shall not be
converted into Parent Common Stock.
3. Merger. Subsequent to the conversion and exchange of shares described
in paragraph 2 above, Subsidiary shall be merged with and into the Company in
accordance with the applicable provisions of Minnesota law and the separate
existence of Subsidiary shall cease. All outstanding shares of Common Stock of
Subsidiary shall then be converted into 100 newly issued common shares of the
Company, all held of record by Parent subsequent to the merger.
4. Surrender of the Company's Certificates. As soon as practicable after
the Effective Date, stockholders who previously held and owned shares of the
Company shall surrender their certificates representing such shares for
cancellation and reissuance as Common Stock of the Parent.
5. Adjustment Event. In the event of any change in the Common Stock of
Parent between the date of this Agreement and the Effective Date by reason of
any stock dividend, split-up, reclassification, recapitalization, combination,
conversion, exchange of shares or the like (an "Adjustment"), the number of
Shares to be issued to the Company's Common Stock holders shall be
appropriately adjusted from that described in paragraph 2 above.
6. Survival and Limitation of the Parent Convertible Securities. At
Closing and on the Effective Date, the Parent shall not have outstanding
warrants or options to purchase, or any other security convertible into, its
Common Stock in excess of 2,100,000 shares (and further subject to the
conditions described in Article XVI, paragraph 16 hereof). All such shares
subject to an option or warrant or otherwise convertible into Common Stock with
exercise prices of less than $1.00 per share shall be included in and counted
against the maximum permitted 12,000,000 shares of Parent Common Stock
outstanding on an as-if-converted basis (as described in Article XVI, paragraph
15 hereof).
7. Survival and Conversion of the Company Stock Options and Warrants. All
stock options and warrants to purchase the Common Stock of the Company
outstanding on the Effective Date shall survive the Reorganization. Each
outstanding warrant or option to purchase Common Stock of the Company will be
assumed by the Parent on the Effective Date and will be converted into an
option to acquire such number of whole shares of Common Stock of the Parent
equal to the product of
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the resulting exchange ratio in the Reorganization and the number of shares of
Common Stock of the Company remaining subject to the original option
immediately prior to the Effective Date of the Reorganization, at an exercise
price per share equal to the exercise price per share of the Common Stock of
the Company immediately prior to the Effective Date of the Reorganization
multiplied by the resulting exchange ratio. Options to purchase fractional
shares will not be issued. In the event the exchange ratio generates options
for the purchase of fractional shares, fractions of .5 or greater will be
rounded to the next higher whole number of shares, and fractions smaller than
.5 will be rounded to the next lower whole number.
8. Dissenting Shareholders. Notwithstanding the foregoing, outstanding
shares of the Company Common Stock which are held by shareholders who have
properly preserved and perfected dissenters' rights pursuant to Sections 471
and 473 of the Minnesota Business Corporation Act shall not be converted into
shares of Parent Common Stock; however, such shares and the holders of such
shares shall be subject to and treated in accordance with the Minnesota
Business Corporation Act and specifically those sections of such law relating
to the rights of dissenting shareholders. Similarly, shareholders in the
Parent who have properly preserved and perfected their dissenters' rights
pursuant to the Minnesota Business Corporation Act shall also be subject to and
treated in accordance with the Minnesota Business Corporation Act and
specifically those sections of such law relating to the rights of dissenting
shareholders. The directors and officers of the Constituent Corporations have
reviewed this Agreement and the terms of the contemplated Reorganization and
have determined that they should, and do by this Agreement, agree to vote in
favor of the contemplated Reorganization at the appropriate director and/or
stockholder meeting, as the case may be.
9. Parent Common Stock; Demand and Piggy-Back Registration Rights. The
issuance of the Shares of Parent Common Stock to the shareholders of the
Company as consideration for the Reorganization will not be registered under
the Securities Act of 1933, as amended (the "Act"), or under any applicable
state blue sky laws. However, all such Shares of Parent Common Stock received
by the Company's shareholders shall entitle such shareholders 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 of the Reorganization.
10. Parent Fiscal Year Adjustment. Parent shall amend its fiscal year such
that it shall end on March 31.
ARTICLE VII.
EFFECT OF THE REORGANIZATION
On the Effective Date, the Parent shall, by operation of law, succeed to,
without other transfer, act or deed of any person, all of the outstanding
shares of the Company. The Company and Company Subsidiaries shall continue to
possess and enjoy all the rights, privileges, immunities, powers and franchises
both of a public and private nature, and be subject to all the restrictions,
disabilities and duties of each of the Company and Company Subsidiaries, and
all property, real, personal and mixed, including patents, trademarks, trade
names, and all debts due to any of such corporations on whatever account, for
stock subscriptions as well as for all other things in action or all other
rights belonging to any of said corporations, shall continue to be vested in
such corporation; and all said property, rights, privileges, immunities, powers
and franchises, and all and every other interest shall remain thereafter
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the property of the respective corporation, and the title of any real estate
vested by deed or otherwise in any of said corporations shall not revert or be
in any way impaired by reason of the Reorganization.
ARTICLE VIII.
ACCOUNTING MATTERS
The assets and liabilities of the Company and Company Subsidiaries on the
Effective Date shall be consolidated on the books of the Parent at the amounts
at which they were carried at that time on the books of the Company and Company
Subsidiaries. The surplus of the Parent, if any, after the Reorganization
shall be available to be used for any lawful purposes for which surplus may be
used. Accounting procedures and depreciation schedules of any Constituent
Corporation may be converted to those procedures and schedules selected by the
Parent as permitted by law.
ARTICLE IX.
APPROVAL OF SHAREHOLDERS;
FILING OF ARTICLES OF MERGER
This Agreement, together with the Restated Articles of Incorporation of
Parent, shall be submitted to the shareholders of the Constituent Corporations
as provided by law and the respective Articles of Incorporation of the
Constituent Corporations at meetings which shall be held on or before March 31,
1996, or such later date as the Boards of Directors of the Constituent
Corporations shall mutually approve. Upon adoption and approval of this
Agreement, and subject to the conditions contained in this Agreement, the
Articles of Merger shall be executed, acknowledged and delivered to the
Secretary of State of the State of Minnesota for filing as provided by the
Minnesota Business Corporation Act.
ARTICLE X.
PARENT'S AND SUBSIDIARY'S
REPRESENTATIONS AND WARRANTIES
Parent and Subsidiary represent and warrant to the Company as follows:
1. Organization. Each of Parent and Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota, has corporate power to carry on its business as it is now being
conducted and is qualified to do business in every jurisdiction in which the
character and location of the assets owned by it or the nature of the business
transacted by it requires qualification or in which failure to so qualify would
have a material adverse impact on it. No proceeding is pending, or to the
knowledge of Parent, threatened, involving Parent or Subsidiary, in which it is
alleged that the nature of its or their business makes qualification necessary
in any additional jurisdiction. Complete and correct copies of the Articles of
Incorporation and Bylaws of each of Parent and Subsidiary, as amended to the
date hereof, have been delivered to the Company. As of the date hereof, Parent
has no subsidiaries other than Subsidiary, MacGregor Sports Products, Inc. and
Carolina Team Sports, Inc., and has no interest in any other corporation, joint
venture, partnership or other business entity.
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2. Authorization and Validity of Agreement. Each of Parent and Subsidiary
has all requisite corporate power and authority to enter into this Agreement
and, subject to obtaining the necessary approval of its shareholders, to
perform its obligations hereunder. The execution, delivery and performance by
each of Parent and Subsidiary of this Agreement and the consummation by it of
the transactions contemplated hereby have been duly authorized by its Board of
Directors and, subject to obtaining the approval of its shareholders, no other
corporate action on the part of Parent or Subsidiary is necessary to authorize
the execution and delivery by Parent and Subsidiary of this Agreement and the
consummation by it of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by each of Parent and Subsidiary and is a
valid and binding obligation of each of them, enforceable against each of them
in accordance with its terms, subject, as to the enforcement of remedies, to
applicable bankruptcy, insolvency, moratorium and other laws affecting the
rights of creditors generally, and except that rights to indemnity and
contribution may be limited by federal or state securities laws and subject to
general principles of equity.
3. Capitalization. Parent's capitalization consists of 25,000,000
duly-authorized shares of Parent Common Stock, of which 9,144,050 shares are
outstanding as of the date hereof. Each issued and outstanding share is
validly issued, fully paid, non-assessable and is entitled only one (1) vote.
Parent has also granted and has outstanding options, warrants or other
convertible securities, as of the date hereof, with respect to 1,837,375 shares
of Parent Common Stock and has reserved for issuance an additional 600,000
shares of Parent Common Stock pursuant to existing Parent stock option plans.
Parent also has authorized: 237,575 shares of Non-voting Common Shares, $.01
par value, which are reserved for issuance in connection with certain warrants;
610 shares of Class A Convertible Preferred Stock, all of which are issued and
outstanding; 385,000 shares of Class B Convertible Preferred Stock, none of
which are issued and outstanding; and 1,000 shares of Class C Convertible
Preferred Stock, all of which are issued and outstanding. Each issued and
outstanding share of Parent Preferred Stock is validly issued, fully paid,
non-assessable and entitled to vote on the terms set forth in the Parent's
existing Articles of Incorporation, as amended. As a result, Parent has a
remaining balance of 9,375,815 authorized and undesignated shares.
4. Information and Completeness of Disclosure. Parent has delivered to the
Company all information concerning Parent as requested by the Company or its
counsel. The statements set forth herein and all copies of documents referred
to, and furnished to, the Company are true, complete and correct. Neither this
Agreement, nor any Exhibit, certificate, schedule, instrument or other
information furnished to the Company pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement by Parent or
any officer, director or shareholder of Parent, contains any untrue statement
of a material fact or omits a material fact necessary in order to make the
statements contained herein or therein not misleading. Parent has no knowledge
of any fact which materially and adversely affects the present or proposed
business or condition (financial or otherwise) of Parent or any of its assets
which has not been set forth herein or in any Exhibit, certificate, schedule or
other instrument furnished to the Company and its counsel.
5. Disclosure of Information. Parent shall cause its Disclosure Schedule,
setting forth all information required by this Agreement, with all required
exhibits attached thereto, to be delivered to the Company and its counsel no
later than February 1, 1996. The content of the information contained in such
Disclosure Schedule shall be reasonably acceptable to the Company and its
counsel at the time of delivery. Such Disclosure Schedule shall be updated and
brought current (the "Updated Disclosure Schedule") on or prior to the Closing
Date. In the event the contents of the Updated Disclosure Schedule continue to
include items from the initial Disclosure Schedule that have not been cured or
waived to the satisfaction of Company and its counsel or disclose materially
adverse changes
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from the initial Disclosure Schedule on the Closing Date, the Company shall not
be obligated to close on this transaction.
6. Financial Statements. Parent has delivered:
(a) copies of its audited consolidated balance sheets for the fiscal years
ending as of July 31, 1995, 1994 and 1993, and related consolidated
statements of operation, stockholders equity and cash flows for the years
then ended, including the notes thereto, certified by Gelfond Hochstadt
Pangburn & Co., independent certified public accountants; Parent shall have
delivered:
(b) by February 1, 1996, copies of its unaudited consolidated balance
sheet as of December 31, 1995; and
(c) no later than the Closing Date, copies of its unaudited consolidated
balance sheet as of January 31, 1996 and the related unaudited consolidated
statements of operation, stockholders equity and cash flows for the three and
six month periods then ended.
All of such financial statements are true and complete (in the case of (b) and
(c) above, in all material respects) and have been prepared in accordance with
generally accepted accounting principles consistently followed throughout the
periods indicated, except as otherwise indicated in the notes thereto. Each of
such balance sheets presents a true and complete statement (in the case of (b)
and (c) above, in all material respects) as of its date of the financial
condition and assets and liabilities of Parent. Each of such statements of
operation, stockholders equity and cash flows presents a true and complete
statement (in the case of (b) and (c) above, in all material respects) of the
results of operations of Parent for the periods indicated.
7. Good Title to Real Property. Parent has good and marketable title to,
free and clear of any material liens, claims, options or other encumbrances,
and the right to possession of, all of its real properties which are legally
described in the Disclosure Schedule. Parent has valid leases under which it
is entitled to occupy and use in its business all real property of which it is
in possession, and Parent is not in default under any such lease. Copies of
such leases are attached to the Disclosure Schedule.
8. Good Title to Personal Property. Parent has good and marketable title
to the machinery, equipment, merchandise, supplies and other property of every
kind, tangible or intangible, contained in its offices, plants and other
facilities or shown as assets in its records and books of account, free and
clear of all liens, encumbrances and charges, except as reflected in the
financial statements. Parent has valid leases under which it is entitled to
use in its business all personal property of which it is the lessee. Parent is
not in default under any such lease or any similar contract or agreement.
9. Intellectual Property. Parent owns all copyrights, trademarks, trade
names, trade secrets and registrations specified in the Disclosure Schedule; it
has not granted any licenses to use such copyrights, trademarks, trade names or
trade secrets; and there are no claims to the effect that any other person has
a right to use any of such copyrights, trademarks or trade names. No other
copyrights, trademarks or trade names are owned by Parent or are used in its
business.
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10. Inventions. Parent owns the inventions, letters patent, applications
for letters patent and patent license rights specified in the Disclosure
Schedule; it has not granted any licenses to use such inventions, letters
patent, applications for letters patent or patent license rights; and there are
no claims to the effect that any other person has a right to use any of such
inventions, letters patent, applications for letters patent or patent license
rights. No other inventions, letters patent, applications for letters patent or
patent license rights are owned by Parent or are used by it in its business.
11. Taxes. All taxes imposed by the United States or by any foreign country
or by any state, municipality, subdivision or instrumentality of the United
States or of any foreign country or by any other taxing authority, which are
due or payable by Parent, have been paid in full or are adequately provided for
by reserves shown in the records and books of account of Parent. Parent has no
unassessed tax deficiency proposed or threatened against it.
12. Commitments. Except for agreements described in and appended to the
Disclosure Schedule, Parent is not a party to: (i) any sales agency agreement
not subject to termination without liability or notice of sixty (60) days or
less; (ii) any contract for the purchase or sale of any materials, products or
supplies which contains any escalator, renegotiation or redetermination clause
or which commits it for a fixed term; (iii) any pension, retirement or
profit-sharing plan or agreement not cancelable within sixty (60) days without
liability; (iv) any management or consultation agreement not terminable at will
without liability; or (v) any other agreement which materially affects the
business properties or assets of Parent, or which was entered into other than
in the ordinary and usual course of business. The Disclosure Schedule shall
contain the following with respect to each pension or Profit-Sharing Plan of
Parent: copy of the plan and any relevant trust agreements, copies of any
required reports to the Internal Revenue Service, the latest report of the
trustee or insurance company of the value of the assets or the cash surrender
values as of the latest anniversary of the insurance policies held under the
plan, and the latest actuarial evaluation or statement of individual accounts.
13. Vendor Relations. Parent is enjoying good working relationships under
all of the franchise, dealer, sales representation and other agreements
necessary to the normal conduct and operation of its business.
14. Condition of Properties. All of the real and personal properties used
in the business of Parent are in good and operable condition.
15. Insurance. Parent is adequately insured with respect to risks normally
insured against by companies similarly situated. The Disclosure Schedule shall
contain a list, and be accompanied by copies, of all existing insurance
policies of Parent, including but not limited to product liability coverage,
group insurance and pension plans. All such policies are in full force and
effect. The Disclosure Schedule shall also contain a list of all claims for
insured losses filed by Parent during the three-year period immediately
preceding the date of this Agreement, including, but not limited to, workers'
compensation, automobile and general and product liability. Parent has promptly
and adequately notified its insurance carriers of any and all claims known to
it with respect to its operations or products for which it is insured. Parent
shall also purchase any additional product liability coverage reasonably
requested and deemed appropriate and necessary by Company prior to Closing,
subject to the availability of such coverage at commercially reasonable rates.
16. Litigation and Proceedings. Except for any litigation described in the
Disclosure Schedule, there is no suit, action or legal or administrative
proceeding pending, or to the knowledge of Parent threatened, against it, or
any of its assets, which, if adversely determined, might materially and
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adversely affect the financial condition of the Parent, nor is there any
decree, injunction or order of any court, governmental department or agency
outstanding against Parent having any such effect.
17. Material Contracts. Except as set forth in the Disclosure Schedule,
Parent is not a party to or bound by any written or oral contract which calls
for any of the following: (a) delivery of any goods or services at a cumulative
value in excess of $25,000, or which obligates the contracting party for a
fixed term; (b) loans, credit, financing agreements, promissory notes or other
evidences of indebtedness (including all agreements for any commitments for
future loans, credit or financing), or any other material contract, commitment
or arrangements of any kind; or (c) any guaranty. Further, provisions of any
and all such contracts, commitments or arrangements comply in all material
respects with the laws of the relevant jurisdictions. All such contracts,
commitments or other arrangements will not be altered by the consummation of
the transactions contemplated herein; and, except as specifically set forth in
the Disclosure Schedule, each contract, commitment or arrangement referred to
above is terminable without penalty, cost or liability, whether express,
implied, or by operation of law upon notice not exceeding sixty (60) days.
18. Disclosures in Proxy Statement. The Proxy Statement of Parent to be
disseminated to the shareholders of Parent (the "Proxy Statement") in
connection with this Agreement shall contain all material statements and
information required to be included therein with respect to Parent and shall
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not materially misleading with respect to Parent, and, as of the
effective date of the Proxy Statement, there will have occurred no event
required to be set forth in an amendment to the Proxy Statement which has not
been so set forth.
19. Compliance with Securities Act of 1933. All offers and sales by Parent
of any of its securities sold during the past three (3) years have been made in
compliance with all applicable federal and state securities laws and there have
been no claims that such offers or sales were not made in compliance in all
material respects with the requirements of such laws. The disclosures made by
Parent, and its officers, directors, employees and agents, to all offerees in
such offers and sales did not contain any untrue statement of any material fact
or omit to state any material facts required to be stated to make the
disclosures not misleading.
20. No Approvals or Notices Required; No Conflict With Other Instruments.
Neither the execution and delivery of this Agreement, nor the performance by
Parent of its obligations hereunder will: (a) violate Parent's Restated
Articles of Incorporation or By-Laws; (b) violate any provision of law
applicable to Parent; (c) require any consent, approval, filing or notice under
any provision of law applicable to Parent; or (d) except as otherwise required
by this Agreement, require any consent, approval or notice under, or violate,
or be in conflict with, or constitute a default under any note, bond,
indenture, mortgage, deed or trust, lease, franchise, permit, license,
contract, instrument or other agreement or any order, judgment or decree to
which Parent is a party or by which it or any of its assets or properties is
bound or encumbered.
21. Directors' Contracts. There are no written or oral agreements for the
compensation of directors of Parent other than those set forth and identified
in the Disclosure Schedule.
22. Stock Agreements. Except as set forth in the Disclosure Schedule, there
are no outstanding options, warrants or other rights to subscribe for or
purchase from Parent (or any plans, contracts or commitments providing for the
issuance, or the granting of rights to acquire) any capital
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stock or other securities of Parent. There are no preemptive rights with
respect to the capital stock of Parent.
23. Minute Books. Copies of the Articles of Incorporation of each of Parent
and Subsidiary, and all amendments thereto, certified as of a recent date by
the Secretary of State of Minnesota, and of its Bylaws, certified by Parent's
and Subsidiary's respective Secretaries, will be delivered to the Company at
least thirty (30) business days prior to Closing, are, on the date of this
Agreement true, complete and correct. The minute books of each of Parent and
Subsidiary are complete and correctly reflect in all material respects, all
corporate actions of Parent and Subsidiary taken at all meetings and through
written actions and correctly record all resolutions of Parent and Subsidiary
of which certified copies have been delivered to other parties.
24. Licenses; Compliance With Laws and Regulations. Parent has the licenses,
permits, authorizations and approvals (governmental or otherwise) listed in the
Disclosure Schedule, true and correct copies of which have been delivered to
the Company along with such Disclosure Schedule; and all such licenses,
permits, authorizations and approvals are valid and in good standing. Except as
disclosed in the Disclosure Schedule, Parent is not required to have any other
material licenses, permits, authorizations or approvals to carry on its
business as presently conducted or as presently intended to be conducted.
Parent has not received any notice that any of such licenses, permits,
approvals or authorizations will lapse or be terminated by action of a
governmental authority or otherwise, and all such licenses, permits, approvals
or authorizations will not be adversely affected by the transactions
contemplated by this Agreement.
Except as disclosed in the Disclosure Schedule: (a) Parent's business is not
conducted in material violation of any statute, law, ordinance or regulation of
any governmental entity, agency or instrumentality, including the Securities
and Exchange Commission ("SEC") and any state securities agency; (b) Parent has
materially complied, and is in material compliance, with applicable laws,
statutes, orders, rules, regulations and requirements promulgated by
governmental or other authorities relating to its business or the operation of
such business, including, without limitation, any relating to the offer or sale
of securities, wages, hours, hiring, promotion, retirement, working conditions,
nondiscrimination, health, safety, pensions, benefits, the production,
processing, advertising or sale of product, trade regulation, anti-kickback,
export licensing, antitrust, anti-boycott, warranties, or control of foreign
exchange; and (c) Parent has not received any notice of any sort of alleged
violation of any such statute, order, rule, regulation or requirement.
25. Product Liability Claims. Parent is not on the date of this Agreement
subject to any known asserted claims for product liability on account of
products sold on or prior to such date, which are not fully covered (except for
applicable deductibles), including all costs of defense and investigation
related to such claims, by its product liability insurance policies. The
foregoing representation and warranty includes that certain litigation
captioned as Marc R. Pizzo v. Riddell Sports, Inc., et al., an action filed in
the Supreme Court of the State of New York alleging personal injury from a
batting helmet allegedly sold by the Parent. The claimed defect is that the
helmet did not include a face mask and that the plaintiff was injured when he
was struck on the face with a baseball. The complaint seeks damages in the
amount of $15,000,000.
26. SEC Reports and Financial Statements. Since January 1, 1992, Parent has
filed with the SEC all reports, registration statements, and other filings
required to be filed with the SEC under the rules and regulations of the SEC
(collectively the "Required Company Reports") all of which, as of their
respective Effective Dates, complied, in all material respects, with all
applicable requirements of
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the Act and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Parent has previously delivered to the Company, and its counsel, true
and complete copies of its: (i) annual reports on form 10-K for the years ended
July 31, 1995, 1994, and 1993, as filed with the SEC; (ii) quarterly reports on
form 10-Q for the three months ending October 31, 1995, as filed with the SEC;
(iii) proxy statements relating to all meetings of its shareholders (whether
annual or special) held or scheduled to be held since January 1, 1992; and (iv)
all other reports, statements, registration statements and correspondence to or
from the SEC (including current reports on Form 8-K) filed by it with the SEC
since January 1, 1992 (collectively the "Parent SEC Filings"). As of their
respective dates, none of the required Parent reports, or the Parent SEC
Filings contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of Parent, included in
the Parent SEC Filings, present fairly the consolidated financial position of
Parent, results of operations and cash flows of the Parent, as of the dates and
for the periods indicated therein in conformity with generally accepted
accounting principals applied on a consistent basis ("GAAP").
27. Banks and Other Depositories. The Disclosure Schedule shall set forth a
complete list of the names and account numbers of each of Parent's existing
bank accounts, brokerage accounts, savings accounts, certificates of deposit
and similar cash investments, and safe-deposit boxes, and such accounts held
for the last two (2) years, together with the identification of persons
authorized to withdraw or otherwise deal with them.
28. Powers of Attorney. The Disclosure Schedule shall list all powers of
attorney granted by Parent, together with the names of all persons, if any,
holding such powers of attorney. True, complete and correct copies of the
documents evidencing such powers of attorney have been delivered to the Company
prior to the date hereof.
29. Absence of Undisclosed Liabilities. Parent, as of the date of this
Agreement does not have any known material liability of any nature, whether
accrued, absolute or contingent, of a type which is reflected in balance sheets
(including the notes to them) prepared in accordance with generally accepted
accounting principles which was not disclosed or fully reflected or reserved
against in the appropriate Parent Financial Statement; further, Parent does not
have on the date of this Agreement any known debts, obligations or liabilities
of any nature including accrued tax liabilities, other governmental charges,
duties, penalties, interest or fines due or to become due whether accrued,
absolute or contingent, and whether incurred in respect of or measured by its
income for any period prior to the date of any of the Parent Financial
Statements or arising out of any transaction entered into or any facts existing
prior to such dates, except such debts, obligations and liabilities as are
reflected in the Parent Financial Statement.
30. Receivables. Except as described on the Disclosure Schedule, Parent has
no overdue or uncollected account receivables.
31. Inventories. Other than as described on the Disclosure Schedule, Parent
has no remaining inventories, materials or supplies.
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32. Tax Reports and Returns. Except as set forth in the Disclosure Schedule,
Parent has timely filed all federal, and applicable state, local and foreign
tax or assessment reports and returns of every kind required to be filed by it
and has paid all taxes, and other charges due or claimed to be due by any
taxing authorities. True and correct copies of reports and returns filed by
Parent within the last five (5) years shall be delivered to the Company, and
its counsel, no later than February 1, 1996.
33. Absence of Other Changes or Events. Except as disclosed in the
Disclosure Schedule, or agreed to by the Board of Directors of the Company, in
writing, Parent has not: (a) created or incurred any liability (absolute or
contingent) except unsecured current liabilities incurred for other than money
borrowed, renewals of existing borrowings, and liabilities under insurance and
other contracts entered into in the ordinary course of business (and in
compliance with this Agreement); (b) mortgaged, pledged or subjected to any
lien or otherwise encumbered any of its assets, tangible or intangible, except
in the ordinary course of business; (c) discharged or satisfied any lien or
encumbrance or paid any obligation or liability (absolute or contingent) other
than current liabilities shown on the Parent Financial Statements (including
current installments of long-term debt shown on them), taxes and current
liabilities incurred since the date of this Agreement, except in the ordinary
course of business; (d) waived any rights in excess of $25,000 in value in the
aggregate; (e) made any capital expenditures, or capital additions or
betterments, which individually exceeded $25,000 in value; (f) sold or
otherwise disposed of any of its assets, tangible or intangible, or cancelled
any debts or claims except, in each case, in the ordinary course of business
(and in compliance with this Agreement); (g) declared or paid any dividends or
made any other distributions or payment on or in respect of, or directly or
indirectly purchased, retired, redeemed or otherwise acquired, any shares of
its capital stock; (h) made or become a party to any contract, commitment or
other arrangement or renewed, extended, amended or modified any contract,
commitment or other arrangement which in any one case involved an amount in
excess of $25,000, except in the ordinary course of business (and in compliance
with this Agreement); (i) made or suffered any material change in its assets;
(j) sold or otherwise disposed of any leases pertaining to its assets, or
entered into any renewals or extensions of existing leases or entered into any
new leases; (k) waived any material rights with respect to its assets or made
or permitted any amendment or termination of any material contract, license,
franchise or agreement; (l) altered or revised its accounting principles,
procedures, methods or practices; (m) removed, or permitted to be removed, from
any building, facility or real property, any machinery, equipment, fixture,
vehicle or other personal property or parts thereof, except in the ordinary
course of business (and in compliance with this Agreement); (n) changed its
credit policy as to sales of inventories or collection of receivables; (o)
granted or committed to grant any options, warrants or other rights to
subscribe for or purchase or otherwise acquire any shares of its capital stock
or other securities or other ownership interests in it; or (p) issued or sold
or committed to issue or sell any shares of its capital stock or other
securities or other ownership interests in it.
34. Taxes Concerning Employees. Except as disclosed in Parent's Disclosure
Schedule:
(a) proper and accurate amounts have been withheld by Parent from the
compensation of all of its employees for all periods in full and complete
compliance with the tax withholding provisions of any applicable laws;
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(b) proper and accurate returns have been filed by Parent for all periods
for which returns were due with respect to employee income tax, social
security tax, unemployment taxes and any other taxes related to the payment
of compensation to its employees, and the amounts shown on such returns to be
due and payable have been paid in full or adequate provisions for payment of
such amounts have been included in the Parent Financial Statements;
(c) hours worked by, and payments made to, employees of Parent have not
been in violation of the Fair Labor Standards Act or any other applicable
laws dealing with such matters;
(d) all payments due from Parent on account of employee health and welfare
insurance have been accrued as a liability in the Parent Financial
Statements; and
(e) all severance payments which are or were due under the terms of any
agreement, oral or written, have been accrued as a liability in the Parent
Financial Statements.
35. Employment Contracts; Collective Bargaining Agreements. Except as
disclosed in the Disclosure Schedule, on the date of this Agreement, Parent has
no employment contracts or other agreements of any kind whatsoever for the
compensation of any of its directors, officers, employees or agents or
providing for such compensation directly or indirectly, and on the date of this
Agreement, Parent has no obligations to its directors, officers, employees or
agents other than obligations arising in the ordinary course of business on
account of wages, salaries and commissions for prior services performed or
business produced. Except as disclosed in the Disclosure Schedule, Parent is
not party to any collective bargaining or other agreement with any labor
organization with respect to any of its employees; there is no labor strike or
disturbance, or union organization with respect to any of its employees; there
is no union organizing effort or unfair labor practice pending or threatened
against it; and it has not engaged in any unfair labor practices. True and
correct copies of all employment contracts or collective bargaining agreements
listed in the Disclosure Schedule shall be delivered to the Company and its
counsel along with such Disclosure Schedule.
36. Administration of Employee Plans. Each of the Parent Employee Plans in
existence has been consistently administered in accordance with the terms and
provisions of ERISA and/or any other applicable laws; each of such Employee
Plans meets the applicable requirements for qualification under Section 401(a),
and exemption under Section 501 (a), of the Code and/or any other applicable
laws; each of such Employee Plans has not at any time engaged in any prohibited
transaction within the meanings of sections 503 and 4975 of the Code or Section
406 of ERISA or similar provisions of any other applicable law; no funding
deficiency exists with respect to such Employee Plans within the meaning of
Section 412 of the Code or Part 3 of ERISA or similar provisions of any other
applicable law; and all proper and accurate federal, state and other returns,
reports and filings with respect to each of such Employee Plans has been filed
and any amounts shown thereon to be due and payable have been paid in full.
37. Warranties; Products. Parent has not sold, or received notice of, any
product or group of products, service or type of services which are defective
or nonconforming to the warranties, contractual requirements or covenants made
with respect to them by Parent to its customers which have not been repaired,
replaced or corrected prior to the date of this Agreement or that will result
in returns after the Closing Date for repair under warranty and/or allowance by
customers, at a cost to exceed $25,000 individually or in the aggregate.
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38. Environmental Protection. Parent has obtained all permits, licenses and
other authorizations which are required under federal, state and local laws
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, hazardous or toxic materials or wastes into ambient air, surface
water, ground water or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
("Environmental Laws"). Parent is in full and complete compliance with all
terms and conditions of such required permits, licenses and authorizations and
is also in full compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws or contained in any plan, order,
decree, judgment or notice. Parent is not aware of, nor has it received notice
of, any events, conditions, circumstances, activities, practices, incidents,
actions or plans which may interfere with or prevent continued compliance or
which may give rise to any liability under any Environmental Laws or the common
law.
39. Recommendation and Approvals. The Board of Directors of Parent has
determined that the transactions contemplated by this Agreement are in the best
interests of Parent's shareholders, and has by resolution duly adopted by such
Board, approved this Agreement and all of the transactions contemplated hereby
and has affirmatively and unanimously recommended that Parent's shareholders
adopt this Agreement.
40. Absence of Questionable Payments. Neither Parent nor any affiliated
entity of Parent, nor any officer, director, agent, employee or other person of
Parent, nor any affiliated entity or person, has used any corporate or other
funds for any unlawful contributions, payments, gifts or entertainment, or made
any unlawful expenditures in any way relating to any political activity,
government officials or others, and neither Parent, or any affiliated entity,
nor any director, officer, agent, or employee or other person authorized to act
on behalf of Parent, or any affiliated entity, has accepted or received any
unlawful contributions, payments, gifts or expenditures.
ARTICLE XI.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to Parent and Subsidiary as follows:
1. Organization. Each of the Company and the Company Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Minnesota, has corporate power to carry on its business as
it is now being conducted and is qualified to do business in every jurisdiction
in which the character and location of the assets owned by it or the nature of
the business transacted by it requires qualification or in which failure to so
qualify would have a material adverse impact on it. No proceeding is pending,
or to the knowledge of the Company threatened, involving the Company or the
Company Subsidiaries in which it is alleged that the nature of its or their
business makes qualification necessary in any additional jurisdiction.
Complete and correct copies of the Articles of Incorporation and Bylaws of the
Company and each of the Company Subsidiaries, as amended to the date hereof,
have been delivered to Parent.
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2. Authorization and Validity of Agreement. The Company has all requisite
corporate power and authority to enter into this Agreement and, subject to
obtaining the necessary approval of its shareholders, to perform its
obligations hereunder. The execution, delivery and performance by the Company
of this Agreement and the consummation by it of the transactions contemplated
hereby have been duly authorized by its Board of Directors and, subject to
obtaining the approval of its shareholders, no other corporate action on the
part of the Company is necessary to authorize the execution and delivery by the
Company of this Agreement and the consummation by it of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and is a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject, as to the
enforcement of remedies, to applicable bankruptcy, insolvency, moratorium and
other laws affecting the rights of creditors generally, and except that rights
to indemnity and contribution may be limited by federal or state securities
laws and subject to general principles of equity.
3. Capitalization. The Company's capitalization consists of 100,000,000
authorized shares of Company Common Stock, of which 10,000,000 shares are
issued and validly outstanding as of the date hereof. Each issued and
outstanding share is validly issued, fully paid, non-assessable and is
entitled to one (1) vote. The Company has granted, or committed to grant,
options and warrants, as of the date hereof, to acquire 3,065,000 and 156,750
shares, respectively, of the Company Common Stock and has reserved for issuance
up to an additional 6,935,000 shares pursuant to a Company stock option plan.
The number of such Company outstanding shares is subject to change prior to the
Effective Date by reason of possible exercises of options and warrants and
additional grants of Company options and warrants subject to the consent of
Parent, with such consent not to be unreasonably withheld. All outstanding
Company shares are free and clear of any encumbrance, pledge, voting
arrangement or any other lien or agreement.
4. Information and Completeness of Disclosure. The Company has delivered
to Parent all information concerning the Company as requested by Parent or its
counsel. The statements set forth herein and all copies of documents referred
to, and furnished to, Parent are materially true, complete and correct.
Neither this Agreement nor any Exhibit, certificate, schedule, instrument or
other information furnished or to be furnished to Parent pursuant to this
Agreement or in connection with the transactions contemplated by this Agreement
by the Company, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading. The Company has no
knowledge of any fact which materially and adversely affects the present or
proposed business or condition (financial or otherwise) of the Company, or any
of its assets which has not been set forth herein or in any Exhibit,
certificate, schedule or other instrument furnished to Parent or its counsel.
5. Disclosure of Information. The Company shall cause its Disclosure
Schedule, setting forth all information required by this Agreement, with all
required exhibits attached thereto, to be delivered to Parent no later than
February 1, 1996. The content of the information contained in such Disclosure
Schedule shall be reasonably acceptable to Parent and its counsel at the time
of delivery. Such Disclosure Schedule shall be updated and brought current
(the "Updated Disclosure Schedule") on the Closing Date. In the event the
content of the Updated Disclosure Schedule continues to include items from the
initial Disclosure Schedule that have not been cured, or waived, to the
reasonable satisfaction of Parent and its counsel, or disclose materially
adverse changes from the initial Disclosure Schedule, Parent shall not be
obligated to close on this transaction.
6. Financial Statements. The Company has delivered to Parent:
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(a) copies of its audited consolidated balance sheet for the fiscal year
ending as of March 31, 1995 and related consolidated statements of operation,
stockholders equity and cash flows for the year then ended, including the
notes thereto, certified by Lund, Koehler, Cox & Company, PLLP, independent
certified public accountants;
(b) copies of its unaudited consolidated balance sheet for the fiscal year
ending as of March 31, 1994, and the related unaudited consolidated
statements of operation, stockholders equity and cash flows for the year then
ended, including the notes thereto; and
The Company shall have delivered:
(c) by February 1, 1996, copies of its unaudited consolidated balance
sheet as of December 31, 1995, and related unaudited consolidated statements
of operation, stockholders equity and cash flows for the nine month period
then ended.
All of such financial statements are true and complete (in the case of (b) and
(c) above, in all material respects) and have been prepared in accordance with
generally accepted accounting principles consistently followed throughout the
periods indicated, except as otherwise indicated in the notes thereto. Each of
such balance sheets presents a true and complete statement (in the case of (b)
and (c) above, in all material respects) as of its date of the financial
condition and assets and liabilities of the Company. Each of such statements
of operation, stockholders equity and cash flows presents a true and complete
statement (in the case of (b) and (c) above, in all material respects) of the
results of operations of the Company for the periods indicated.
7. Good Title to Real Property. The Company has good and marketable title
to, free and clear of any material liens, claims, options or other
encumbrances, and the right to possession of, all of its real properties which
are legally described in the Disclosure Schedule. The Company has valid leases
under which it is entitled to occupy and use in its business all real property
of which it is in possession, and the Company is not in default under any such
lease. Copies of such leases are attached to the Disclosure Schedule.
8. Good Title to Personal Property. The Company has good and marketable
title to the machinery, equipment, merchandise, supplies and other property of
every kind, tangible or intangible, contained in its offices, plants and other
facilities or shown as assets in its records and books of account, free and
clear of all liens, encumbrances and charges, except as reflected in the
financial statements. The Company has valid leases under which it is entitled
to use in its business all personal property of which it is the lessee. The
Company has no knowledge of any default under any such lease.
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9. Intellectual Property. The Company owns the copyrights, trademarks,
trade names, trade secrets and registrations specified in the Disclosure
Schedule; it has not granted any licenses to use such copyrights, trademarks,
trade names or trade secrets; and there are no claims to the effect that any
other person has a right to use any of such copyrights, trademarks, trade names
or trade secrets. No other copyrights, trademarks, trade names or trade
secrets are owned by the Company or are used in its business. The Company
owns, or has the right to use and/or sublicense as the case may be, pursuant to
valid and enforceable license agreements in its favor, the computer and
data-processing software used by the Company in the course of its business.
There are no claims pending or, to the knowledge of Company, threatened, that
the rights of any other person or entity are infringed upon by the Company's
use of such software, and the Company has no knowledge of any person or entity
infringing upon the software owned or used by the Company.
10. Inventions. The Company owns the inventions, letters patent,
applications for letters patent and patent license rights specified in the
Disclosure Schedule; it has not granted any licenses to use such inventions,
letters patent, applications for letters patent or patent license rights; and
there are no claims to the effect that any other person has a right to use any
of such inventions, letters patent, applications for letters patent or patent
license rights. No other inventions, letters patent, applications for letters
patent or patent license rights are owned by the Company or are used by it in
its business.
11. Taxes. All taxes imposed by the United States or by any foreign country
or by any state, municipality, subdivision or instrumentality of the United
States or of any foreign country or by any other taxing authority, which are
due or payable by the Company, have been paid in full or are adequately
provided for by reserves shown in the records and books of account of the
Company. The Company has no unassessed tax deficiency proposed or threatened
against it.
12. Commitments. Except for agreements described in and appended to the
Disclosure Schedule, the Company is not a party to: (i) any sales agency
agreement not subject to termination without liability or notice of sixty (60)
days or less; (ii) any contract for the purchase or sale of any materials,
products or supplies which contains any escalator, renegotiation or
redetermination clause or which commits it for a fixed term; (iii) any pension,
retirement or profit-sharing plan or agreement not cancelable within sixty (60)
days without liability; (iv) any management or consultation agreement not
terminable at will without liability; or (v) any other agreement which
materially affects the business properties or assets of the Company, or which
was entered into other than in the ordinary and usual course of business. The
Disclosure Schedule will contain the following with respect to each pension or
Profit-Sharing Plan of the Company: copy of the plan and any relevant trust
agreements, copies of any required reports to the Internal Revenue Service, the
latest report of the trustee or insurance company of the value of the assets or
the cash surrender values as of the latest anniversary of the insurance
policies held under the plan, and the latest actuarial evaluation or statement
of individual accounts.
13. Vendor Relations. The Company is enjoying good working relationships
under all of the franchise, dealer, sales representation and other agreements
necessary to the normal operation of its business.
14. Condition of Properties. All of the real and personal properties used
in the business of the Company are in good and operable condition.
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15. Insurance. The Company is adequately insured with respect to risks
normally insured against by companies similarly situated. The Disclosure
Schedule shall contain a list, and be accompanied by copies, of all existing
insurance policies of the Company, including but not limited to general
liability coverage, group insurance and pension plans. All such policies are in
full force and effect. The Disclosure Schedule shall also contain a list of all
claims for insured losses in excess of $25,000 filed by the Company during the
three (3) year period immediately preceding the date of this Agreement,
including, but not limited to, workers' compensation, automobile and general
and product liability. The Company has promptly and adequately notified its
insurance carriers of any and all claims known to it with respect to its
operations or products for which it is insured.
16. Litigation and Proceedings. Except for any litigation described in the
Disclosure Schedule, there is no suit, action or legal or administrative
proceeding pending, or to the knowledge of the Company threatened, against it,
which, if adversely determined, might materially and adversely affect the
financial condition of the Company nor is there any decree, injunction or order
of any court, governmental department or agency outstanding against the Company
having any such effect.
17. Material Contracts. Except as set forth in the Disclosure Schedule, the
Company is not a party to or bound by any written or oral contract which calls
for any of the following: (a) delivery of any goods or services at a cumulative
value in excess of $25,000, or which obligates the contracting party for a
fixed term; (b) loans, credit, financing agreements, promissory notes or other
evidences of indebtedness (including all agreements for any commitments for
future loans, credit or financing), or any other material contract, commitment
or arrangements of any kind; or (c) any guaranty. Further, provisions of any
and all such contracts, commitments or arrangements comply in all respects with
the laws of the relevant jurisdictions. All such contracts, commitments or
other arrangements will not be altered or by the consummation of the
transactions contemplated herein; and, except as specifically set forth in the
Disclosure Schedule, each contract, commitment or arrangement referred to above
is terminable without penalty, cost or liability, whether express, implied, or
by operation of law upon notice not exceeding sixty (60) days.
18. No Approvals or Notices Required; No Conflict With Other Instruments.
Neither the execution and delivery of this Agreement, nor the performance by
the Company of its obligations hereunder will: (a) violate the Company's
Articles of Incorporation or By-Laws; (b) violate any provision of law
applicable to the Company; (c) require any consent, approval, filing or notice
under any provision of law applicable to the Company; or (d) except as
otherwise required by this Agreement, require any consent, approval or notice
under, or violate, or be in conflict with, or constitute a default under any
note, bond, indenture, mortgage, deed or trust, lease, franchise, permit,
license, contract, instrument or other agreement or any order, judgment or
decree to which the Company is a party or by which it or any of its assets or
properties is bound or encumbered.
19. Directors' Agreements. Except as set forth and described in the
Disclosure Schedule, there are no written or oral agreements for the
compensation of directors of the Company. To the best of the Company's
knowledge and belief: the Company is in material compliance with all of the
terms and conditions of such agreements described on the Disclosure Schedule;
and the consummation of the transactions contemplated herein will not violate
or give any party additional rights under any such agreement.
20. Stock Agreements. Except as set forth in the Disclosure Schedule, there
are no outstanding options, warrants or other rights to subscribe for or
purchase from the Company (or any plans, contracts or commitments providing for
the issuance, or the granting of rights to acquire) any
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capital stock or other securities of the Company. There are no preemptive
rights with respect to the capital stock of the Company.
21. Minute Books. Copies of the Articles of Incorporation of the Company,
and all amendments thereto, certified as of a recent date by the Secretary of
State of Minnesota, and of its Bylaws, certified by the Company's Secretary,
which have been or will be delivered to Parent prior to Closing, are on the
date of this Agreement true, complete and correct. The minute books of the
Company are complete and correctly reflect in all material respects, all
corporate actions of the Company taken at all meetings and through written
actions and correctly record all resolutions of the Company of which certified
copies have been delivered to other parties.
22. Licenses; Compliance With Laws and Regulations. The Company has the
licenses, permits, authorizations and approvals (governmental or otherwise)
listed in the Disclosure Schedule, true and correct copies of which have been
delivered to Parent along with such Disclosure Schedule and all such licenses,
permits, authorizations and approvals are valid and in good standing. Except as
disclosed in the Disclosure Schedule, the Company is not required to have any
other material licenses, permits, authorizations or approvals to carry on its
business as presently conducted or as presently intended to be conducted. The
Company has not received any notice that any of such licenses, permits,
approvals or authorizations will lapse or be terminated by action of a
governmental authority or otherwise, and all such licenses, permits, approvals
or authorizations will not be adversely affected by the transactions
contemplated by this Agreement.
Except as disclosed in the Disclosure Schedule: (a) the Company's business
has not been conducted in material violation of any statute, law, ordinance or
regulation of any governmental entity, agency or instrumentality; (b) the
Company has materially complied, and is in material compliance, with applicable
laws, statutes, orders, rules, regulations and requirements promulgated by
governmental or other authorities relating to its business or the operation of
such business, including, without limitation, any relating to wages, hours,
hiring, promotion, retirement, working conditions, nondiscrimination, health,
safety, pensions, benefits, the production, processing, advertising or sale of
product, trade regulation, anti-kickback, export licensing, antitrust,
anti-boycott, warranties, or control of foreign exchange; and (c) the Company
has not received any notice of any sort of alleged violation of any such
statute, order, rule, regulation or requirement.
23. Environmental Protection. The Company has obtained all permits,
licenses and other authorizations which are required under federal, state and
local laws relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, hazardous or toxic materials or wastes into ambient
air, surface water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes ("Environmental Laws"). The Company is in full and
complete compliance with all terms and conditions of such required permits,
licenses and authorizations and is also in full compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in the Environmental Laws or
contained in any plan, order, decree, judgment or notice. The Company is not
aware of, nor has it received notice of, any events, conditions, circumstances,
activities, practices, incidents, actions or plans which may interfere or
prevent continued compliance with or which may give rise to any liability under
any Environmental Laws or the common law.
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24. Banks and Other Depositories. The Disclosure Schedule shall set forth a
complete list of the names and account numbers of each of the Company's bank
accounts, brokerage accounts, savings accounts, certificates of deposit and
similar cash investments, and safe-deposit boxes, together with the
identification of persons authorized to withdraw or otherwise deal with them.
25. Powers of Attorney. The Disclosure Schedule shall list all powers of
attorney granted by the Company, together with the names of all persons, if
any, holding such powers of attorney. True, complete and correct copies of the
documents evidencing such powers of attorney have been delivered to Parent
prior to the date hereof.
26. Absence of Undisclosed Liabilities. The Company does not have any known
material liability of any nature, whether accrued, absolute or contingent, of a
type which is reflected in balance sheets (including the notes to them)
prepared in accordance with generally accepted accounting principles which was
not disclosed or fully reflected or reserved against in the appropriate the
Company Financial Statement; further, the Company does not have on the date of
this Agreement any known debts, obligations or liabilities of any nature
including accrued tax liabilities, other governmental charges, duties,
penalties, interest or fines due or to become due whether accrued, absolute or
contingent, and whether incurred in respect of or measured by its income for
any period prior to the date of any of the Company Financial Statements or
arising out of any transaction entered into or any facts existing prior to such
dates, except such debts, obligations and liabilities as are reflected in the
Company Financial Statement.
27. Receivables. Except to the extent reserved against in the Company
Financial Statement, or otherwise disclosed to Parent, all notes receivable and
accounts receivable of the Company have been collected or are substantially
current. All such accounts, notes or other receivables are valid, legal and
binding obligations owing to it, enforceable against the parties to be charged,
and, in the case of any note, in accordance with its terms, not subject to any
defenses or set-offs.
28. Inventories. All of the Company's inventories, materials and supplies
consist of items of quality and quantity, in good condition and usable or
salable in the ordinary course of business. The Disclosure Schedule shall set
forth a complete list of the addresses of all warehouses or other facilities or
real properties in which the Company's inventories are located as of the date
of this Agreement.
29. Tax Reports and Returns. Except as set forth in the Disclosure Schedule,
the Company has timely filed all federal, and applicable state, local and
foreign tax or assessment reports and returns of every kind required to be
filed by it and has paid all taxes, and other charges due or claimed to be due
by any taxing authorities. True and correct copies of reports and returns filed
by the Company within the last five (5) years have been made available to
Parent.
30. Absence of Other Changes or Events. Except as disclosed in the
Disclosure Schedule, or agreed to by the Board of Directors of the Parent, the
Company has not: (a) created or incurred any liability (absolute or contingent)
except unsecured current liabilities incurred for other than money borrowed,
renewals of existing borrowings, and liabilities under insurance and other
contracts entered into in the ordinary course of business (and in compliance
with this Agreement); (b) mortgaged, pledged or subjected to any lien or
otherwise encumbered any of its assets, tangible or intangible, except in the
ordinary course of business; (c) discharged or satisfied any lien or
encumbrance or paid any obligation or liability (absolute or contingent) other
than current liabilities shown on the Company Financial Statements (including
current installments of long-term debt shown on them), taxes and current
liabilities incurred since the date of this Agreement, except in the ordinary
course of business;
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(d) waived any rights in excess of $25,000 in value in the aggregate; (e) made
any capital expenditures, or capital additions or betterments, which
individually exceeded $25,000 in value; (f) sold or otherwise disposed of any
of its assets, tangible or intangible, or cancelled any debts or claims except,
in each case, in the ordinary course of business (and in compliance with this
Agreement); (g) declared or paid any dividends or made any other distributions
or payment on or in respect of, or directly or indirectly purchased, retired,
redeemed or otherwise acquired, any shares of its capital stock; (h) made or
become a party to any contract, commitment or other arrangement or renewed,
extended, amended or modified any contract, commitment or other arrangement
which in any one case involved an amount in excess of $25,000, except in the
ordinary course of business (and in compliance with this Agreement); (i) made
or suffered any material change in its assets; (j) sold or otherwise disposed
of any leases pertaining to its assets, or entered into any renewals or
extensions of existing leases or entered into any new leases; (k) waived any
material rights with respect to its assets or made or permitted any amendment
or termination of any material contract, license, franchise or agreement; (l)
altered or revised its accounting principles, procedures, methods or practices;
(m) removed, or permitted to be removed, from any building, facility or real
property, any machinery, equipment, fixture, vehicle or other personal property
or parts thereof, except in the ordinary course of business (and in compliance
with this Agreement); (n) changed its credit policy as to sales of inventories
or collection of receivables; (o) granted or committed to grant any options,
warrants or other rights to subscribe for or purchase or otherwise acquire any
shares of its capital stock or other securities or other ownership interests in
it; or (p) issued or sold or committed to issue or sell any shares of its
capital stock or other securities or other ownership interests in it.
31. Taxes Concerning Employees. Except as disclosed in the Disclosure
Schedule:
(a) proper and accurate amounts have been withheld by the Company from the
compensation of all of its employees for all periods in full and complete
compliance with the tax withholding provisions of any applicable laws;
(b) proper and accurate returns have been filed by the Company for all
periods for which returns were due with respect to employee income tax,
social security tax, unemployment taxes and any other taxes related to the
payment of compensation to its employees, and the amounts shown on such
returns to be due and payable have been paid in full or adequate provisions
for payment of such amounts have been included in the Company Financial
Statements;
(c) hours worked by, and payments made to, employees of the Company have
not been in violation of the Fair Labor Standards Act or any other applicable
laws dealing with such matters;
(d) all payments due from the Company on account of employee health and
welfare insurance have been accrued as a liability in the Company Financial
Statements; and
(e) all severance payments which are or were due under the terms of any
agreement, oral or written, have been accrued as a liability in the Company
Financial Statements.
32. Employment Contracts; Collective Bargaining Agreements. Except as
disclosed in the Disclosure Schedule, on the date of this Agreement, the
Company has no employment contracts or other agreements of any kind whatsoever
for the compensation of any of its directors, officers,
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employees or agents or providing for such compensation directly or indirectly,
and on the date of this Agreement, the Company has no obligations to its
directors, officers, employees or agents other than obligations arising in the
ordinary course of business on account of wages, salaries and commissions for
prior services performed or business produced. Except as disclosed in the
Disclosure Schedule, it is not party to any collective bargaining or other
agreement with any labor organization with respect to any of its employees;
there is no labor strike or disturbance, or union organization with respect to
any of its employees; there is no labor strike or disturbance, union organizing
effort or unfair labor practice pending or threatened against it; and it has not
engaged in any unfair labor practices. True and correct copies of all employment
contracts or collective bargaining agreements listed in the Disclosure Schedule
shall be delivered to Parent along with such Disclosure Schedule.
33. Administration of Employee Plans. To the best of the Company's
knowledge, each of the Company Employee Plans in existence has been
consistently administered in accordance with the terms and provisions of ERISA
and/or any other applicable laws; each of such Employee Plans meets the
applicable requirements for qualification under Section 401(a), and exemption
under Section 501 (a), of the Code and/or any other applicable laws; each of
such Employee Plans has not at any time engaged in any prohibited transaction
within the meanings of sections 503 and 4975 of the Code or Section 406 of
ERISA or similar provisions of any other applicable law; no funding deficiency
exists with respect to such Employee Plans within the meaning of Section 412 of
the Code or Part 3 of ERISA or similar provisions of any other applicable law;
and all proper and accurate federal, state and other returns, reports and
filings with respect to each of such Employee Plans has been filed and any
amounts shown thereon to be due and payable have been paid in full.
34. Warranties and Products. The Company has not sold, or received notice
of, any product or group of products, service or type of services which are
defective or nonconforming to the warranties, contractual requirements or
covenants made with respect to them by the Company to its customers which have
not been repaired, replaced or corrected prior to the date of this Agreement or
will result in returns after the Closing Date for repair under warranty and/or
allowance by customers at a cost to exceed $50,000.
35. Product Liability Claims. The Company is not on the date of this
Agreement subject to any known asserted claims for liability on account of
products sold or services rendered on or prior to such date, which are not
fully covered, including all costs of defense and investigation related to such
claims, by its or its vendors' general liability insurance policies.
36. Recommendation and Approvals. The Board of Directors of the Company has
determined that the transactions contemplated by this Agreement are in the best
interests of the Company's shareholders and has by resolution duly adopted by
such Board approved this Agreement and all of the transactions contemplated
hereby and has affirmatively and unanimously recommended that the Company's
shareholders adopt this Agreement.
ARTICLE XII.
INVESTMENT BANKERS; FAIRNESS OPINION
The Constituent Corporations represent to one another that all negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried on directly between the parties hereto without intervention of any
other person or entity other than: (i) the investment banking services of R. J.
Steichen & Co., Minneapolis, Minnesota, whose fee shall be paid, at Closing, by
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Parent (such payment to be reflected on a post-closing, consolidated basis);
and (ii) the investment banking services of Summit Investment Corporation,
Minneapolis, Minnesota, who shall have delivered the fairness opinion
referenced in Article XVI, paragraph 17 and whose fee shall be paid by the
Parent prior to Closing.
ARTICLE XIII.
CONDUCT OF BUSINESSES PRIOR TO CLOSING
1. Negative Covenants. Except as otherwise contemplated or required by this
Agreement, from and after the date of this Agreement, and prior to the
Effective Date, none of the Constituent Corporations shall, without the prior
written consent of the other, which consent shall not be unreasonably withheld:
(a) amend its Articles of Incorporation (except, in the case of the
Parent, as set forth in Exhibit A) or Bylaws;
(b) engage in any material activity or transaction or incur any material
obligation (by contract or otherwise) except in the ordinary course of
business;
(c) issue rights or options to purchase or subscribe to any shares of its
capital stock or subdivide or otherwise change any such shares;
(d) issue or sell any shares of its capital stock or securities
convertible into shares of its capital stock, except that (i) the Company may
issue shares of its Common Stock upon the exercise of options or warrants
heretofore granted and outstanding at the date of this Agreement, and (ii)
Parent may issue shares of its Common Stock upon the exercise of options or
warrants heretofore granted and outstanding at the date of this Agreement,
subject to the express limitations set forth in Article VI, paragraph 6
hereof;
(e) declare or pay any dividends on or make any distributions in respect
of any shares of its capital stock; and
(f) except in the ordinary course of business, put into effect any
material increase in compensation or other benefits for officers, employees
or directors.
2. Affirmative Covenants. From and after the date of this Agreement, and
prior to the Effective Date, the Constituent Corporations will:
(a) use their best efforts to preserve their respective business
organizations intact;
(b) keep available to the Parent the services of the officers and
employees of the Constituent Corporations;
(c) preserve for the Parent the good will of the Constituent Corporations'
suppliers, customers and others having business relationships with the
Constituent Corporations;
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(d) maintain in serviceable condition all of their respective business
premises, machinery, equipment, supplies, inventories and other properties;
(e) perform all contracts under prescribed terms that are material to the
operation of their respective businesses; and
(f) pay when due all taxes.
ARTICLE XIV.
ADDITIONAL AGREEMENTS
The Constituent Corporations further covenant and agree as follows:
1. Access and Information. Parent and the Company hereby agree that each
will give to the other and to the other's accountants, legal counsel and other
representatives full access during normal business hours throughout the period
prior to Closing and the Effective Date, to all of its' (and, in the case of
Parent, Subsidiary's) properties, books, contracts, commitments and records,
and that each will furnish the other during such period with all such
information concerning its affairs as such other party may reasonably request,
including interim financial statements. In the event of the termination of this
Agreement, each party will deliver to the other all documents, work papers and
other material obtained from the other relating to the transactions
contemplated thereby, whether so obtained before or after the execution hereof,
and will use its best efforts to have any information so obtained and not
heretofore made public kept confidential.
2. Company 1994-1997 Stock Option Plan. The Company 1994-1997 Stock Option
Plan under which the Company's Options are outstanding and which Options are in
effect at the Effective Date shall continue thereafter as the Stock Option Plan
of the Parent, subject to amendments, abandonment or termination as provided
therein. At and after the Effective Date, references to the Company in such
Plan and agreements and in the options outstanding thereunder shall be deemed
to refer to the Parent.
3. Expenses; "Break-Up" Fee. Upon a termination of this Agreement as
provided in Article XIX hereof:
(a) each of the parties hereto shall equally share the costs and
out-of-pocket expenses related to the Reorganization, and related
transactions, including without limitation, fees and expenses of legal
counsel, accountants and printers, for services used, hired or connected with
the acquisition. Each of the parties agrees to keep the other party
reasonably informed as to expenses expected to be incurred, including
providing good faith estimates, as reasonably requested. Each of the parties
represents and warrants that no broker, finder or investment banker has been
retained, dealt with or consulted in connection with the transactions
contemplated by this Agreement, and that, insofar as it knows, no broker,
finder or investment banker is entitled to any commission or finder's fee or
similar amount in connection with the Reorganization, except as incurred by
Parent as provided in Article XII hereof;
(b) if any party to this Agreement: (i) breaches any of its
representations, warranties, covenants, conditions, or other obligations to
the other hereunder; or (ii)
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subsequent to October 3, 1995 (a) receives an offer, whether written or oral,
from any other party (a "Third Party") and within six months of the date of
this Agreement, sells substantially all of its assets to such Third Party (or
agrees so to do) or merges or consolidates with such Third Party (or agrees
so to do), or (b) enters into a binding or nonbinding 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 any such Third
Party of a controlling interest in its stock, then in each of the cases
specified in (i) and (ii) above, the breaching party shall promptly pay the
non-breaching party, as liquidated damages and not as a penalty, the amount
of the non-breaching party's out of pocket expenses related to this proposed
transaction, plus $100,000, all in cash. The term "Third Party" in this
subparagraph shall mean any person, entity or group of persons or entities or
any affiliate of such Third Party.
4. Further Assurances. If at any time Parent shall be advised that any
further assignment or assurance in law or other action is necessary or
desirable to vest, perfect, or confirm, of record or otherwise, in the Parent,
the title to any property or rights of the Company acquired or to be acquired
by or as a result of the Reorganization, the proper officers and directors of
the Constituent Corporations shall be, and they hereby are, severally and fully
authorized to execute and deliver such proper deeds, assignments and assurances
in law and take such other action as may be necessary or proper in the name of
the Parent to vest, perfect or confirm title to such property or rights in the
Parent and otherwise carry out the purposes of this Agreement.
5. Public Announcements; Press Releases. Parent and the Subsidiary, on the
one hand, and the Company, on the other, will consult with each other before
issuing any press release or otherwise making any public statements with
respect to this Agreement, or the transactions contemplated hereby, and
further, will not issue any such press release or make any such public
statement prior to such consultation. Notwithstanding the foregoing, neither
Parent nor Company shall be prohibited from issuing any press release or making
any public statement as may be required under applicable law, but in any such
event, Parent or the Company, as the case may be, shall notify the other party
prior to taking such action.
6. Compliance. The Company agrees and hereby covenants that it will
continue to comply with and perform all of its obligations under that certain
Stock Redemption Agreement dated July 31, 1995, those certain Security,
Noncompete and Consulting Agreements of even date therewith, each between the
Company and an outside director of the Company, until all of the Company's
obligations are fulfilled or otherwise discharged.
ARTICLE XV.
CONDITIONS PRECEDENT TO PARENT'S OBLIGATIONS
The obligations of Parent hereunder are subject to the conditions that, on or
before the Effective Date:
1. Approval of the Reorganization. This Agreement and the consummation of
the transactions contemplated hereby shall have been approved by the Boards of
Directors and the shareholders of each of the Constituent Corporations. The
votes required for approval will be governed by Minnesota law and the charter
documents and bylaws of each of the Constituent Corporations.
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2. Compliance With This Agreement. The Company shall have performed and
complied in all material respects with all agreements, covenants and conditions
required by this Agreement to be performed or complied with prior to or at the
Effective Date and shall have satisfied in all material respects any due
diligence review of Parent.
3. No Injunction. On the Effective Date, there shall be no effective
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction directing that the transactions
provided for herein or any one of them not be consummated as herein provided.
4. No Litigation or Governmental Proceedings. No litigation or
governmental action or proceeding shall be threatened or have been instituted
and, at what would otherwise have been the time of filing of the Articles of
Merger, remain pending by or before a court or other governmental body, agency
or authority to restrain or prohibit the transactions contemplated by this
Agreement, or which would have a material adverse effect on the business or
financial condition of the Company.
5. Statutory Requirements. All statutory requirements for the valid
consummation by the Constituent Corporations of the transactions contemplated
by this Agreement and the Articles of Merger shall have been fulfilled. All
authorizations, consents and approvals of all federal and state governmental
agencies and authorities required to be obtained by this Agreement and the
Articles of Merger shall have been obtained.
6. Representations and Warranties of the Company to be True. The
representations and warranties of the Company herein contained shall be true in
all material respects at the Closing Date with the same effect as though made
at such time, except to the extent waived hereunder or affected by the
transactions contemplated herein; the Company shall have materially performed
all obligations and materially complied with all covenants and conditions
required by this Agreement to be performed or complied with by it prior to the
Closing Date; and the Company shall have delivered to Parent a certificate of
the Company, in form and substance reasonably satisfactory to Parent, dated the
Closing Date and signed by the Company's President, to all such effects.
7. Opinion of Counsel of the Company. Parent shall have received from
Oppenheimer Wolff & Donnelly, legal counsel to the Company, a legal opinion,
dated the Closing Date, in form and substance satisfactory to Parent and its
counsel, substantially to the effect that:
(a) the Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota, and has the corporate
power to carry on its business as now being conducted;
(b) this Agreement and the Articles of Merger have been duly executed and
delivered by the Company and constitute the valid and binding obligations of
the Company subject to customary conditions, and all actions required to be
taken by the Company by law and by its Restated Articles of Incorporation and
Bylaws to authorize the Reorganization and the execution, delivery and
performance of this Agreement and the Articles of Merger have been taken, and
the Company has the corporate power to effect the Reorganization provided for
in this Agreement and the Articles of Merger;
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(c) the numbers of authorized shares of the Company Common Stock, of
issued and outstanding shares of the Company Common Stock, and of issued and
outstanding Company Options as represented in this Agreement, have been duly
authorized and validly issued, are fully paid and non-assessable, and all
issued and outstanding Company Options have been duly authorized and validly
issued, and are valid and binding obligations of the Company, enforceable in
accordance with their terms;
(d) to the best of such counsel's knowledge and belief, neither the
execution and delivery by the Company of this Agreement or the Articles of
Merger, nor compliance with the terms and provisions hereof or thereof, will
materially conflict with, or result in a material breach of, any of the
terms, conditions or provisions of any material agreement, contract or
commitment listed herein, or of any judgment, order, decree, ruling, or
injunction of any court or governmental authority applicable to the Company;
(e) to the best of such counsel's knowledge and belief, all
authorizations, consents, or approval of governmental authorities or agencies
of the United States or of the State of Minnesota as are required in order to
permit consummation by the Company of the transactions contemplated by this
Agreement have been obtained;
(f) to the best of such counsel's knowledge and belief, no litigation or
governmental action or proceeding shall be threatened or have been instituted
and remain pending by or before a court or other governmental body, agency or
authority to materially restrain or prohibit the transactions contemplated by
this Agreement, or which would have a material adverse effect on the business
or financial condition of the Company; and
(g) to the best of such counsel's knowledge and belief, the Company, and
its affiliated entities, possess or have the right to use to the extent they
are now using, all proprietary rights (including, without limitation,
patents, trade secrets, technology, know-how, copyrights, trademarks,
tradenames, and rights to any of the foregoing), the failure to possess which
would have a material adverse effect on the Company or would prevent the
Company form carrying on its business and the consummation of the
transactions contemplated by the Agreement will not materially alter or
impair any such rights.
In giving the foregoing opinion, such counsel may rely, as to matters of
fact, upon certificates of the Company or public officials, and as to matters
of law upon opinions of other counsel, provided that the Company's counsel
shall state that such counsel believes that it is justified in relying upon
such certificates and opinions and delivers copies of them to Parent prior to
the Closing Date.
8. Auditors Examination; Tax-Free Reorganization Status. Parent's auditors
shall have performed procedures with regard to the financial statements of the
Company, including performing analytical procedures, comparison of results with
prior audited results, and performing inquiry of appropriate management
personnel, and shall be satisfied or otherwise waive their opportunity to
contest that the financial statements of the Company are presented in
accordance with generally accepted accounting principles applied on a
consistent basis in all material respects and that the proposed transaction may
be consummated as a tax-free reorganization.
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9. Due Diligence. Parent shall have completed its due diligence review of
the Company, including (at the option of Parent), but not limited to, one or
more evaluations by an expert or experts in the Company's line of business, and
the results of such review shall be satisfactory and acceptable to Parent in
its reasonable judgment.
ARTICLE XVI.
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS
The obligations of the Company hereunder are subject to the following
conditions:
1. Completed Transactions; Other Financial Matters. On or before February
1, 1996, Parent, and its counsel, shall provide to the Company, and its
counsel, written evidence satisfactory to the Company and its counsel, in their
sole discretion, that the following matters and items have been fully
completed, executed and delivered to the reasonable satisfaction of the Company
and its counsel:
(a) Parent's balance sheet shall show that Parent has tangible net worth
less non-current assets of at least $3,000,000, cash of at least $1,000,000
and no liabilities. Such Parent balance sheet will be prepared in accordance
with generally accepted accounting principles consistently applied;
(b) Parent shall have satisfied, in full, any debt owing to Branch, Bank &
Trust and any and all outstanding accrued interest related thereto;
(c) Parent shall have satisfied any and all indebtedness (including all
fees and accrued interest) and other amounts payable to related parties;
(d) Parent shall have satisfied any accrued rent obligations due and owing
by Parent or its subsidiaries;
(e) Parent shall have satisfied any outstanding trade payable and related
accrued expenses;
(f) Parent shall have paid all amounts due and owing to California Pro and
any other affiliates of Parent; and
(g) Subject to approval by Parent's shareholders, Parent shall have
completed the sale of all existing trademark and related proprietary rights
of Parent to Hutch Sports USA, Inc., and provided to Company and its counsel,
executed definitive agreements with respect to such sale and transfer, and
all appropriate Board and shareholder approvals from MacMark, Parent, and
Hutch Sports USA, Inc. In addition, said transaction shall reflect Parent's
accounting for such transaction to coincide with the balance sheet criteria
required at Article XVI, paragraph 1, of this Agreement.
2. Securities Outstanding; Registration Rights. Parent shall provide the
Company, and its counsel, a current list and table of all outstanding
securities of Parent, and all securities, notes, options, warrants and related
instruments convertible into the common stock of the Parent, and any respective
and related registration rights for such securities, as of each of the
following dates:
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(a) upon the execution and delivery of this Agreement;
(b) February 1, 1996; and
(c) upon the Closing Date.
3. NASDAQ Maintenance and Listing. Upon execution of this Agreement,
Parent shall certify, and on at least a monthly basis prior to Closing,
confirm, its good standing and qualification with the various listing and
maintenance requirements of the National Association of Securities Dealers
Automated Quotron System ("NASDAQ"), and shall cooperate and assist the
Company, and its counsel, in the modification of Parent's current listing with
NASDAQ to coincide with the Closing of the transactions contemplated by this
Agreement, including, but not limited to, a modification of the Parent's NASDAQ
trading symbol. Parent shall also notify the Company within 24 hours if it
learns of any matter which may threaten or otherwise affect its good standing
and listing with respect to NASDAQ.
4. Affiliate "Lock-Up" Agreements.
(a) Upon execution of this Agreement, each of Henry Fong and Equitex,
Inc., a Delaware corporation, ("Equitex") shall execute and deliver requisite
lock-up agreements with the Company to prohibit the sale, transfer, pledge,
assignment or any other direct or indirect disposition, sale or transfer of
Parent's Common Stock held by them, during the period from the date of
execution hereof to the Closing Date, with such lock-up agreements to be
substantially in the form of Exhibit E-1 attached hereto.
(b) As of the Closing Date, each of Robert F. Olson, Henry Fong, and
Equitex, shall execute and deliver requisite lock-up agreements with Parent,
with such lock-up agreements to be substantially in the form of Exhibit E-2
attached hereto, to prohibit the sale, transfer, pledge, assignment or any
other direct or indirect disposition, sale or transfer of Parent's Common
Stock held by them, for a period of twelve (12) months following the
Effective Date; provided, however, that any such lock-up agreement shall not
preclude any secondary sales by them of Parent's Common Stock pursuant to any
secondary public offering of Parent's Common Stock pursuant to a registration
statement through any duly-licensed underwriter or broker-dealer; and
provided further, however, that the foregoing sentence shall not include the
disposition or sale by Equitex of those certain 325,000 shares, 47,000
warrants and 40,000 units representing Parent Securities purchased in the
open market and held in an account located at R.J. Steichen & Co.,
Minneapolis, Minnesota, (the "Holdings"). The Holdings may be sold or
otherwise disposed of by Equitex from time to time after the Effective Date
only with the oral approval of one of the newly-appointed officers of Parent,
with such consent not to be unreasonably withheld.
The obligations of the Company hereunder are also subject to the additional
conditions that, on or before the Closing Date, unless otherwise expressly
indicated:
5. Approval of the Reorganization. This Agreement and the consummation of
the transactions contemplated hereby shall have been approved by the Boards of
Directors and the shareholders of each of the Constituent Corporations. The
votes required for approval will be governed by Minnesota law and the charter
documents and bylaws of each of the Constituent Corporations.
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6. Dissenting Shares. Shareholders who exercise statutory dissenter's
rights shall not aggregate more than 5% of the total outstanding shares of the
Parent's Common Stock. Votes shall be solicited from shareholders by means of
a proxy statement prepared in accordance with the proxy rules promulgated by
the SEC under the Exchange Act.
7. Compliance With This Agreement. Parent and Subsidiary shall have
performed and complied in all material respects with all agreements, covenants
and conditions required by this Agreement to be performed or complied with
prior to or at the Effective Date and shall have satisfied in all material
respects any due diligence review of the Company.
8. No Injunction. On the Effective Date, there shall be no effective
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction directing that the transactions
provided for herein or any one of them not be consummated as herein provided.
9. No Litigation or Governmental Proceedings. No litigation or
governmental action or proceeding shall be threatened or have been instituted
and, at what would otherwise have been the time of filing of the Articles of
Merger, remain pending by or before a court or other governmental body, agency
or authority to restrain or prohibit the transactions contemplated by this
Agreement, or which would have a material adverse effect on the business or
financial condition of Parent.
10. Statutory Requirements. All statutory requirements for the valid
consummation by the Constituent Corporations of the transactions contemplated
by this Agreement and the Articles of Merger shall have been fulfilled,
including any requirements under federal securities laws. All authorizations,
consents and approvals of all federal and state governmental agencies and
authorities required to be obtained by this Agreement and the Articles of
Merger shall have been obtained.
11. Representations and Warranties to be True. The representations and
warranties of Parent and Subsidiary herein contained shall be true and correct
at the Closing Date with the same effect as though made at such time, except to
the extent waived hereunder or affected by the transactions contemplated
herein; Parent and Subsidiary shall have performed all obligations and complied
with all covenants and conditions required by this Agreement to be performed or
complied with by them prior to the Closing Date; and Parent shall have
delivered to the Company and its counsel at least three (3) certificates of
Parent, in form and substance satisfactory to the Company, dated the Closing
Date and signed by Parent's Chairman, President and Chief Financial Officer to
all such effects.
12. Opinion of Legal Counsel of Parent. The Company shall have received from
Ross & Hardies, legal counsel for Parent, a legal opinion, dated the Closing
Date, in form and substance satisfactory to the Company, and its counsel,
substantially to the effect that:
(a) Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Minnesota, and has the corporate
power to carry on its business as now being conducted, and that, as of the
Closing Date Parent has no operating subsidiaries either partially or
wholly-owned;
(b) this Agreement and the Articles of Merger have been duly executed and
delivered by Parent and constitute the valid and binding obligations of
Parent, and all actions required to be taken by Parent by law and by its
Articles of Incorporation and Bylaws to
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authorize the Reorganization and the execution, delivery and performance of
this Agreement and the Articles of Merger have been taken, and Parent has the
corporate power to effect the Reorganization provided for in this Agreement
and the Articles of Merger;
(c) the numbers of authorized shares of Parent Common Stock, of issued and
outstanding shares of Parent Common Stock, of issued and outstanding Parent
Options, Warrants and convertible securities, as represented in this
Agreement, all issued and outstanding Parent Common Stock and all Shares to
be issued to the Company and its shareholders pursuant to this Agreement,
have been duly authorized and validly issued, are fully paid and
non-assessable, and all issued and outstanding Parent Options, warrants and
convertible securities, have been duly authorized and validly issued, and are
valid and binding obligations of Parent, enforceable in accordance with their
terms;
(d) to the best of such counsel's knowledge and belief, neither the
execution and delivery by Parent of this Agreement or the Articles of Merger,
nor compliance with the terms and provisions hereof or thereof, will
materially conflict with, or result in a material breach of, any of the
terms, conditions or provisions of any material agreement, contract or
commitment listed herein, or of any judgment, order, decree, ruling, or
injunction of any court or governmental authority applicable to Parent;
(e) to the best of such counsel's knowledge and belief, all
authorizations, consents, or approval of governmental authorities or agencies
of the United States or of the State of Minnesota as are required in order to
permit consummation by Parent and Subsidiary of the transactions contemplated
by this Agreement have been obtained; and
(f) to the best of such counsel's knowledge and belief, no litigation or
governmental action or proceeding shall be threatened or have been instituted
and remain pending by or before a court or other governmental body, agency or
authority to materially restrain or prohibit the transactions contemplated by
this Agreement, or which would, in any way, have a material adverse effect on
the business or financial condition of Parent.
In giving the foregoing opinion, such counsel may rely, as to matters of
fact, upon certificates of Parent or public officials, and as to matters of law
upon opinions of other counsel satisfactory to the Company and the Company's
counsel, provided that Parent's counsel shall state that such counsel believes
that it is justified in relying upon such certificates and opinions and
delivers copies of them to the Company prior to the Closing Date.
13. Opinion of Tax Counsel of Parent. The Company and its counsel shall
have received from Ross & Hardies, tax counsel for Parent, a legal opinion,
dated the Closing Date, in form and substance satisfactory to the Company, and
its counsel, to the effect that the Reorganization shall qualify as a tax-free
reorganization under Section 368(a) of the Code, with the following results:
(a) no gain or loss will be recognized by the stockholders of the Company
for tax purposes upon the exchange and conversion of their shares of Company
Common Stock for shares of Parent Common Stock pursuant to the
Reorganization;
(b) the tax basis of the shares of Parent Common Stock received by each
stockholder of the Company will be the same as the tax basis of the shares of
Company Common Stock held by such stockholder immediately prior to the
Reorganization;
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(c) the holding period of the shares of Parent Common Stock received by
each stockholder of the Company will include the holding period of the shares
of Company Common Stock held by such stockholder immediately prior to the
Reorganization, provided that such stockholder held such shares of Company
Common Stock as a capital asset on the date of the Reorganization; and
(d) no gain or loss will be recognized by the Company for tax purposes in
connection with the Reorganization.
14. No Subsidiaries. Parent shall not have any operating subsidiaries or
active business operations at the Effective Date of the Reorganization, except
for the operation and business of the Subsidiary.
15. Securities Outstanding. Parent shall have only one class of authorized
capital stock outstanding (i.e., common stock) and such class shall not have
more than 12,000,000 shares outstanding. Parent will have no issued and
outstanding shares of its capital stock with any redemption rights or put
rights. Except as described in paragraph 16 below, all other classes of
capital stock of Parent, if any, will have been converted into common stock, or
if not converted, will be treated as if converted, and included in and counted
against the maximum permitted 12,000,000 shares of Parent Common Stock
outstanding.
16. Options and Warrants. Parent shall not have warrants, options or other
convertible notes or securities to purchase Parent Common Stock outstanding in
excess of 2,100,000 shares. Robert F. Olson, the Chief Executive Officer of
the Company shall have the right, prior to Closing, to designate, on a
share-for-share basis, the recipients of additional Parent $1.00 warrants or
options, in Olson's sole discretion, to purchase Parent Common Stock (subject
to the 2,100,000 maximum described herein) to the extent that the number of
shares of outstanding Parent Common Stock then exceeds 11,500,000 (the "Olson
Warrants"), including all convertible shares referenced below. All such shares
subject to an option or warrant with exercise prices of less than $1.00 per
share will be included in and counted against the maximum permitted 12,000,000
shares of Parent Common Stock outstanding on an as if converted basis.
17. Delivery of Fairness Opinion. Parent shall have obtained a fairness
opinion acceptable in form and substance to the Company, and its counsel, from
Summit Investment Corporation, Minneapolis, Minnesota, the financial advisor to
Parent, concluding that the Reorganization is fair, from a financial point of
view, to the shareholders of Parent.
18. NASDAQ Listing. At least ten (10) business days prior to the Closing
Date, Parent will provide evidence to the Company and its counsel that it has
satisfied, on a consolidated and post-merger basis, each of the initial listing
criteria for NASDAQ SmallCap Market Securities, as set forth in the NASD
Manual, Part II (Qualification Requirements for NASDAQ Stock Market Securities)
found at Section 1(c) of Schedule D to the NASD Bylaws which include, without
limitation: total assets of at least $4,000,000; capital and surplus
(stockholders' equity) of at least $2,000,000; a minimum bid price of $3.00 per
share; two registered and active market-makers; at least 300 holders of Parent
common stock; at least 100,000 publicly held shares; and a market value of at
least $1,000,000 for all such publicly held shares. Any payments to
shareholders of Parent who exercise dissenter's rights shall not cause Parent
to fail to satisfy such NASDAQ listing or maintenance criteria.
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19. Employment Contracts. Each of the members of the Company's management
team designated by Robert F. Olson shall each have entered into Employment and
Non-competition Agreements with Parent in a form satisfactory to such
individual and his or her counsel.
20. Indemnification Escrow. At least thirty (30) days prior to the Closing
Date, the parties shall have executed a mutually satisfactory escrow agreement
(the "Escrow Agreement") regarding the escrow account to be maintained at
National City Bank, Minneapolis, Minnesota, for a term of three years,
beginning on the Closing Date. The Escrow Agreement shall provide that Henry
Fong shall have caused Equitex, Inc., on or before the Closing Date, to have
deposited into the account established thereby (the "Escrow Account"), a number
of the shares of common stock of Roadmaster Industries, Inc. (which shares
shall be free of any encumbrance, pledge, voting arrangement or any other lien,
claim, encumbrance or other agreement), with an aggregate market value of at
least $1,000,000 as of the date of the opening of the Escrow Account (such
shares to be hereinafter referred to as the "Escrowed Shares"). The Escrowed
Shares (and the proceeds from any sale or disposition thereof) shall be used to
indemnify the Parent, the Company and any of their respective officers,
directors, employees and agents against any liabilities, losses, claims or
damages incurred by them after the Closing of Reorganization arising out of any
breach of representation, warranty or covenant of Parent, or any of its agents
or affiliates, in connection with the Reorganization, or in any way arising out
of the business, activities or operations of Parent or any of its predecessors.
The Escrow Agreement shall further provide that during such three-year term,
Mr. Fong shall, from time to time, be required to deposit additional shares of
unrestricted Roadmaster common stock into the Escrow Account (and that Escrowed
Shares shall be released from the Escrow Account) to the extent that the
aggregate value of the Escrow Account shall (whether as a result of a change in
market value of such stock or claims made upon such Escrow Account as
determined at the end of each calendar month during the term of the Escrow
Agreement) be less than or in excess of $1,000,000. The Escrow Agreement shall
also provide that during the first twenty-four (24) months of its term, Mr.
Fong shall promptly cause the Escrow Account to be replenished upon request by
the Board of Directors of Parent, in its sole discretion, for up to an
additional $1,000,000 in cash or unrestricted securities if, and to the extent
that, the amount in such Escrow Account shall have been depleted by the payment
of claims pursuant to the foregoing indemnification. In no event shall Mr.
Fong be obligated to deposit or cause to be deposited into the Escrow Account
(irrespective of whether such obligation to make additional deposits shall
arise pursuant to depletion of the Escrow Account due to payment of indemnity
claims, or due to changes in the market value of the Escrowed Shares) any
amount in excess of $2,000,000 during the thirty-six (36) month term of such
Escrow Agreement.
21. SEC Filings. Within thirty (30) days prior to Closing, Parent shall
have delivered to the Company and its counsel copies of all filings and other
correspondence it has filed with, sent to, or received from, the SEC during the
24 months prior to the date hereof, including but not limited to, its Forms
10-K, 10-Q, 8-K and related matters.
22. Auditors Examination; Tax-Free Reorganization. The Company's auditors
shall have performed procedures with regard to the financial statements of
Parent, including performing analytical procedures, comparison of results with
prior audited results, and performing inquiry of appropriate management
personnel, and shall be satisfied that the financial statements of Parent are
presented in accordance with generally accepted accounting principles applied
on a consistent basis in all material respects and that the proposed
transaction may be consummated as a tax-free reorganization.
23. Due Diligence. The Company and its counsel shall have completed their
due diligence review of Parent, including (at the option of the Company), but
not limited to, one or more
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evaluations by an expert or experts in Parent's line of business, and the
results of such review shall be satisfactory and acceptable to the Company and
its counsel in their reasonable judgment.
ARTICLE XVII.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
From and after the Reorganization, all representations, warranties and
covenants by the Constituent Corporations shall survive for five (5) years.
ARTICLE XVIII.
CLOSING; DELIVERIES AT CLOSING
1. Closing and Closing Date. The Closing shall be held, subject to
performance of all agreements and conditions required by this Agreement, on the
Closing Date. The Closing shall occur and be held at the offices of Oppenheimer
Wolff & Donnelly, Plaza VII, 45 South Seventh Street, Suite 3400, Minneapolis,
Minnesota 55402-1609.
2. Closing Deliveries by the Parent. At the Closing, on the Closing Date,
the Parent shall:
(a) deliver to the Company certificates dated as of the Closing Date from
each of the Chairman, President and Chief Financial Officer of the Parent to
the effect that all of the representations and warranties made by the Parent
and Subsidiary pursuant to Article X hereof are true and correct in all
material respects, that the Parent and subsidiary have not breached this
Agreement and have performed all of their obligations hereunder and that all
of the conditions to its obligations hereunder have been satisfied;
(b) deliver to the Company the duly executed legal and tax opinions of the
Parent's legal counsel described in Article XVI of this Agreement;
(c) execute and deliver to the Company the Articles of Merger;
(d) execute and deliver to the Company all other documents, certificates,
instruments and opinions required to be delivered to the Company under this
Agreement or reasonably requested by the Company or the Company's legal
counsel;
(e) issue and deliver all of the Shares of the Parent's Common Stock
required to be delivered pursuant to this Agreement to the Company's and its
shareholders; and
(f) deliver duly authorized Board of Directors resolutions in form and
substance satisfactory to the Company granting the newly appointed Parent
officers access to all existing Parent accounts, including, but not limited
to, bank, money market, securities and other Parent accounts maintained at
any financial institution.
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<PAGE> 163
3. Closing Deliveries by the Company. At the Closing, on the Closing Date,
the Company shall:
(a) deliver to the Parent a certificate dated as of the Closing Date of
the President of the Company to the effect that all of the representations
and warranties made by the Company pursuant to Article XI hereof are true and
correct in all material respects, that the Company has not breached this
Agreement and has performed all of its obligations hereunder and that all of
the conditions to its obligations hereunder have been satisfied;
(b) deliver to the Parent the duly executed opinion of the Company's legal
counsel described in Article XV of this Agreement;
(c) execute and deliver to the Parent the Articles of Merger;
(d) execute and deliver to the Parent all other documents, certificates,
instruments and opinions required to be delivered to the Parent under this
Agreement or reasonably requested by the Parent or the Parent's legal
counsel; and
(e) deliver, for cancellation, all of the Company's outstanding common
shares to Parent and Subsidiary pursuant to this Agreement.
ARTICLE XIX.
TERMINATION AND ABANDONMENT
Anything herein or elsewhere to the contrary notwithstanding, this Agreement
may be terminated and abandoned at any time, before the Effective Date, whether
before or after adoption or approval of this Agreement by the shareholders of
the Constituent Corporations as follows, and in no other manner:
1. By the mutual consent of the Boards of Directors of the Constituent
Corporations;
2. By the Company if, prior to the Effective Date, the conditions set forth
in Article XVI shall not have been met;
3. By the Parent if, prior to the Effective Date, the conditions set forth
in Article XV shall not have been met; or
4. By either Parent or Company, if the requisite approval of the
shareholders of the Constituent Corporations shall not have been obtained on or
before April 1, 1996, or if the Articles of Merger shall not have been filed as
provided in Article I hereof on or before April 15, 1996.
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<PAGE> 164
ARTICLE XX.
MISCELLANEOUS
1. Counterparts. The headings in this Agreement shall not affect in any way
its meaning or interpretation. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Facsimile
signatures shall be acceptable.
2. Amendments. Any of the terms or conditions of this Agreement may be
modified, or waived, at any time before the Effective Date by the party that
is, or the shareholders of which are, entitled to the benefit thereof upon the
authority of the Board of Directors of such party, provided that any such
modification or waiver shall not, in the reasonable judgment of the party
making it, materially adversely affect the benefits to such party or its
shareholders intended under this Agreement.
3. Arbitration. All claims, disputes, controversies, and other matters in
question arising out of or relating to this Agreement or to the breach thereof
("Matters") and which cannot be amicably resolved by the parties shall be
resolved by binding arbitration in accordance with procedures as follows:
(a) Notice. If a party intends to initiate binding arbitration to resolve
a Matter, that party shall provide written notice to the other party
informing the other party of that intention and the Matter to be resolved.
Within 10 business days after its receipt of that notice, the other party
may, by written notice to the party initiating binding arbitration, add
additional Matters to be resolved.
(b) Binding Arbitration. Upon filing of a notice to initiate binding
arbitration by either party, the parties shall choose a single arbitrator by
mutual agreement within twenty (20) business days following the receipt of
the original notice to initiate binding arbitration. If the parties are
unable to agree on a mutually acceptable arbitrator within that twenty (20)
period, the arbitrator shall be selected from a list of prospective
arbitrators compiled and submitted to the parties by the American Arbitration
Association. The party initiating the arbitration shall make the first
strike and each party shall then in turn strike names from the prospective
arbitrator list until one remains. The American Arbitration Association
shall have no other involvement in any arbitration proceeding between the
parties. No arbitrator shall be an employee, director or shareholder of
either party or of an affiliate of either party. The selection of the
arbitrator shall be final, subject to refusal for just cause or resignation
or disability, in which event a successor arbitrator shall be selected using
the procedures set forth in this paragraph.
(c) Costs of Arbitration. The cost of arbitration proceedings, including
without limitation, the arbitrator's compensation and expenses, hearing room
charges, and court reporter transcript charges, shall be borne by the parties
equally or otherwise as the arbitrator may determine. The arbitrator may
award the party that substantially prevails part or all of its reasonable
attorney's fees and costs incurred in connection with the arbitration. The
arbitrator is specifically instructed to award attorney's fees and costs for
instances of abuse of the discovery process.
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<PAGE> 165
(d) Location of Proceedings. All arbitration proceedings shall be held in
Minneapolis, Minnesota, unless the parties agree to another location.
(e) Pre-hearing Discovery. The parties shall have the right to conduct
and enforce pre-hearing discovery in accordance with the then current Federal
Rules of Civil Procedure subject to these limitations:
(1) Each party may serve one set of interrogatories for each Matter
and the arbitrator shall have the right to limit the number of questions,
including subparts, that may be included in each set. The parties
acknowledge and agree that the intent of this provision, in part, is to
streamline the discovery process. Accordingly, the parties shall use their
reasonable best efforts to limit, and to encourage the arbitrator to limit,
the number of the interrogatories served under this subsection;
(2) Each party may depose the other party's expert witnesses who may
be called to testify at the hearing, plus two fact witnesses as to each
Matter without regard to whether they will be called to testify; and
(3) Document discovery and other discovery shall be under the control
of and enforceable by the arbitrator. Discovery disputes shall be decided
by the arbitrator.
The arbitrator is empowered:
(1) To issue subpoenas to compel pre-hearing document or deposition
discovery;
(2) To enforce the discovery rights and obligations of the parties;
and
(3) Otherwise to control the scheduling and conduct of the
proceedings, including the establishment of the maximum time allocated to
each party to present testimony or documentary evidence, conduct cross
examination and present rebuttal testimony.
(f) Conduct of Arbitration.
(1) Pre-Hearing Conference. Within thirty (30) days after selection
of the arbitrator, the arbitrator shall hold a pre-hearing conference to
establish schedules for completion of discovery, for exchange of exhibit and
witness lists, for arbitration briefs, for the hearing, and to decide
procedural matters and all other questions that may be presented.
(2) Hearing Procedures. The hearing shall be conducted to preserve
its privacy and to allow reasonable procedural due process, including the
right to representation by counsel. Rules of evidence need not be strictly
followed, and the hearing shall be streamlined:
(a) Documents shall be self-authenticating, subject to valid objection
by the opposing party;
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<PAGE> 166
(b) Expert reports, witness biographies, and affidavits may be
utilized, subject to the opponent's right of a live cross-examination of
the witness in person;
(c) Transcripts from depositions taken in connection with the Matter
or Matters then under arbitration may be used without regard to the
availability of the witness for live cross-examination. Other
deposition transcripts may be used, but only subject to the terms of
subparagraph F(2)(b) above;
(d) Charts, graphs, and summaries may be utilized to present
voluminous data, provided (i) that the underlying data was made
available to the opposing party thirty (30) days prior to the hearing,
and (ii) that the preparer of each chart, graph, or summary is available
for explanation and live cross-examination in person;
(e) The hearing shall be held on consecutive business days without
interruption to the maximum extent practicable.
(g) Governing Law. This arbitration provision shall be governed by,
and all rights and obligations specifically enforceable under and pursuant
to, the Federal Arbitration Act (9 U.S.C. Section 1, et seq.). Enforcement
shall be sought only in a United States District Court of competent
jurisdiction.
(h) Consolidation. No arbitration shall include, by consolidation,
joinder, or in any other matter, any additional person not a party to this
Agreement, except by written consent of both parties containing a specific
reference to this Agreement.
(i) Award. At lease five (5) business days prior to the hearing, each
party must submit in writing to the arbitrator and serve on the other party
a proposed ruling on each matter to be resolved. The writing shall be
limited to presenting the proposed rulings, and shall contain no argument or
analysis of the facts or issues, and shall be limited to a maximum length as
may be ordered by the arbitrator. The arbitrator may attempt to resolve any
disputed Matter by proposing a compromise to the parties. If, however, the
arbitrator does not propose a compromise or the arbitrator proposes a
compromise and either or both of the parties fail to accept the compromise,
the arbitrator shall rule on each disputed Matter within ten (10) days
following the completion of the hearing. The ruling by the arbitrator on
each disputed Matter shall adopt in its entirety the proposed ruling on that
Matter as submitted by one of the parties. The arbitrator is empowered to
render an award of general monetary damages, but is not empowered to award
any additional damage award for willful infringement or any punitive
damages. The award rendered by the Arbitrator (1) shall be final; (2) shall
not constitute a basis for collateral estoppel as to any issue; and (3)
shall not be subject to vacation or modification except as provided under
the Federal Arbitration Act. Judgment may be entered upon the award in a
United States District Court of competent jurisdiction.
(j) Confidentiality. Except as otherwise required in applicable law
or regulatory, the parties hereto shall maintain the substance of any
proceedings hereunder in confidence and the arbitrator, prior to any
proceedings hereunder, shall
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<PAGE> 167
sign an agreement that the arbitrator will keep the substance of any
proceedings hereunder in confidence.
4. Notices. All notices or other communications required or permitted
under this Agreement shall be in writing and shall be deemed to be properly
given when personally delivered to the party entitled to receive the notice or
when sent by certified or registered mail, postage prepaid, properly addressed
to the party entitled to receive such notice at the address stated below unless
a party gives notice to all other parties of a different address:
(a) If to the Company:
Mr. Robert Olson, Chief Executive Officer
Technical Publishing Solutions, Inc.
5500 Lincoln Drive, Suite 110
Minneapolis, Minnesota 55436
and
Jeffrey J. Sjobeck, Chief Financial Officer
Technical Publishing Solutions, Inc.
5500 Lincoln Drive, Suite 110
Minneapolis, Minnesota 55436
with a copy to:
Michael Bleck, Esq.
Thomas J. Puff, Esq.
Oppenheimer Wolff & Donnelly
Plaza VII
45 South Seventh Street
Suite 3400
Minneapolis, Minnesota 55402-1609
(b) and if to Parent:
Henry Fong, Chairman
MacGregor Sports and Fitness, Inc.
8100 White Horse Road
Greenville, SC 29611
and
Michael S. Casazza, President
MacGregor Sports and Fitness, Inc.
8100 White Horse Road
Greenville, South Carolina 29611
with copy to:
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<PAGE> 168
C. Frederick LeBaron, Jr., Esq.
Ross & Hardies
Suite 2500
150 North Michigan Avenue
Chicago, Illinois 60601
5. Subsidiary Compliance. Parent hereby agrees to cause the Subsidiary to
comply with all of its obligations hereunder and to cause the Subsidiary to
consummate the Merger and Reorganization as contemplated herein.
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without regard to principles
of conflicts of law.
7. Successors and Assigns. All agreements of each of the Constituent
Corporations hereunder shall bind its successors and assigns.
8. Severability. In case any provision in this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
9. Headings. The Table of Contents and Headings of the articles and
sections of this Agreement have been inserted for convenience of reference
only, are not to be considered a part hereof and shall in no way modify or
restrict any of the terms or provisions hereof.
10. Entire Agreement. This Agreement and the Exhibits hereto set forth the
entire agreement by and among the parties. Any prior conversations or writings
of the parties in any way connected herewith are merged herein and
extinguished.
IN WITNESS WHEREOF, this Agreement has been executed by a duly authorized
representative of each of the Constituent Corporations effective the day and
year first above written.
MACGREGOR SPORTS AND FITNESS, INC.
By: ________________________________
Its: ________________________________
MG ACQUISITION TECHNICAL PUBLISHING SOLUTIONS,
SUBSIDIARY, INC. INC.
By: ________________________________ By: _____________________________
Its: ________________________________ Its: _____________________________
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<PAGE> 169
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER is made and
entered into this 20th day of March, 1996 by and among MACGREGOR SPORTS AND
FITNESS, INC. ("Parent"), MG ACQUISITION SUBSIDIARY, INC. ("Subsidiary") and
INTRANET INTEGRATION GROUP, INC. (formerly known as TECHNICAL PUBLISHING
SOLUTIONS, INC.), (the "Company").
W I T N E S S E T H:
WHEREAS, Parent, Subsidiary and the Company are parties to
that certain Agreement and Plan of Merger entered into on January 16, 1996 (the
"Agreement"); and
WHEREAS, the parties desire to amend the Agreement as set
forth herein.
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereby agree
as follows:
1. The first sentence of Article VI, Paragraph 2 of the
Agreement is hereby amended in its entirety to read:
At the Effective Date, by virtue of the merger of the
Subsidiary with and into the Company, each share of Company
Common Stock issued and outstanding shall be acquired by
Parent and exchanged for Parent Common Stock, and each
shareholder of the Company shall be entitled to receive for
each one (1) share of Company Common Stock held of record on
the Effective Date, 1.736 shares, subject to adjustment as
summarized below, of Parent Common Stock, with the result that
the shareholders of the Company shall hold in the
<PAGE> 170
aggregate at least 60% of the total outstanding shares of
Parent Common Stock (calculated on a fully diluted basis
assuming that the total outstanding shares of Parent include:
all convertible securities of Parent on an as-if converted
basis; all options and warrants exercisable at a price of less
that $1.00 per share; and all Olson Warrants to be issued
pursuant to Article XVI, paragraph 16).
2. Article VI, Paragraph 6 is hereby amended by deletion
of the number, "2,100,000" in line 3 thereof, and insertion of the number
"2,200,000" in place thereof.
3. Article XVI, Paragraph 16 is hereby amended by
deletion of the number, "2,100,000" in each of lines 2 and 5 thereof, and
insertion of the number "2,200,000" in place thereof.
4. Article XI, Paragraph 3 is hereby amended in its
entirety to read:
3. Capitalization. The Company's capitalization
consists of 100,000,000 authorized shares of Company Common
Stock, of which 10,000,000 shares are issued and validly
outstanding as of the date hereof. Each issued and
outstanding share is validly issued, fully paid,
non-assessable and is entitled to one (1) vote. The Company
has granted, or committed to grant, options and warrants, as
of the date hereof, to acquire, 3,315,780 and 156,750 shares,
respectively, of the Company Common Stock and has reserved for
issuance up to an additional 6,684,220 shares pursuant to a
Company stock option plan. The number of such Company
outstanding shares is subject to change prior to the Effective
Date by reason of possible exercises of options and warrants
and additional grants of Company options and warrants subject
to the consent of Parent, with such consent not to be
unreasonably withheld. All outstanding Company shares are
free and clear of any encumbrance, pledge, voting arrangement
or any other lien or agreement.
- 2 -
<PAGE> 171
5. Article XIX, Paragraph 4 is hereby amended in its
entirety to read:
By either Parent or Company, if the requisite
approval of the shareholders of the Constituent Corporations
shall not have been obtained on or before May 31, 1996, or if
the Articles of Merger shall not have been filed as provided
in Article I hereof on or before June 7, 1996.
6. Exhibit E-1, Agreement Not to Sell, is hereby amended
in its entirety and replaced by Appendix A attached hereto.
7. The Company agrees and acknowledges that Parent and
its counsel have satisfactorily delivered the matters set forth in Article XVI,
Paragraph 1 (a)-(g), Article X, Section 6(b), and Article X, Section 39, and
further hereby agrees, acknowledges and confirms that as of the date hereof the
Parent is in compliance, without default, with the requirements, terms and
conditions of the Agreement.
8. All capitalized terms set forth herein shall have the
meanings ascribed to them in the Agreement.
9. Except as amended hereby, the Agreement shall remain
in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date first written above.
MACGREGOR SPORTS AND FITNESS, INC.
By:_______________________________
Its:______________________________
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<PAGE> 172
MG ACQUISITION SUBSIDIARY
By:_______________________________
Its:______________________________
INTRANET INTEGRATION GROUP, INC. (formerly known as TECHNICAL PUBLISHING
SOLUTIONS, INC.)
By:_______________________________
Its:______________________________
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<PAGE> 173
AMENDMENT NO. 2 TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER is made and entered into
this 31st day of May, 1996 by and among MACGREGOR SPORTS AND FITNESS, INC.
("Parent"), MG ACQUISITION SUBSIDIARY, INC. ("Subsidiary") and INTRANET
INTEGRATION GROUP, INC. (formerly known as TECHNICAL PUBLISHING SOLUTIONS,
INC.)(the "Company").
W I T N E S S E T H:
WHEREAS, Parent, Subsidiary and the Company are parties to that certain
Agreement and Plan of Merger entered into on January 16, 1996 (the
"Agreement"); and
WHEREAS, the parties have heretofore amended the Agreement as set forth in
that certain Amendment No. 1 to Agreement and Plan of Merger dated March 20,
1996 ("Amendment No. 1"); and
WHEREAS, the parties desire to further amend the Agreement as set forth
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Article XIX, Paragraph 4 of the Agreement is hereby amended in
its entirety to read:
By either Parent or Company, if the requisite approval of the
shareholders of the Constituent Corporations shall not have been
obtained on or before July 15, 1996, or if the Articles of Merger shall
not have been filed as provided in Article I hereof on or before July
22, 1996.
<PAGE> 174
2. The parties' execution of this Amendment No. 2 shall evidence
the approval of the parties' respective Boards of Directors as specified in
Article IX with respect to setting a later date for the holding of the
shareholders' meetings referenced in such Article.
3. All capitalized terms set forth herein shall have the meanings
ascribed to them in the Agreement.
4. Except as amended hereby, the Agreement, as previously amended
by Amendment No. 1, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
MACGREGOR SPORTS AND FITNESS, INC.
By:/s/
------------------------------
Its:Chairman
------------------------------
MG ACQUISITION SUBSIDIARY
By:/s/
------------------------------
Its:President
------------------------------
INTRANET INTEGRATION GROUP, INC. (formerly known as TECHNICAL PUBLISHING
SOLUTIONS, INC.)
By:/s/
------------------------------
Its:President
------------------------------
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<PAGE> 175
AMENDMENT NO. 3 TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER is made and entered into
this 2nd day of July, 1996 by and among MACGREGOR SPORTS AND FITNESS, INC.
("Parent"), MG ACQUISITION SUBSIDIARY, INC. ("Subsidiary") and INTRANET
INTEGRATION GROUP, INC. (formerly known as TECHNICAL PUBLISHING SOLUTIONS,
INC.)(the "Company").
WITNESSETH:
WHEREAS, Parent, Subsidiary and the Company are parties to that certain
Agreement and Plan of Merger entered into on January 16, 1996 (the "Agreement");
and
WHEREAS, the parties have heretofore amended the Agreement as set forth in
that certain Amendment No. 1 to Agreement and Plan of Merger dated March 20,
1996 ("Amendment No. 1") and that certain Amendment No. 2 to Agreement and Plan
of Merger dated May 31, 1996 ("Amendment No. 2"); and
WHEREAS, the parties desire to further amend the Agreement as set forth
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Article XIX, Paragraph 4 of the Agreement is hereby amended in its
entirety to read:
By either Parent or Company, if the requisite approval of the
shareholders of the Constituent Corporations shall not have been obtained
on or before July 31, 1996, or if the Articles of Merger shall not have
been filed as provided in Article I hereof on or before August 9, 1996.
<PAGE> 176
2. The parties' execution of this Amendment No. 3 shall evidence
the approval of the parties' respective Boards of Directors as specified in
Article IX with respect to setting a later date for the holding of the
shareholders' meetings referenced in such Article.
3. All capitalized terms set forth herein shall have the meanings
ascribed to them in the Agreement.
4. Except as amended hereby, the Agreement, as previously amended
by Amendments Nos. 1 and 2, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
MACGREGOR SPORTS AND FITNESS, INC.
By: /s/
---------------------------
Its: Chairman
---------------------------
MG ACQUISITION SUBSIDIARY
By: /s/
---------------------------
Its: President
---------------------------
INTRANET INTEGRATION GROUP, INC. (formerly known as TECHNICAL PUBLISHING
SOLUTIONS, INC.)
By: /s/
---------------------------
Its: Chief Financial Officer
---------------------------
<PAGE> 177
EXHIBIT E
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
INTRANET SOLUTIONS, INC.
ARTICLE I.
The name of this Corporation shall be IntraNet Solutions, Inc. (the
"Corporation").
ARTICLE II.
The registered office of the Corporation in Minnesota shall be: 3400 Plaza VII,
45 South Seventh Street, Minneapolis, Minnesota 55402.
ARTICLE III.
The aggregate number of shares of stock which the Corporation shall have
authority to issue is fifty million (50,000,000) shares of common stock, $.01
par value.
ARTICLE IV.
Shares of the Corporation acquired by the Corporation shall become authorized
but unissued shares and may be reissued as provided in these Articles of
Incorporation.
ARTICLE V.
No shareholder of this Corporation shall have any cumulative voting rights.
ARTICLE VI.
No shareholder of this Corporation shall have any preemptive rights by virtue
of Section 302A.413 of the Minnesota Statutes (or similar provisions of future
law) to subscribe for, purchase or acquire any shares of the Corporation of any
class, whether unissued or now or hereafter authorized, or any obligations or
other securities convertible into or exchangeable for any such shares.
<PAGE> 178
ARTICLE VII.
Any action required or permitted to be taken at a meeting of the Board of this
Corporation may be taken by written action signed by the number of directors
that would be required to take such action at a meeting of the Board of
Directors at which all directors are present.
ARTICLE VIII.
No director of this Corporation shall be personally liable to the Corporation
or its shareholders for monetary damages for breach of fiduciary duty by such
director as a director; provided, however, that this Article shall not
eliminate or limit the liability of a director to the extent provided by
applicable law: (i) for any breach of the director's duty of loyalty to the
Corporation or its shareholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (iii)
under Section 302A.559 or 80A.23 of the Minnesota Statutes, as amended; (iv)
for any transaction from which the director derived an improper personal
benefit; or (v) for any act or omission occurring prior to the effective date
of this Article. If the Minnesota Business Corporation Act hereafter is
amended to authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the Corporation in addition to
the limitation and elimination of personal liability provided herein, shall be
eliminated or limited to the fullest extent permitted by the Minnesota Business
Corporation Act, as so amended. No amendment to or repeal of this Article VIII
shall apply to, or have any effect on, the liability or alleged liability of
any director for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
ARTICLE IX.
The Corporation shall indemnify to the fullest extent permissible under the
provisions of Chapter 302A of the Minnesota Statutes, as amended, (as now or
hereafter in effect) any person made or threatened to be made a party to or
witness in any threatened, pending, or completed civil, criminal,
administrative, arbitration, or investigative proceeding, including a
proceeding by or in the right of the Corporation by reason of the fact that he,
his testator or intestate, is or was a director or officer of the Corporation,
or by reason of the fact that such director or officer, while a director or
officer of the Corporation, is or was serving at the request of the
Corporation, or whose duties in that position involved service as a director,
officer, partner, trustee or agent of another organization or employee benefit
plan, against all judgments, penalties, fines, including, without limitation,
excise taxes assessed against the person with respect to an
2
<PAGE> 179
employee benefit plan, settlements, and reasonable expenses, including
attorneys' fees and disbursements. Nothing contained herein shall affect any
rights to indemnification to which employees or agents of the Corporation other
than directors and officers may be entitled under the provisions of Chapter
302A of the Minnesota Statutes, as amended. Any repeal or modification of this
Article IX shall be prospective only, and shall not adversely affect any right
to indemnification or protection of a director or officer of the Corporation
existing at the time of such repeal or modification. No amendment to or repeal
of this Article shall apply to or have any effect on the liability of or
alleged liability of any director or the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
ARTICLE X.
The shareholders of this Corporation may, by a majority vote of all shares
issued, outstanding and entitled to vote:
1. Authorize the Board of Directors to sell, lease, exchange or
otherwise dispose of all, or substantially all, of its
property and assets, including its goodwill, upon such terms
and conditions and for such consideration, which may be money,
shares, bonds, or other instruments for the payment of money
or other property, as the Board of Directors deems expedient
and in the best interests of the Corporation;
2. Amend the Articles of Incorporation of this Corporation for
any reasons or lawful purpose, and in the event that any such
amendment adversely affects the rights of holders of shares of
such different classes, the affirmative vote of a majority of
each such class shall be sufficient to adopt the amendment;
and
3. Adopt and approve an agreement of merger or consolidation
presented to them by the Board of Directors
AS APPROVED AND ADOPTED BY THE BOARD OF DIRECTORS OF MACGREGOR SPORTS &
FITNESS, INC. EFFECTIVE JANUARY 16, 1996.
3
<PAGE> 180
EXHIBIT F
Fairness Opinion of Summit Investment Corporation
<PAGE> 181
March 20, 1996
Board of Directors
MacGregor Sports and Fitness, Inc.
8100 White Horse Road
Greenville, SC 29611
Gentlemen:
MacGregor Sports and Fitness, Inc. ("MSF") and Technical Publishing Solutions,
Inc. (the "Company") have entered into an Agreement and Plan of Merger (the
"Agreement") pursuant to which it is proposed that the Company will be merged
with MSF in a transaction (the "Merger") in which each share of the Company
common stock will be exchanged for 1.736 shares (the "Exchange Ratio") of the
common stock of MSF. You have asked us whether, in our opinion, the proposed
Exchange Ratio is fair to MSF and its stockholders from a financial point of
view
Summit Investment Corporation ("Summit"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, initial and secondary
underwritings, private placements and valuations for estate, corporate and
other purposes
In developing our opinion, we have, among other things:
1. Reviewed a copy of the Agreement dated January 16, 1996 and a copy of
Amendment No. 1 to the Agreement dated March 20, 1996;
2. Reviewed a draft of the preliminary Proxy Statement relating to the special
meeting of the stockholders of MSF to be held in connection with the Merger;
3. Reviewed MSF's financial statements for the three fiscal years ended July
31, 1995 including annual reports on Form 10-KSB; MSF Form 10-QSB and the
related unaudited
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financial statements for the six month period ended January 31, 1996; and
MSF's pro forma balance sheet as of January 31, 1996;
4. Discussed with MSF's management the business, results of operations and
future prospects of MSF, absent the Merger or any other transaction;
5. Reviewed the reported market price and trading volume for the common shares
of MSF,
6. Reviewed the Company's unaudited financial statements for the nine month
period ended December 31, 1995; the Company's audited financial statement
for the fiscal year ended March 31, 1995 and the Company's unaudited
financial statements for the three fiscal years ended March 31, 1994;
7. Compared the Company's results of operations and financial condition with
those of certain publicly held companies which we deemed to be reasonably
comparable to the Company;
8. Reviewed the financial terms of certain business combinations involving
companies which we deemed to be reasonably comparable to the Company;
9. Discussed with the Company's management the business, results of operations
and future prospects, including certain projected financial information, of
the Company; and
10. Conducted such other studies, analyses and inquiries as we deemed
appropriate.
In our review and analysis, and in arriving at our opinion, we have relied upon
and assumed the completeness and accuracy of all the factual, historical,
financial and other information and data publicly available or furnished to us
by or on behalf of MSF and the Company. We have assumed that the financial
projections provided to us were reasonably prepared on bases reflecting the
best currently available estimates and judgements of the senior management of
the Company. We express no opinion as to the price at which the MSF common
stock will trade subsequent to the Merger. We have made a physical inspection
of certain of the properties or assets of the Company, however we have not made
or been provided with an independent appraisal of the assets or liabilities of
the Company. Our opinion is necessarily based on economic, stock market and
other conditions as they exist and can be evaluated as of the date hereof.
This opinion has been prepared solely for the use of the Board of Directors of
MSF and, without our prior written consent, is not to be quoted or referred to,
in whole or in part, in connection with the offering or sale of securities, nor
shall this letter be used for any other purpose, other than in connection with
the Proxy Statement of MSF relating to the Merger of which such Proxy Statement
forms a part.
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Based upon our analysis and review and subject to the assumptions we have
stated, we are of the opinion that, as of the date hereof, the proposed
Exchange Ratio pursuant to the Agreement is fair, from a financial point of
view, to MSF and its stockholders.
Very truly yours,
SUMMIT INVESTMENT CORPORATION
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EXHIBIT G
Dissenter's Rights Pursuant to Minnesota Law
<PAGE> 185
MINNESOTA STATUTES ANNOTATED
CORPORATIONS
CHAPTER 302A. BUSINESS CORPORATIONS
SHARES; SHAREHOLDERS
302A.473. Procedures for asserting dissenters' rights
Subdivision 1. Definitions. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action referred to in section 302A.471,
subdivision 1 or the successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares
of a corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the
effective date of the corporate action referred to in section 302A.471,
subdivision 1, up to and including the date of payment, calculated at the rate
provided in section 549.09 for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder
meeting at which any action described in section 302A.471, subdivision 1 is to
be voted upon, the notice of the meeting shall inform each shareholder of the
right to dissent and shall include a copy of section 302A.471 and this section
and a brief description of the procedure to be followed under these sections.
Subd. 3. Notice of dissent. If the proposed action must be approved
by the shareholders, a shareholder who wishes to exercise dissenters' rights
must file with the corporation before the vote on the proposed action a written
notice of intent to demand the fair value of the shares owned by the
shareholder and must not vote the shares in favor of the proposed action.
Subd. 4. Notice of procedure; deposit of shares. (a) After the
proposed action has been approved by the board and, if necessary, the
shareholders, the corporation shall send to all shareholders who have complied
with subdivision 3 and to all shareholders entitled to dissent if no
shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and
certificates of certificated shares must be sent in order to obtain payment and
the date by which they must be received;
<PAGE> 186
(2) Any restrictions on transfer of uncertificated shares
that will apply after the demand for payment is received;
(3) A form to be used to certify the date on which the
shareholder, or the beneficial owner on whose behalf the shareholder dissents,
acquired the shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a
dissenting shareholder must demand payment and deposit certificated shares or
comply with any restrictions on transfer of uncertificated shares within 30
days after the notice required by paragraph (a) was given, but the dissenter
retains all other rights of a shareholder until the proposed action takes
effect.
Subd. 5. Payment; return of shares. (a) After the corporate action
takes effect, or after the corporation receives a valid demand for payment,
whichever is later, the corporation shall remit to each dissenting shareholder
who has complied with subdivisions 3 and 4 the amount the corporation estimates
to be the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of
income for a fiscal year ending not more than 16 months before the effective
date of the corporate action, together with the latest available interim
financial statements;
(2) An estimate by the corporation of the fair value of the
shares and a brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in
paragraph (a) from a person who was not a shareholder on the date the action
dissented from was first announced to the public or who is dissenting on behalf
of a person who was not a beneficial owner on that date. If the dissenter has
complied with subdivisions 3 and 4, the corporation shall forward to the
dissenter the materials described in paragraph (a), a statement of the reason
for withholding the remittance, and an offer to pay to the dissenter the amount
listed in the materials if the dissenter agrees to accept that amount in full
satisfaction. The dissenter may decline the offer and demand payment under
subdivision 6. Failure to do so entitles the dissenter only to the amount
offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
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(c) If the corporation fails to remit payment within 60 days
of the deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and cancel
all transfer restrictions. However, the corporation may again give notice
under subdivision 4 and require deposit or restrict transfer at a later time.
Subd. 6. Supplemental payment; demand. If a dissenter believes that
the amount remitted under subdivision 5 is less than the fair value of the
shares plus interest, the dissenter may give written notice to the corporation
of the dissenter's own estimate of the fair value of the shares, plus interest,
within 30 days after the corporation mails the remittance under subdivision 5,
and demand payment of the difference. Otherwise, a dissenter is entitled only
to the amount remitted by the corporation.
Subd. 7. Petition; determination. If the corporation receives a
demand under subdivision 6, it shall, within 60 days after receiving the
demand, either pay to the dissenter the amount demanded or agreed to by the
dissenter after discussion with the corporation or file in court a petition
requesting that the court determine the fair value of the shares, plus
interest. The petition shall be filed in the county in which the registered
office of the corporation is located, except that a surviving foreign
corporation that receives a demand relating to the shares of a constituent
domestic corporation shall file the petition in the county in this state in
which the last registered office of the constituent corporation was located.
The petition shall name as parties all dissenters who have demanded payment
under subdivision 6 and who have not reached agreement with the corporation.
The corporation shall, after filing the petition, serve all parties with a
summons and copy of the petition under the rules of civil procedure.
Nonresidents of his state may be served by registered or certified mail or by
publication as provided by law. Except as otherwise provided, the rules of
civil procedure apply to this proceeding. The jurisdiction of the court is
plenary and exclusive. The court may appoint appraisers, with powers and
authorities the court deems proper, to receive evidence on and recommend the
amount of the fair value of the shares. The court shall determine whether the
shareholder or shareholders in question have fully complied with the
requirements of this section, and shall determine the fair value of the shares,
taking into account any and all factors the court finds relevant, computed by
any method or combination of methods that the court, in its discretion, sees
fit to use, whether or not used by the corporation or by a dissenter. The fair
value of the shares as determined by the court is binding on all shareholders,
wherever located. A dissenter is entitled to judgment in cash for the amount
by which the fair value of the shares as determined by the court, plus
interest, exceeds the amount, if any, remitted under subdivision 5, but shall
not be liable to the corporation for the amount, if any, by which the amount,
if any, remitted to the dissenter under subdivision 5 exceeds the fair value of
the shares as determined by the court, plus interest.
Subd. 8. Costs; fees; expenses. (a) The court shall determine the
costs and expenses of a proceeding under subdivision 7, including the
reasonable expenses and compensation of any appraisers appointed by the court,
and shall assess those costs and expenses against the corporation, except that
the court may assess part or all of those costs and expenses against a
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<PAGE> 188
dissenter whose action in demanding payment under subdivision 6 is found to be
arbitrary, vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to
comply substantially with this section, the court may assess all fees and
expenses of any experts or attorneys as the court deems equitable. These fees
and expenses may also be assessed against a person who has acted arbitrarily,
vexatiously, or not in good faith in bringing the proceeding, and may be
awarded to a party injured by those actions.
(c) The court may award, in its discretion, fees and expenses
to an attorney for the dissenters out of the amount awarded to the dissenters,
if any.
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MINNESOTA STATUTES ANNOTATED
CORPORATIONS
CHAPTER 302A. BUSINESS CORPORATIONS
SHARES; SHAREHOLDERS
302A.471. Rights of dissenting shareholders
Subdivision 1. Actions creating rights. A shareholder of a
corporation may dissent from, and obtain payment for the fair value of the
shareholder's shares in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and
adversely affects the rights or preferences of the shares of the dissenting
shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking fund for
the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of
the shares to acquire shares, securities other than shares, or rights to
purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on
a matter, or to cumulate votes, except as the right may be excluded or limited
through the authorization or issuance of securities of an existing or new class
or series with similar or different voting rights; except that an amendment to
the articles of an issuing public corporation that provides that section
302A.671 does not apply to a control share acquisition does not give rise to
the right to obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in section
302A.725, subdivision 2, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the
net proceeds of disposition be distributed to the shareholders in accordance
with their respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under
chapter 322B, to which the corporation is a party, except as provided in
subdivision 3;
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<PAGE> 190
(d) A plan of exchange, whether under this chapter or under
chapter 322B, to which the corporation is a party as the corporation whose
shares will be acquired by the acquiring corporation, if the shares of the
shareholder are entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a
shareholder vote with respect to which the articles, the bylaws, or a
resolution approved by the board directs that dissenting shareholders may
obtain payment for their shares.
Subd. 2. Beneficial owners. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the shares
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on
whose behalf the shareholder dissents. In that event, the rights of the
dissenter shall be determined as if the shares as to which the shareholder has
dissented and the other shares were registered in the names of different
shareholders.
(b) The beneficial owner of shares who is not the shareholder
may assert dissenters' rights with respect to shares held on behalf of the
beneficial owner, and shall be treated as a dissenting shareholder under the
terms of this section and section 302A.473, if the beneficial owner submits to
the corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
Subd. 3. Rights not to apply. Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
Subd. 4. Other rights. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
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EXHIBIT H
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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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.
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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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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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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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"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.
6
<PAGE> 197
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,
7
<PAGE> 198
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.
8
<PAGE> 199
(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).
9
<PAGE> 200
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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PROXY
MACGREGOR SPORTS & FITNESS, INC.
SPECIAL MEETING OF STOCKHOLDERS, JULY 30, 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 July 30, 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, 6 AND 7 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, 6 AND 7.
<TABLE>
<S> <C>
(1) A proposal to sell the rights to use the MacGregor trademark and various related trademarks to
Hutch Sports USA, Inc.
/ / FOR / / AGAINST / /
A proposal to approve and ratify the Agreement and Plan of Merger, as amended, attached to the
(2) Proxy Statement (the "Proxy Statement") of MacGregor Sports & Fitness, Inc., dated January 16,
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 / /
A proposal to amend and restate the Articles of Incorporation of MacGregor Sports & Fitness,
(3) 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 / /
(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
(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
(continued, and to be signed and dated, on the other side)
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(continued from other side)
<CAPTION>
<S> <C>
(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 / /
(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, 1997, and March 31,
1998.
/ / FOR / / AGAINST / /
(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.
</TABLE>
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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