<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year ended: DECEMBER 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
Commission file number: 0-25602
TECH SQUARED INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1591872
(State of Incorporation) (I.R.S. Employer Identification No.)
5198 WEST 76TH STREET
EDINA, MINNESOTA 55439
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 832-5622
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR
VALUE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
As of April 23, 1999, 12,102,950 shares of Common Stock of the
Company were outstanding, and the aggregate market value of the Common Stock
of the Company as of that date (based upon the closing bid price of the
Common Stock at that date on the OTC Bulletin Board quotation system),
excluding outstanding shares beneficially owned by affiliates, was
approximately $21,241,234.
<PAGE>
This Form 10-K/A1 is filed to amend items 10, 11, 12 and 13. The
remaining items of the Form 10-K previously filed are not amended hereby.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about each of the
Company's directors and executive officers:
<TABLE>
<CAPTION>
NAMES OF DIRECTORS, OFFICERS AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- ---------------------------- --- -------------------- --------------
<S> <C> <C> <C>
Joel A. Ronning 42 Chairman of the Board 1995
Charles E. Reese, Jr. 45 President, Chief Executive 1996
Officer and Chief Operating
Officer
Jeffrey F. Martin 43 Chief Financial Officer N/A
Richard J. Runbeck 53 Director 1996
Perry W. Steiner 33 Director 1998
</TABLE>
JOEL A. RONNING has been Chairman of the Company's Board of
Directors since May 1995. From May 1995 to July 1998, Mr. Ronning served as
the Chief Executive Officer of the Company. From May 1995 to September 1996,
Mr. Ronning also served as the Company's President. From July 1996 to July
1998, Mr. Ronning also served as the Company's Chief Financial Officer. Mr.
Ronning is the founder of MacUSA, Inc. ("MacUSA"), a wholly-owned subsidiary
of the Company, and has served as a member of the MacUSA Board of Directors
since April 1990. From April 1990 to July 1998, Mr. Ronning also served as
the Chief Executive Officer of MacUSA, Inc. Mr. Ronning is also the Chief
Executive Officer and a director of Digital River, Inc., a Minneapolis,
Minnesota-based company specializing in electronic software distribution, in
which the Company holds a 15.3% beneficial ownership interest as of April 23,
1999. Mr. Ronning also serves as a director of the Software Publishers
Association and JASC, Inc.
CHARLES E. REESE, JR. has served as a director of the Company since
June 1996, has served as President and Chief Operating Officer of the Company
since September 1996 and has served as Chief Executive Officer of the Company
since February 1999. Mr. Reese is also a member of the Board of Directors of
Digital River, Inc., a publicly-held Minneapolis, Minnesota-based company
specializing in electronic software distribution. Mr. Reese is also a member
of the Board of directors of MacUSA, Inc., a wholly-owned subsidiary of the
Company. From April 1995 to August 1996, he was Vice President of Sales and
Marketing of The Weidt Group, a custom software and internet site developer
based in Minnetonka, Minnesota. Mr. Reese served as Vice President of Sales
from July 1987 to April 1995 for LaserMaster Technologies, Inc., an Eden
Prairie, Minnesota based developer, manufacturer and marketer of digital
color printers and chemical-free filmsetters.
JEFFREY F. MARTIN has served as Chief Financial Officer and
Secretary of the Company since November 1998. From March 1996 to October
1998, Mr. Martin served as a Vice President and Chief Financial Officer of
Andersen Consulting (Enterprise Group), a management company based in
Minneapolis, Minnesota. From February 1988 to March 1996, Mr. Martin served
as a Vice President and Chief Financial Officer of Addco Holding Company, a
manufacturing and distribution company based in St. Paul, Minnesota.
2
<PAGE>
RICHARD J. RUNBECK has served as a director of the Company since
July 1996. Since December 7, 1998, Mr. Runbeck has been a director of MacUSA,
a wholly-owned subsidiary of the Company. Since October 1985, he has been the
President of Runbeck & Associates, P.A., an accounting firm located in
Brooklyn Center, Minnesota. Mr. Runbeck is a member of the Board of Directors
of Ontrack Data International, Inc., a provider of data recovery services
based in Eden Prairie, Minnesota.
PERRY W. STEINER has served as a director of the Company since
December 1998. Since July 1998, Mr. Steiner has been President of Digital
River, Inc., a publicly-held, Minneapolis, Minnesota-based company
specializing in electronic software distribution, and has served as a
director of Digital River, Inc., since April 1998. From January 1997 to July
1998, Mr. Steiner served as Vice President of Wasserstein Perella & Co.,
Inc., an investment banking firm, and as Vice President of Wasserstein
Perella Ventures, Inc., the general partner of Wasserstein Adelson Ventures,
L.P., a venture capital fund. From June 1993 to December 1996, Mr. Steiner
was a principal of TCW Capital, a group of leveraged buyout funds managed by
Trust Company of the West.
SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - BENEFICIAL OWNERSHIP AND
COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires executive officers and directors of the Company, and persons
who beneficially own more than 10 percent of the Company's outstanding shares
of Common Stock or Preferred Stock, to file initial reports of ownership and
reports of changes in ownership of securities of the Company with the
Securities and Exchange Commission. Officers, directors and persons owning
more than 10 percent of the Company's outstanding Common Stock or Preferred
Stock are required by Securities and Exchange Commission regulation to
furnish the Company with copies of all Section 16(a) forms filed. Based
solely on a review of the copies of such reports and amendments thereto
furnished to or obtained by the Company or written representations that no
other reports were required, the Company believes that during the fiscal year
ended December 31, 1998, the Company's directors, officers and beneficial
owners of more than 10 percent of the Company's shares of Common Stock or
Preferred Stock complied with all applicable filing requirements except Joel
A. Ronning and Richard J. Runbeck each filed late one Statement of Changes in
Beneficial Ownership and Perry W. Steiner filed late one Initial Statement of
Beneficial Ownership.
3
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain cash and non-cash
compensation awarded to or earned during the Company's fiscal years ended
December 31, 1996, 1997 and 1998 by the Chief Executive Officer and each
executive officer of the Company who earned or was awarded total compensation
in excess of $100,000 in the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION ($) COMPENSATION (#)
----------------------------------- ------------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION UNDERLYING OPTIONS COMPENSATION ($)
- ----------------- ---- ------ ----- ------------ ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Joel A. Ronning (1)(2) 1998 16 201,512 4,100(3) 1,000,000 19,600(4)
Chairman of the Board 1997 16 -- 13,250(3) -- 19,600(4)
1996 298 -- 13,250(3) -- 9,800(4)
Charles E. Reese, Jr. 1998 135,000 -- -- -- --
President and Chief 1997 132,014 -- -- 1,000,000 --
Operating Officer
Richard J. Apple(5) 1998 126,250 2,219 -- -- --
</TABLE>
- -----------------------
(1) Prior to July 1998, Mr. Ronning was also Chief Executive Officer and
Chief Financial Officer of the Company. The Company currently accrues and
pays Mr. Ronning a nominal monthly amount relating primarily to his
health insurance and other employee benefits.
(2) Does not include compensation paid to Mr. Ronning by Digital River, Inc.
(3) Compensation relates to an automobile owned by the Company and used by
Mr. Ronning.
(4) Represents compensation resulting from a loan to Mr. Ronning on which
interest was payable at an annual rate of 5%, 0% and 0% for 1996, 1997
and 1998, respectively, which is below the market rate, assumed for
purposes of determining compensation, to be 10%. Such loan was repaid in
full in December 1998. See "CERTAIN TRANSACTIONS."
(5) Mr. Apple was Chief Executive Officer of the Company from July 1998 to
February 1999. Mr. Apple was employed by the Company in other capacities
prior to his election as Chief Executive Officer. The compensation shown
includes compensation received in all capacities.
4
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OPTION GRANTS DURING THE FISCAL YEAR ENDED DECEMBER 31, 1998
The following table sets forth information with respect to each
option granted to the executive officers named in the Summary Compensation
Table during the fiscal year ended December 31, 1998:
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Percentage of Total Price Appreciation for
Options Granted to Option Term(1)
Options Employees Exercise Expiration ------------------------
Name Granted Fiscal Year Price Date 5% 10%
- ----------------------- --------- ------------------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
(#) (%) ($) ($) ($)
Joel A. Ronning(2) 1,000,000 64 1.50 9/1/2004 340,096 771,561
Charles E. Reese -- -- -- -- -- --
Richard J. Apple -- -- -- -- -- --
</TABLE>
- --------------------------
(1) The compounding assumes all options are exercised at the end of their
six-year term. These amounts represent certain assumed rates of
appreciation, required to be set forth pursuant to Securities and
Exchange Commission rules. Actual gains, if any, on stock option
exercises are dependent on the future performance of the Common Stock,
overall stock market conditions, and continued employment of the option
holder through the vesting period. The amounts reflected in this table
may not necessarily be achieved.
(2) In April 1995, MacUSA granted to Mr. Ronning, pursuant to the MacUSA,
Inc. 1995 Stock Option Plan (the "MacUSA Plan"), options to purchase
1,099,990 shares, 1,370,010 shares and 199,996 shares of Common Stock,
respectively, at an exercise price of $1.01 per share. The ability to
exercise some of such options was delayed until 2001, subject to
acceleration if the Company met certain profitability goals or under
certain other circumstances. Effective as of January 12, 1998, the
Company granted to Mr. Ronning, in connection with his cancellation of
2,470,000 of such options, options to purchase 1,000,000 shares of
Common Stock at an exercise price of $1.50 per share, exercisable for
six years commencing on September 1, 1998.
AGGREGATE OPTIONS EXERCISED IN THE FISCAL YEAR ENDED DECEMBER 31, 1998 AND
OPTION VALUES AT DECEMBER 31, 1998
The following table sets forth certain information regarding options
to purchase shares of Common Stock exercised during the Company's fiscal year
ended December 31, 1998, and the number and value of options to purchase
shares of Common Stock held as of December 31, 1998, by the executive
officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Value of Unexercised
Number of Number of Options In-the-Money
Shares at December 31, 1998 Options at December 31, 1998(2)
Acquired Value ----------------------------- -------------------------------
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- --------------------- --------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
(#) ($) (#) (#) ($) ($)
Joel A. Ronning -- -- 1,199,996 0 1,897,992 0
Charles E. Reese -- -- 675,000 375,000 1,518,750 843,750
Richard J. Apple 50,000 112,500 175,000 775,000 393,750 1,743,750
</TABLE>
- --------------------------
(1) Value Realized is the difference between the closing price per share on
the date of exercise, and the option price per share, multiplied by the
number of shares acquired upon exercise of the option.
(2) Value of Unexercised In-the-Money Options is the difference between the
closing price per share of $3.00 at December 31, 1998, and the exercise
price per share multiplied by the number of shares subject to options.
DIRECTOR COMPENSATION
Upon initial election to the Board of Directors, each non-employee
director automatically receives an option to purchase 50,000 shares of Common
Stock under the Tech Squared Inc. 1995 Non-
5
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Employee Director Option Plan (the "Director Plan"). The Director Plan was
amended in December 1998 to allow the Board of Directors to vary the number
of Shares issuable upon exercise of the option granted to each new director
and to vary other terms of such options. Options granted under the Director
Plan, unless otherwise detained by the Board of Directors, have an exercise
price equal to the fair market value of one share of Common Stock on the date
of grant. Unless otherwise determined by the Board of Directors, the options
become exercisable in three equal installments on each of the date of initial
election to the Board of Directors and the first two anniversaries of the
date of such election. Options vest and become exercisable only if the
director is a member of the Board of the Directors on the vesting date.
Options granted under the Director Plan expire seven years from the date of
grant. Upon his election as a director of the Company in June 1996, Mr. Reese
was granted an option to purchase 50,000 shares under the Director Plan. All
of such options have vested. Upon his election as a director of the Company
in July 1996, Mr. Runbeck was granted an option to purchase 50,000 shares
under the Director Plan, all of such options have vested. Additionally, in
December 1998, Mr. Runbeck was granted an option to purchase an additional
50,000 shares under the Director Plan at an exercise price of $2.25 per
share. Such options vested immediately upon grant. Upon his election as a
director of the Company in December 1998, Mr. Steiner was granted an option
to purchase 60,000 shares under the Director Plan at an exercise price of
$2.25 per share. Such option vested immediately upon grant.
The Company generally reimburses non-employee directors for
out-of-pocket expenses incurred to attend the Board of Directors meetings.
The Company does not pay director fees to members of the Board of Directors
who are full-time employees of the Company and does not reimburse such
persons for out-of-pocket expenses in connection with attending Board of
Director meetings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
INTRODUCTION. During the fiscal year ended December 31, 1998, the
Board of Directors was responsible for matters relating to the compensation
of the Company's executive officers named in the Summary Compensation Table,
namely Joel A. Ronning, the Company's Chairman of the Board, Charles E.
Reese, Jr., the Company's President, Chief Executive Officer and Chief
Operating Officer, and Richard J. Apple who served as Chief Executive
Officer, from July 1998, to February 1999.
COMPENSATION PROGRAM. The Company's current executive compensation
program involves a combination of base salary, performance-based bonuses and
long-term incentive awards. Base salaries are intended to attract and retain
highly-qualified executives. Bonuses to executive officers are intended to
reward short-term performance of the executive officer and the Company.
Grants of stock options by the Company are intended to encourage and reward
executive officers based upon the Company's long-term performance and to
provide executive officers with a financial interest in the success of the
Company, which aligns the executive officers' interests with the interests of
the Company's shareholders.
BASE SALARY. The philosophy of the Board of Directors is to set base
salaries for each of the executive officers of the Company at appropriate
levels for the relative positions of the officer and the duties of the
position. The Board of Directors has the authority to determine the salaries
of the Company's Chief Executive Officer and other executive officers,
subject to the terms of pre-existing employment agreements. The Board of
Directors believes that there should be little change from year to year in
the base salary of the executive officers other than increases due to: (i)
growth of the Company's sales; (ii) growth in responsibility of the position;
or (iii) cost of living increases. The Board of Directors believes that
additional compensation above base levels should be by bonus based on
individual performance and the financial performance of the Company.
PERFORMANCE-BASED BONUSES. Payment of bonuses to officers of the
Company is determined by the Board of Directors based upon the executive
officer's performance and the Company's financial results.
LONG-TERM INCENTIVE AWARDS. The Company's long-term incentive
program consists of stock option grants which encourage achievement of
long-term goals and objectives consistent with enhancing
6
<PAGE>
shareholder value. Awards of stock options provide executives with increased
motivation and incentive to exert their best efforts on behalf of the Company
by increasing their personal stake in the Company's success through the
opportunity to acquire a greater equity interest in the Company and to
benefit from appreciation in the value of the Company's stock. All stock
options granted to executive officers have an exercise price of not less than
the market value of the Company's Common Stock on the date of grant, thereby
ensuring that any value derived from such options is dependent upon
subsequent increases in share value which will be realized by shareholders
generally. Executives generally must be continually employed in order for
stock options to vest and become exercisable.
COMPENSATION OF THE CHAIRMAN OF THE BOARD. The Company has not
entered into an employment agreement with Mr. Ronning. Mr. Ronning is
currently being paid a nominal monthly amount which is applied directly to
his health insurance and other employee benefits.
COMPLIANCE WITH SECTION 162(m) OF THE TAX CODE. Section 162(m) of
the Tax Code, generally disallows a tax deduction to public companies for
compensation over $1,000,000 to the chief executive officer and the four
highest compensated officers, with certain exceptions. The Company did not
pay cash compensation to any employee during the fiscal year ending December
31, 1998 in excess of the deduction limit of Section 162(m), and does not
anticipate doing so during the fiscal year ending December 31, 1998.
The foregoing Report will not be deemed incorporated by reference by
any statement incorporating by reference this Proxy Statement, or any portion
thereof, into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934 and shall not otherwise be deemed filed under
such Acts.
Joel A. Ronning
Richard J. Runbeck
Richard J. Runbeck
Perry W. Steiner
Board Members
EMPLOYMENT AGREEMENTS
On August 20, 1996, the Company entered into an employment agreement
with Mr. Reese, as President and Chief Operating Officer of the Company, at
an annual salary of $135,000, with a bonus plan based on the Company's
quarterly profit and growth in sales levels. The plan requires an increase in
both profit and growth in sales, with a cap of $5,000 bonus pay for profit
increase and a minimum of .5% net profits and 20% sales growth before any
bonus is available. In addition, Mr. Reese was granted options to purchase a
total of 1,000,000 shares the Company's Common Stock at $.75 per share,
625,000 of which have vested as of December 31, 1998.
7
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COMPARATIVE STOCK PERFORMANCE
The following graph compares the cumulative total shareholder
return, assuming $100 invested on May 12, 1995, as if such amount had been
invested in each of: (i) the Company's Common Stock; (ii) the stocks
comprising the Nasdaq Retail Trade Index; and (iii) the stocks included in
the Nasdaq Stock Market Index. The graph assumes the reinvestment of all
dividends, if any. The prices for the Company's Common Stock are closing bid
prices as reported by the Nasdaq OTC Bulletin Board.
[GRAPH]
<TABLE>
<CAPTION>
----------- ------------ ----------- ----------- ------------
5/12/95 12/29/95 12/31/96 12/31/97 12/31/98
----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Tech Squared, Inc. 100 67 17 130 160
- ----------------------------------------------- ----------- ------------ ----------- ----------- ------------
Nasdaq Retail Trade Stocks 100 109 130 153 186
- ----------------------------------------------- ----------- ------------ ----------- ----------- ------------
Nasdaq Stock Market (US Companies) 100 124 152 186 262
- ----------------------------------------------- ----------- ------------ ----------- ----------- ------------
</TABLE>
8
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Common Stock and Preferred Stock of the Company as of the close
of business on April 23, 1999, unless otherwise indicated, by each director,
by each executive officer named in the Summary Compensation Table and by all
directors and executive officers (regardless of compensation level) of the
Company as a group.
<TABLE>
<CAPTION>
SHARES OF PREFERRED
SHARES OF COMMON STOCK STOCK BENEFICIALLY TOTAL VOTING SHARES
BENEFICIALLY OWNED(1) OWNED(1) BENEFICIALLY OWNED(2)
---------------------- -------------------- -----------------------
PERCENT PERCENT PERCENT
NAME OF BENEFICIAL OWNER AMOUNT OF CLASS AMOUNT OF CLASS AMOUNT OF TOTAL
- ------------------------ ---------- -------- ------ -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Joel A. Ronning(3) 7,050,022 53.0% -- -- 7,050,022 52.4%
Charles E. Reese, Jr.(4) 625,000 4.9% -- -- 625,000 4.8%
Richard J. Runbeck(5) 100,000 * -- -- 100,000 *
Perry W. Steiner(6) 60,000 * -- -- 60,000 *
All Directors and 7,835,022 55.6% -- -- 7,835,022 55.0%
Executive Officers as a Group
(5 persons)(7)
</TABLE>
- -------------------------------
* Less than 1% of the outstanding shares.
(1) Unless otherwise noted, all of the shares are held by individuals
possessing sole voting and dispositive power with respect to the shares
owned. Shares not outstanding, but deemed beneficially owned by virtue
of the right of a person or member of a group to acquire them within 60
days, are treated as outstanding only when determining the amount and
percentage owned by such person or group.
(2) Each share of Preferred Stock of the Company has the right to vote on
all matters voted upon by the holders of Common Stock. Accordingly, the
Preferred Stock and Common Stock have been considered to be one voting
class to show Total Voting Shares Beneficially Owned. The percentage of
outstanding shares is calculated based upon 12,102,950 shares of Common
Stock and 160,000 shares of Preferred Stock outstanding as of the close
of business on April 23, 1999.
(3) Includes 1,199,996 shares that Mr. Ronning has the right to acquire
pursuant to the exercise of stock options within 60 days of April 23,
1999.
(4) Includes 391,000 shares that Mr. Reese has the right to acquire
pursuant to the exercise of stock options within 60 days of April 23,
1999.
(5) Includes 100,000 shares that Mr. Runbeck has the right to acquire
pursuant to the exercise of stock options within 60 days of April 23,
1999.
(6) Includes 60,000 shares that Mr. Steiner has the right to acquire
pursuant to the exercise of stock options within 60 days of April 23,
1999.
(7) Includes 1,800,996 shares that all directors and executive officers as
a group have the right to acquire pursuant to the exercise of stock
options within 60 days of April 23, 1999.
9
<PAGE>
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding the beneficial
ownership of Common Stock and Preferred Stock of the Company as of the close
of business on April 23, 1999, unless otherwise indicated, by each person
known by the Company to be the owner of more than five percent of the
Company's outstanding Common Stock or Preferred Stock.
<TABLE>
<CAPTION>
SHARES OF PREFERRED
SHARES OF COMMON STOCK STOCK TOTAL VOTING SHARES
BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(2)
----------------------- --------------------- ---------------------
NAME AND ADDRESS PERCENT PERCENT PERCENT
OF BENEFICIAL OWNER AMOUNT OF CLASS AMOUNT OF CLASS AMOUNT OF TOTAL
- ------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ginger Elliot -- -- 60,000 37.5% 60,000 *
P.O. Box 1036
Kirtland, NM 87417
Betty Plattner -- -- 50,000 31.3% 50,000 *
1414 Highland Dr.
Solana Beach, CA 92075
Lela D. McCauley -- -- 20,000 12.5% 20,000 *
P.O. Box 574
Okmulgee, OK 74447
Marianne M. Long, as Trustee -- -- 20,000 12.5% 20,000 *
for Lauren A. Long and
Kathryn W. Long
Zelmay Long -- -- 10,000 6.3% 10,000 *
1733 S. Florence Av.
Tulsa, OK 74104
</TABLE>
- -------------------------------
* Less than 1% of the outstanding shares.
(1) Unless otherwise noted, all of the shares are held by individuals
possessing sole voting and dispositive power with respect to the shares
shown. Shares not outstanding, but deemed beneficially owned by virtue
of the right of a person or member of a group to acquire them within 60
days, are treated as outstanding only when determining the amount and
percentage owned by such person or group.
(2) Each share of Preferred Stock of the Company has the right to vote on
all matters voted upon by the holders of Common Stock. Accordingly, the
Preferred Stock and Common Stock have been considered to be one voting
class to show Total Voting Shares Beneficially Owned. The percentage of
outstanding shares is calculated based upon 12,102,950 shares of Common
Stock and 160,000 shares of Preferred Stock outstanding as of the close
of business on April 23, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOAN TO MR. RONNING. In 1993, MacUSA loaned $200,000 to Mr. Ronning.
In consideration of Mr. Ronning's guarantee of a portion of the Company's
bank debt, the interest rate on the note was reduced to 0%, effective as of
January 1, 1997. Such agreement also provided that when the guaranty was
terminated, the interest rate would return to the original amount of 5%. The
note, including the accrued and unpaid interest, was paid in full in December
1998.
10
<PAGE>
DIVIDEND TO MR. RONNING; REIMBURSEMENT OF TAXES. In 1995, MacUSA
declared a dividend of $1,188,000 payable to the former shareholders of
MacUSA in connection with the conversion of MacUSA from a Subchapter S
corporation to a Subchapter C corporation. The Company paid approximately
$200,731 of this dividend during 1996, approximately $200,731 during 1997,
and $200,000 during 1998 of which Mr. Ronning received $200,000 in 1996,
$200,000 in 1997 and $199,268 in 1998. The remainder of the dividend payable
to Mr. Ronning was evidenced by a note payable to Mr. Ronning (the "Note") in
the principal amount, as of December 31, 1998, of $283,857. The Note did not
bear interest, was due on demand and, under the terms of a Debt Subordination
Agreement dated June 27, 1997 between the Company, Mr. Ronning and First Bank
Minnesota, National Association, now US Bank, National Association ("US
Bank"), was subordinated to indebtedness owed by the Company to US Bank
pursuant to the terms of the Financing and Security Agreement with US Bank
dated June 27, 1997. The Company was limited to making dividend payments of
not more than $200,000 to Mr. Ronning in the aggregate in any calendar year,
provided that the Company was in compliance with the Financing Agreement with
US Bank before and after making such dividend payments. Apart from the
foregoing, the Company was not allowed to make dividend payments without the
prior written consent of US Bank. In March 1996, the Company agreed to
reimburse Mr. Ronning for any personal tax he was required to pay as a result
of the non-interest bearing status of the Note. The balance of such note was
paid in February 1999.
PERSONAL GUARANTY BY MR. RONNING. Borrowings under the Revolving
Line of Credit Agreement with US Bank were personally guaranteed by Mr.
Ronning up to a maximum of $500,000. Such guarantee was released in December
1998.
GRANT FROM MR. RONNING OF AN OPTION TO ACQUIRE A SUBSTANTIAL
INTEREST IN DIGITAL RIVER, INC. In December 1995, MacUSA was granted an
option by Mr. Ronning to acquire 3,200,000 shares (after adjustment for an
August 1998 2-for-3 reverse split) of common stock (the "Digital River
Shares") owned by Mr. Ronning. The option (the "Digital River Option")
provided that it was exercisable at any time through December 31, 2000 for
total consideration of one dollar.
The Digital River Shares are subject to the provisions of the
Fujitsu Modification Agreement dated December 11, 1997 (the "Fujitsu
Agreement") between Mr. Ronning, Fujitsu Limited, a company organized under
the laws of Japan ("Fujitsu"), Digital River, and MacUSA (collectively, the
"Parties"). Pursuant to the terms of the Modification Agreement, the Parties
agreed to terminate previous agreements entered into in connection with an
investment by Fujitsu in Digital River. Under the terms of the Modification
Agreement, MacUSA remains a party to the agreement to the extent that Mr.
Ronning may transfer all shares of Digital River he owns, along with any and
all rights related thereto pursuant to the agreement or otherwise to MacUSA
or the Company. Digital River is engaged in the business of electronic
software distribution. Mr. Ronning is the President and a director of Digital
River.
In December 1998, the Company participated in Digital River's
secondary offering by exercising and selling 200,000 shares (post-split) of
the Digital River Option realizing net proceeds of $4,430,000. The Company
continues to hold an option to purchase 3,000,000 shares (post-split), which
would represent ownership of approximately 15% of Digital River as of April
23, 1999. The option is not transferable and the balance is exercisable at
any time through December 31, 2000 for total consideration of $0.93
(ninety-three cents). During the term of the option, Mr. Ronning has agreed
to vote the Digital River Shares at the direction of the Company's Board of
Directors. As additional consideration, the Company has agreed to reimburse
Mr. Ronning for any tax liability incurred in connection with the transfer of
the Option or the shares of Digital River stock issuable upon the exercise
thereunder.
TAX INDEMNIFICATION AGREEMENT WITH MR. RONNING. In December 1995,
the Company entered into a Tax Indemnification Agreement with Mr. Ronning
whereby the Company agreed to indemnify Mr. Ronning for the amount of any
penalties or interest resulting from the redetermination of Mr. Ronning's
share of taxable income attributable to MacUSA and the amount of any
additional taxes
11
<PAGE>
due from Mr. Ronning, to the extent such tax adjustment results in a future
decrease in the taxable income of MacUSA. In 1995, Mr. Ronning owned
approximately 95% of MacUSA, which was a Subchapter S corporation within the
meaning of Section 1361 of the Internal Revenue Code. MacUSA's Subchapter S
status was terminated in 1995, and MacUSA is now a wholly-owned subsidiary of
the Company.
DIGITAL RIVER LEASE AND FULFILLMENT SERVICES During 1998 and until
April 1999, Digital River occupied up to approximately 7,000 square feet of
warehouse space at the Company's corporate headquarters. Prior to August
1998, the offices of Digital River were also located in the Company's
facilities. The Company billed Digital River for the leased space and certain
related costs such as direct labor costs, phone services, general liability
insurance and janitorial services through an administrative charge. Total
charges by the Company to Digital River for administrative expenses were
approximately $207,000, $160,000 and $82,000 in 1998, 1997 and 1996,
respectively.
During 1997, the Company began performing fulfillment services for
Digital River on physical shipments of products, for which Digital River paid
the Company a fulfillment fee. The Company billed Digital River approximately
$246,000 and $8,000 for these services in 1998 and 1997, respectively. Such
fulfillment services by the Company were discontinued in April 1999.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Only exhibits filed with this Amendment to Form 10K are listed.
<TABLE>
<CAPTION>
Item
No. Description
- ---- -----------
<S> <C>
23.1 Consent of Arthur Andersen LLP.
</TABLE>
(b) REPORTS ON FORM 8-K
None.
12
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TECH SQUARED INC.
Date: April 26, 1999 By: /s/ Charles E. Reese, Jr.
-----------------------------------
Charles E. Reese, Jr.
President, Chief Executive Officer,
Chief Operation Officer
By: /s/ Jeffrey F. Martin
-----------------------------------
Jeffrey F. Martin
Chief Financial Officer
and Principal Accounting Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Company and in the capacities and
on the dates indicated.
Signature and Title Date Executed
------------------- --------------
/s/ Joel A. Ronning April 26, 1999
-------------------------------- --------------
Joel A. Ronning, Director
/s/ Charles E. Reese, Jr. April 26, 1999
-------------------------------- --------------
Charles E. Reese, Jr., Director
------------------------------- --------------
Richard J. Runbeck, Director
/s/ Perry W. Steiner April 26, 1999
------------------------------- --------------
Perry W. Steiner, Director
13
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, as amended, into the Company's
previously filed Registration Statement Files No. 33-91974, 33-46971,
333-60613, 333-60607, 333-60609 and 333-74641.
ARTHUR ANDERSEN LLP
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
April 28, 1999
