UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION RRQUIRED 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 ] Revised Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-12
TMS, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) and 0-11.
1). Title of each class of securities to which transaction applies:
2). Aggregate number of securities to which transaction applies:
3). Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4). Proposed maximum aggregate value of transaction: $2,200,000
5). Total fee paid: $440
[ x ] Fee paid previously with preliminary materials.
[ ] 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:
2). Form, Schedule or Registration Statement No.:
3). Filing Party:
4). Date Filed:
TMS, INC.
206 WEST 6TH AVENUE
STILLWATER, OKLAHOMA 74074
SPECIAL MEETING OF SHAREHOLDERS
December 17, 2004
November 12, 2004
Dear Fellow Shareholder:
You are cordially invited to attend a special meeting of shareholders of
TMS, Inc. (the "Company") to be held in Room 119 of the Stillwater Public
Library, 1107 South Duck, Stillwater, Oklahoma, on December 17, 2004, at 10:00
a.m., local time.
At the special meeting, we will ask you to approve the sale of our
Component Products Technologies business (the "CPT Business") to Pegasus Imaging
Corporation ("Pegasus") and a plan of liquidation for the Company.
The Board of Directors approved the sale of the CPT Business, subject to
shareholder approval, and in connection with such approval, also adopted a plan
of liquidation. Under the plan of liquidation, the board of directors will file
a certificate of dissolution for the Company, wind up the Company's affairs,
endeavor to convert all of the assets of the Company into cash or cash
equivalents, pay from Company funds all Company liabilities, including
establishing a reserve to fund contingent liabilities in an amount to be
determined as information concerning such contingencies becomes available, and
distribute the net proceeds of the liquidation to shareholders. In connection
with approving the plan of liquidation, we estimate that you will receive total
liquidation proceeds of between $0.145 and $0.16 per share of common stock.
However, no assurance can be given as to the actual amount of liquidation
proceeds that will be available for distribution.
The affirmative vote of at least two-thirds (2/3) of the outstanding shares
of our common stock is required to approve the sale of the CPT Business to
Pegasus and the plan of liquidation.
In connection with approving the sale of the CPT Business to Pegasus and
the plan of liquidation the board determined that the sale to Pegasus and plan
of liquidation are in the best interests of the shareholders and recommends that
you vote "FOR" approval of the sale and plan. You should carefully read the
description of the sale to Pegasus in the proxy statement and the plan of
liquidation, a copy of which is attached as Appendix A to the accompanying proxy
statement.
At the special meeting, you will also be asked to transact such other
business as may properly come before the meeting or any adjournment or
postponement thereof. It is not anticipated that any other matter will be
brought before the special meeting. If other matters are properly presented,
however, proxies will be voted in accordance with the discretion of the proxy
holders.
Your vote is important. Whether or not you plan to attend the special
meeting, you are requested to promptly sign, date and mail the enclosed proxy
card in the postage-paid envelope provided. Returning a signed proxy card will
not prevent you from voting your shares in person if you subsequently choose to
attend the special meeting, but your presence, without further action, at the
special meeting will not constitute revocation of a previously delivered proxy.
On behalf of your board of directors, thank you for your continued support.
Sincerely,
DEBORAH D. MOSIER
President and Chief Financial Officer
TMS, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 17, 2004
To the Shareholders of
TMS, Inc.
This special meeting of shareholders of TMS, Inc.. will be held on Friday,
December 17, 2004, in Room 119 of the Stillwater Public Library, 1107 South
Duck, Stillwater, Oklahoma, at 10:00 a.m., local time, and at any adjournment or
adjournments thereof, for the following purposes:
1. To consider and vote upon a sale of the Company's Component Products
Technologies business to Pegasus Imaging Corporation and the Asset
Purchase Agreement entered into by the Company, Pegasus, and PIC
Acquisition, Inc., a subsidiary of Pegasus; and
2. To consider and vote upon a plan of liquidation, and to ratify and
approve the transactions described in the accompanying proxy statement
which the Company and its board of directors have undertaken in
connection with the plan of liquidation;
3. To transact such other business as may properly come before the
meeting.
The board of directors currently knows of no other business to be presented
by or on behalf of TMS.
Only shareholders of record at the close of business on October 22, 2004
will be entitled to notice of, and to vote at, the special meeting or any
adjournment or postponement of the meeting.
IMPORTANT
Your proxy is important to assure a quorum at the meeting. Whether or not
you expect to attend the meeting, please vote in any one of the following ways:
Please note that all votes cast o call 1-800-758-6973 from the U.S. or Canada
via telephone or the internet
must be cast before 11:59 p.m. o log on to http://www.eproxyvote.com/tmss; or
(Central Time) on
December 15, 2004. o mark, sign, date and promptly return the
enclosed proxy card in the postage-paid
envelope. It requires no postage if mailed
in the United States.
By Order of the Board of Directors
DEBORAH D. MOSIER,
President and Chief Financial Officer
Stillwater, Oklahoma
November 12, 2004
TABLE OF CONTENTS
PAGE
SUMMARY.....................................................................1
GENERAL INFORMATION FOR THE SPECIAL MEETING.................................6
BACKGROUND OF THE COMPANY'S DECISION TO LIQUIDATE...........................8
RECOMMENDATION OF THE BOARD................................................12
DESCRIPTION OF ASSET PURCHASE AGREEMENT WITH PEGASUS.......................16
ABSENCE OF APPRAISAL RIGHTS................................................31
REGULATION DURING LIQUIDATION..............................................31
MATERIAL FEDERAL INCOME TAX CONSEQUENCES...................................31
CONTINGENCIES; CREDITORS; LITIGATION.......................................34
PROPOSAL 1.................................................................36
PROPOSAL 2.................................................................37
THIS PROXY STATEMENT AND THE LETTER TO SHAREHOLDERS CONTAIN STATEMENTS THAT
ARE NOT BASED ON HISTORICAL FACT AND ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. AMONG OTHER
THINGS, THEY REGARD THE COMPANY'S LIQUIDITY, FINANCIAL CONDITION, OPERATIONAL
MATTERS, CERTAIN STRATEGIC INITIATIVES AND ALTERNATIVES AND THEIR POTENTIAL
OUTCOMES AND THE POTENTIAL VALUE OF THE COMPANY'S PROPERTY AND ASSETS. WORDS OR
PHRASES DENOTING THE ANTICIPATED RESULTS OF FUTURE EVENTS, SUCH AS "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "EXPECTS," "MAY," "NOT CONSIDERED LIKELY," "ARE EXPECTED
TO," "WILL CONTINUE," "PROJECT," "COULD," AND SIMILAR EXPRESSIONS THAT DENOTE
UNCERTAINTY ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE
METHODS USED BY THE BOARD OF DIRECTORS AND MANAGEMENT IN ESTIMATING THE VALUE OF
THE COMPANY'S PROPERTY AND ASSETS DO NOT, WITH CERTAINTY, RESULT IN AN EXACT
DETERMINATION OF VALUE NOR ARE THEY INTENDED TO INDICATE THE AMOUNT, IF ANY, A
SHAREHOLDER MAY RECEIVE IN LIQUIDATION. OUR ABILITY TO BE DISMISSED FROM THE
LITIGATION WITH NCS PEARSON, WHETHER AND AT WHAT PRICE WE CAN DISPOSE OF OUR
REMAINING INTEREST IN THE DMR PATENT, THE AMOUNT AND NATURE OF ANY UNKNOWN
CONTINGENT LIABILITIES, AND THE ABILITY TO COLLECT OUR RECEIVABLES ARE ALL
FACTORS THAT MAY HAVE AN IMPACT ON THE AMOUNT, IF ANY, A SHAREHOLDER MAY RECEIVE
IN LIQUIDATION AND WHEN SUCH DISTRIBUTION CAN BE MADE.
SUMMARY
This proxy statement contains information regarding the special meeting of
shareholders of TMS, Inc., which we call the "Company." The board of directors
is soliciting your proxy to encourage your participation in the voting at the
special meeting and to obtain your support for the sale of the Company's
Component Products Technologies business and a plan of liquidation.
This summary does not contain all the information that is important to you.
To fully understand the terms of the sale of the Component Products Technologies
business to Pegasus Imaging Corporation and the plan of liquidation, you should
carefully read the entire proxy statement. The plan of liquidation is attached
as Appendix A to this proxy statement. We encourage you to read the entire plan.
What is the Company's business?
- -------------------------------
We have been engaged in the computer software business since 1981 and became
incorporated in 1990. We license computer software products to enable businesses
to use document imaging to solve critical business problems. Our core business
is, and substantially all of our revenue over the past five years has been
derived from, our Component Product Technologies business which is comprised
primarily of developing and licensing software toolkits and applications for
document imaging and forms processing solutions. We have also developed certain
assessment scoring products. Our development of these assessment scoring
products resulted in us transferring certain scoring technology to and acquiring
a 50% ownership interest in VSC Technologies, LLC, an entity that we formed with
Measurement Incorporated in October 2002.
What is the purpose of the special meeting?
- -------------------------------------------
At the special meeting we will ask you to approve the terms of the sale of the
Component Products Technologies business to Pegasus Imaging Corporation and
approve a plan of liquidation for the Company.
Why is this proposal being made?
- --------------------------------
After considering many factors related to the historical financial performance
of the Company, the financial forecasts and future prospects for its existing
and planned new software products, the impact of the Sarbanes-Oxley Act of 2002
and the rising costs of being publicly-held, and various strategic alternatives
potentially available to the Company, the Board determined that the best and
most likely means for maximizing shareholder value and return, would be through
a sale of the Company or substantially all of its assets to a third party. The
Company through various business partners contacted potential third party buyers
and engaged in various negotiations prior to recommending the proposals to sell
the Company's Component Product Technologies business to Pegasus and to adopt a
plan of liquidation for the Company.
Has the board made a recommendation with respect to the proposed liquidation?
- -----------------------------------------------------------------------------
In connection with the Board approving the terms of the sale of the Component
Products Technologies business to Pegasus Imaging Corporation and the plan of
liquidation in August 2004, the Board determined that the sale and the plan are
in the best interests of shareholders and recommends that you vote "FOR" their
approval.
What will I receive in the liquidation?
- ---------------------------------------
In connection with approving the plan of liquidation we estimate that you will
receive total liquidation proceeds of between $0.145 and $0.16 per share of our
common stock that you own, which means that for every 1,000 shares that you own
you could receive between $145.00 and $160.00. This range is based on certain
assumptions and estimates. We have estimated that we will receive $2.2 million
in the sale of the Component Products Technologies business to Pegasus and that
we will receive $250,000 for our interest in VSC Technologies, LLC. See
"Description of Asset Purchase Agreement with Pegasus - Purchase Price" for a
more complete discussion. In determining the range, we have also estimated that
costs incurred prior to a final liquidating distribution will not exceed
$415,000. This amount includes estimates for (i) professional services related
to sale agreements, these proxy materials, tax returns and similar items, (ii)
fees paid to officers and directors for the oversight and implementation of the
plan of liquidation,(iii) certain insurance premiums and (iv) certain taxes. Our
estimate of liquidation proceeds does not currently include any amount related
to certain DMR(R) patent license rights that we will retain after the sale to
Pegasus. Our plan is to sell our DMR(R) patent license rights to a third-party
and include any amounts received in the liquidation proceeds to our
shareholders, however we do not expect such amount to be significant.
In addition to the unknowns related to the DMR(R) patent, the amount of proceeds
ultimately received is dependent upon a number of conditions and events, many of
which are beyond the power of the Company to control, including our ability to
be dismissed from the litigation with NCS Pearson, the impact of our financial
performance through September 30, 2004 on the final sale price to Pegasus, and
the collection of our accounts receivable which will also impact the final sale
price to Pegasus. Accordingly, we have developed an estimated contingency for
unknown matters in an effort to account for such conditions and events; however
no assurance can be given as to the accuracy of such reserve or actual amount of
liquidation proceeds that will be available for distribution. A chart detailing
the estimates and assumptions relied upon in determining the estimated range of
liquidation proceeds can be found under the subheading "Distributions to
Shareholders" under the heading "Description of Plan of Liquidation," on page
23.
What is the expected timing for distribution of the liquidation proceeds?
- -------------------------------------------------------------------------
We currently cannot estimate the timing for distribution of the liquidation
proceeds as it is primarily dependent upon our ability to be dismissed from the
litigation with NCS Pearson and whether and at what price we can dispose of our
remaining interest in the DMR patent which we cannot currently estimate. Our
plan is to distribute all liquidation proceeds at one time in order to minimize
transaction costs associated with processing, mailing and other related
administrative costs. We anticipate that it will be a matter of months after the
closing before we know if we can be dismissed from the NCS Pearson litigation.
If we are not dismissed or cannot get leave to make a distribution, it could be
a matter of years before there is a distribution.
What are the basic terms of the Asset Purchase Agreement?
- ---------------------------------------------------------
The Company will sell all of its assets associated with the Component Products
Technologies business, which are substantially all of the Company's assets,
including its cash, accounts receivable, name and goodwill, to a subsidiary of
Pegasus Imaging Corporation. Pegasus and its subsidiary will assume all of the
Company's ongoing obligations under existing customer agreements, as well as
certain liabilities associated with office leases, employee expenses and
accounts payable. The purchase price is subject to adjustment based on certain
elements of working capital and adjustments thereto. We currently estimate that
the purchase price will be $2.2 million (not including the liabilities assumed).
A portion of the purchase price (approximately $600,000) will be payable in the
form of a promissory note which will be due on the earlier of the date the
Company liquidates or July 15, 2005. The note is subject to certain offsets
primarily related to the collection of accounts receivable and final acceptance
of custom software development by certain customers.
What will happen to the Company's interest in VSC Technologies, LLC?
- --------------------------------------------------------------------
The Company has reached an agreement in principle with Measurement Incorporated,
the other 50% owner in VSC Technologies, LLC, to sell its interest in the LLC in
exchange for $250,000 and complete indemnification of the Company against the
pending litigation with NCS Pearson. The Company anticipates the completion of a
definitive agreement with Measurement Incorporated prior to the shareholders
meeting and a closing simultaneously with the sale of Pegasus.
What are the potential tax consequences of a distribution?
- ----------------------------------------------------------
For federal income tax purposes, distributions to you under the plan of
liquidation, including your pro rata share of the fair market value of any
assets that are transferred to a liquidating trust, should not be taxable to you
until they exceed the tax basis of your shares of common stock, and then should
be taxable to you under federal law as a capital gain (assuming you hold your
shares as a capital asset). You should consult your own tax advisor for a full
understanding of the particular tax consequences of the liquidation to you.
Who is entitled to vote at the meeting?
- ---------------------------------------
Only shareholders of record at the close of business on the record date of
October 22, 2004 are entitled to receive notice of the special meeting and to
vote those shares of common stock that they hold on the record date. Each
outstanding share of common stock is entitled to one vote on each matter to be
voted on at the meeting.
What vote is required to approve the proposals?
- -----------------------------------------------
The affirmative vote of at least two-thirds (2/3) of the outstanding shares of
our common stock is required to approve our plan of liquidation and/or the sale
of the Component Products Technologies business. Abstention, the failure to vote
or a broker non-vote has the same effect as a vote against the sale of the
Component Products Technologies business to Pegasus and the plan of liquidation.
If any other matter is properly submitted to the shareholders at the special
meeting, it will be adopted by the affirmative vote of the holders of a majority
of votes cast at the meeting.
How do I vote my shares?
- ------------------------
You may vote your shares at the special meeting in person or by proxy. To vote
in person, you must attend the special meeting, and obtain and submit a ballot.
A ballot will be provided at the meeting. In addition to attending the meeting
and casting your vote in person, you may either:
o Mark your selection on the enclosed proxy card, date and sign the
card, and return the card in the enclosed envelope; or
o Dial 1-800-758-6973 from the U.S. and Canada, enter your control
number (found on your proxy card) and follow the voice prompts; or
o Go to the following website: http://www.eproxyvote.com/tmss enter your
control number and follow the simple instructions on the screen.
If you complete all of the proxy card except the voting instructions, then the
designated proxies (Deborah D. Mosier and Arthur D. Crotzer) will vote your
shares "FOR" the sale of the Component Products Technologies business to Pegasus
and the plan of liquidation.
Can I change my vote after I return my proxy?
- ---------------------------------------------
You may change your vote at any time before your proxy is exercised by: (i)
notifying the Secretary of the Company in writing of your revocation, (ii)
submitting a later dated proxy or (iii) attending the special meeting and
indicating that you intend to vote your shares yourself. If you attend the
special meeting, Deborah D. Mosier and Arthur D. Crotzer still have authority to
vote your shares in accordance with your instructions on the proxy unless you
indicate at the special meeting that you intend to vote your shares yourself.
Do I have dissenters' rights?
- -----------------------------
Shareholders have no statutory right to dissent from the liquidation or the
asset sale.
What will happen if the sale to Pegasus or the plan of liquidation is not
approved by shareholders?
- --------------------------------------------------------------------------
If the plan of liquidation and/or sale of the Component Products Technologies
business is not approved by shareholders at the special meeting, neither will be
effective and the board will explore the alternatives then available for the
future of the Company including but not limited to continuing to operate as a
publicly-owned entity conducting operations in the ordinary course of business.
The Company has expended considerable time, effort and expense in pursuing these
opportunities and during this process has not developed new products although it
has continued to maintain its existing products and customer base. If these
transactions are not approved, there can be no assurance that there will be
other opportunities that would result in the shareholders receiving more or any
return and we believe the Company's working capital will continue to deteriorate
and thus may impact its ability to fund its ongoing operations.
The Company has been delayed in completing the SEC review process prior to
mailing this Proxy and as a result could not seek approval in time to close the
transaction as originally anticipated. During these delays, TMS has lost some of
its business development and project management and marketing employees. Instead
of filling these positions while this transaction is pending, the Company
reached an extension agreement with Pegasus which provides for Pegasus to
provide certain of these functions to the Company pending a closing. The Company
estimates that the fees and expenses to be paid to Pegasus will be between
$60,000 and $80,000. These fees will not be payable if this transaction is
actually closed by December 17, 2004. However, if the transaction is not
approved by the shareholders, the Company will need to pay these management fees
and expenses. The Company will then need to immediately try to fill the
vacancies created by these resignations. The Company can provide no assurances
that these vacancies can be filled in a timely manner.
Who can answer my questions?
- ----------------------------
If you have any questions regarding the liquidation or any other matters
discussed in this proxy statement, please contact:
Deborah D. Mosier
206 West 6th Avenue
Stillwater, Oklahoma 74074
(405) 377-0880
GENERAL INFORMATION FOR THE SPECIAL MEETING
DATE, TIME AND PLACE
The special meeting will be held in Room 119 of the Stillwater Public
Library, 1107 South Duck, Stillwater, Oklahoma, on December 17, 2004 at 10:00
a.m. local time, and any adjournment or postponement of the meeting. This proxy
statement and the accompanying Notice of Special Meeting of Shareholders and
proxy card are first being mailed to shareholders on or about November 5, 2004.
PURPOSES
At the special meeting, you will be asked to consider and vote upon the
sale of the Component Products Technologies business to Pegasus Imaging
Corporation and the plan of liquidation for the Company. The board of directors
is not currently aware of any business to be acted upon at the special meeting
other than as described in this proxy statement. If other matters are properly
brought before the special meeting, however, the persons appointed as proxies
will have authority to vote on those matters according to their discretion.
RECORD DATE FOR VOTING; NUMBER OF VOTES
Only shareholders of record at the close of business on October 22, 2004
are entitled to receive notice of and to vote at the special meeting. On such
date there were issued and outstanding 13,121,658 shares of common stock.
QUORUM
A majority of the votes eligible to be cast represented in person or by
proxy constitutes a quorum for the meeting. If a quorum is not present, the
special meeting may be adjourned without further notice to a date not more than
30 days after the date of the original meeting at which a quorum is present, and
shares represented by proxies may be voted for such adjournment.
A broker non-vote occurs when a broker holding stock in street name returns
an executed proxy but does not vote on the matter because the broker lacks
discretionary authority from the beneficial owner to vote on that matter. The
missing votes are deemed to be "broker non-votes." Shares present but abstaining
and broker non-votes will be included in the number of shares present at the
special meeting for purposes of establishing a quorum.
VOTING METHODS AND PROXIES
You can vote on the matters to come before the special meeting as follows :
o Mark your selection on the enclosed proxy card, date and sign the
card, and return the card in the enclosed envelope; or
o Dial 1-800-758-6973 from the U.S. and Canada, enter your control
number (found on your proxy card) and follow the voice prompts; or
o Go to the following website: http://www.eproxyvote.com/tmss enter your
control number and follow the simple instructions on the screen; or
o Attend the special meeting in person and cast your vote at the special
meeting.
REQUIRED VOTE
Once a quorum is present or represented by proxy at the special meeting,
approval of the sale of the Component Products Technologies business to Pegasus
and the plan of liquidation will each require the affirmative vote of at least
two-thirds (2/3) of the outstanding shares of the common stock.
At the close of business on October 22, 2004, the record date for
determining those shareholders eligible to vote at the special meeting, there
were 13,121,658 shares of common stock outstanding.
Abstentions and broker non-votes will not be counted as votes and,
therefore, have the same effect as votes against the proposal. As a result, the
affirmative vote of at least 8,747,772 shares is required to approve the two
proposals. Currently, the Board and management own approximately 1,120,786
shares and intend to vote in favor of the proposals. An additional 7,626,936
affirmation votes will be required.
REVOCATION OF PROXIES
A shareholder may revoke a proxy given with respect to the special meeting
at any time before it is voted at the special meeting by:
- filing with the Secretary of the Company a written revocation; or
- granting a duly executed proxy bearing a later date.
A shareholder may revoke a previously delivered proxy by attending the
special meeting and voting in person, but the presence (without further action)
of a shareholder at the special meeting will not constitute revocation of a
previously delivered proxy.
Shareholders holding shares in street name at a broker or bank custodian
must follow the procedures of such broker or bank custodian if they wish to
revoke a previous voting instruction.
INFORMATION REGARDING TABULATION OF THE VOTE
All proxies, ballots and votes tabulated at a meeting of our shareholders
are confidential, and the votes will not be revealed to any of our employees or
anyone else, other than the inspectors, unless it is necessary to meet
applicable legal requirements. However, we intend to issue a press release
stating whether or not the sale of the Component Products Technologies business
to Pegasus and the plan of liquidation are approved at the special meeting.
SOLICITATION OF PROXIES AND EXPENSES
The Company will bear the entire cost of soliciting proxies from our
shareholders. Copies of solicitation materials will be furnished to brokerage
houses, fiduciaries and custodians holding in their names shares of our common
stock beneficially owned by others to forward to those beneficial owners. The
Company will reimburse persons representing beneficial owners of the shares of
our common stock for their expenses in forwarding solicitation materials to
those beneficial owners. Original solicitation of proxies by mail may be
supplemented by telephone or personal solicitation by the directors, officers or
other employees of the Company. No additional compensation will be paid to the
Company's directors, officers or other employees for these services. We have
also retained Morrow & Company to assist in solicitation of proxies at an
estimated cost of $15,000.
BACKGROUND OF THE COMPANY'S DECISION TO LIQUIDATE
GENERAL DEVELOPMENT OF BUSINESS
We have been engaged in the computer software business since 1981 and
became incorporated in 1990. We license computer software products to enable
businesses to use document imaging to solve critical business problems.
Typically, businesses wish to solve these problems by electronically publishing
and disseminating information. We offer or have offered customers the following
imaging technology solutions and services:
Component Product Technologies
Software toolkits for:
o Image Viewing
o Image Enhancement
o Forms Processing
o Color Image Processing
Software applications for:
o Web-based Image Viewing
o Image Enhancement for Black and White Images
o Image Enhancement for Color and Grayscale Images
Assessment Scoring Products
o Virtual Scoring Center
o Digital Mark Recognition
Services
o Custom Software Development, Consulting and Integration Services
o Data Capture and Conversion Services
In October 2002, we acquired a 50% ownership interest in VSC Technologies,
LLC, a new entity that we formed with Measurement Incorporated, a provider of
writing and performance assessment hand-scoring services. VSC Technologies, LLC,
was formed to further develop the Virtual Scoring Center technology and license
it to those in the education market that can benefit from using image-based
technology to score tests. We assigned all of our rights in the Virtual Scoring
Center technology upon formation of the new entity.
FINANCIAL INFORMATION
Selected Financial Information. Following is financial information for the
Company for the years ended August 31, 2000 through 2004. Selected information
is derived from audited financial statements.
Fiscal Year ended August 31,
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Revenue
License and Royalties 1,757,093 2,348,913 2,724,221 3,029,794 2,807,989
Customer Support and Maintenance 654,067 599,548 508,054 345,514 175,637
Custom Software Development 437,700 34,240 -- 39,921 359,184
Document Conversion Services -- -- -- 204,173 259,439
Other 78,212 134,710 95,571 22,200 3,000
----------- ----------- ----------- ----------- -----------
Total Revenue 2,927,072 3,117,411 3,327,846 3,641,602 3,605,249
----------- ----------- ----------- ----------- -----------
Operating (loss) (18,899) (158,106) (496,004) (138,407) (440,985)
----------- ----------- ----------- ----------- -----------
Net (loss) (265,571) (483,062) (416,140) (104,302) (396,558)
----------- ----------- ----------- ----------- -----------
Diluted (loss) per share (.02) (.04) (.03) (.01) (.03)
----------- ----------- ----------- ----------- -----------
Weighted average shares 13,121,659 13,112,659 13,104,320 13,080,624 13,364,352
----------- ----------- ----------- ----------- -----------
Current Assets 2,020,973 1,588,777 1,618,349 1,883,259 2,086,381
----------- ----------- ----------- ----------- -----------
Total Assets 2,555,154 2,911,112 3,552,443 3,981,670 4,089,254
----------- ----------- ----------- ----------- -----------
Current Liabilities 642,739 639,527 813,300 803,704 710,146
----------- ----------- ----------- ----------- -----------
Long-Term Liabilities 119,049 213,773 198,269 227,376 262,831
----------- ----------- ----------- ----------- -----------
Total Liabilities 761,788 853,300 1,011,569 1,031,080 972,977
----------- ----------- ----------- ----------- -----------
Financial Statements. The financial statements (Item 7) and Management's
Discussion and Analysis or Plan of Operation (Item 6) included in the Company's
most recent annual report on Form 10-KSB filed with the Securities and Exchange
Commission for the Company's fiscal year ended August 31, 2004 is incorporated
herein by reference. For your convenience, we are including a copy of the Form
10-KSB with this Proxy Statement.
ANALYSIS OF BUSINESS
We have sustained losses in the last several fiscal years and our revenue
has been flat or declining over that period of time. We have expended
considerable capital in the development and marketing of products to support
color-based document imaging and forms processing solutions, believing that the
support of color document imaging would become a strong future prospect for the
Company. While the use of color in document imaging is becoming more prevalent,
it has not currently and is not expected to provide a significant revenue source
to the Company in the near future or be enough to offset continued declines in
revenue from our black and white document imaging and document viewing
technologies which serve competitive and more mature markets.
We also believed that our investment in assessment scoring technologies and
the resulting formation of VSC Technologies, LLC offered opportunities for
revenue growth, however the development of these products has taken longer than
anticipated and the market for them has not materialized. Additionally, certain
operating expenses have been increasing as a result of accounting and other
compliance and reporting matters associated with the adoption and implementation
of the Sarbanes-Oxley Act of 2002. The cost burden of being publicly-held has
been significant to a company our size and such cost burden is difficult to
justify if our business is not growing rapidly.
In December 2003, the Company was projecting a $1 million loss for the
upcoming fiscal year and believed that it would use up at least half of its
existing cash. In the second half of the fiscal year, the Company secured
approximately $503,000 in custom development contracts of which $468,000, or
93%, came from one customer. Because of these contracts and certain cost control
measures that were implemented in the second quarter, the loss projected for
fiscal year 2004 approximated only $266,000. The timing and extent of such
custom development contracts are often difficult to predict, and the magnitude
of the one significant customer contract is not typical or expected to recur
based on the nature of our products and services.
In general, the markets for our products are characterized by rapid
technological advances and can be significantly affected by new product
introductions and changing customer requirements. In addition, the computer
software and education assessment fields are highly competitive with many
competing companies in those industries. Our future success depends upon our
ability to continue to improve existing products and to develop and introduce
products with new or enhanced capabilities that address the increasingly
sophisticated needs of our customers and keep pace with technological and
competitive developments. We cannot assure you that we will be able to
successfully develop and market new or enhanced products or respond effectively
to technological changes or new product announcements by others. Any failure by
us to anticipate or respond adequately to technological developments and
customer requirements, or any significant delays in product development or
introduction, could result in a material adverse effect on our business,
operating results, cash flows and financial condition.
Even though we have been faced with net losses over the past several years,
we have been able to maintain our working capital position by absorbing a
portion of these losses through certain non-recurring investing and financing
activities. Such activities included: (1) a $250,000 cash sale of our Virtual
Scoring Center technology to VSC Technologies, LLC, (2) receipt of $350,000 in
cash pursuant to contractually required distributions from the VSC Technologies,
and (3) receipt of approximately $240,000 in net cash upon the sale of the
Company's headquarters building in December 2003 and pay off of the building
mortgage.
NEW BOARD MEMBERS
In June 2003, the shareholders elected Don Brown Jr., Deborah L. Klarfeld,
and Henry H. Scherich to the Company's Board of Directors as replacements for
the three prior board members Doyle E. Cherry, James R. Rau, M.D. and Marshall
C. Wicker who decided to not stand for reelection to the Board. Deborah L.
Klarfeld, resigned as a Director and as President of the Company in August 2003
and Deborah D. Mosier who had previously served as President and was currently
serving as Chief Financial Officer of the Company was appointed by the remaining
two board members to serve as President and fill the vacancy left by Deborah L.
Klarfeld. The remaining two Board members also sought to fill seats on the Board
with persons they believed were qualified and had prior knowledge of the
Company. As a result, Russell W. Teubner and Arthur D. Crotzer were appointed to
fill two of these vacancies in December 2003.
Russell W. Teubner served as Chairman of the Board of Directors of the
Company from January 2000 through February 2002, and as a Director of the
Company from March 1999 to March 2003. Mr. Teubner has served as Founder and
Chief Executive Officer of HostBridge Technology since 1998. From 1983 to 1998,
he served as Chief Executive Officer of Teubner & Associates, a software firm
that he founded. Mr. Teubner also serves as a Director of Esker, S.A. (a
publicly held French software company) and Southwest Bancorp (NASDAQ:OKSB). Mr.
Teubner graduated from Oklahoma State University with a Bachelor of Science
degree in Management Science and Computer Systems.
Arthur D. Crotzer was employed by the Company in various technical
management capacities from 1983 to 1999, and served as a Director and as the
President and Chief Executive Officer of the Company from October 1997 to
January 1999. Since October 2000, Mr. Crotzer has held a technical and business
management position with Nomadics, Inc., a national technology research and
development firm. From April 1999 to September 2000, Mr. Crotzer was Director of
e-business Consulting Services for Netplex, Inc., an information technology
services company. Mr. Crotzer earned a Bachelor of Science degree in math and
physics from Austin Peay State University and a Master of Science degree in
computer science from Oklahoma State University.
The new Board then elected Deborah D. Mosier to serve as a Director in
December 2003. Deborah D. Mosier has served as the Company's President since
August 2003 and as the Principal Financial Officer since 1996. Ms. Mosier also
served as the Company President from September 1999 through June 2002. She
joined TMS in 1995 as Controller of Financial Operations and was appointed Chief
Financial Officer in 1996. From 1989 to 1996, Ms. Mosier worked in the audit
practice of KPMG LLP. Ms. Mosier received her Bachelor of Science Degree with a
major in accounting from Oklahoma State University and is a Certified Public
Accountant.
The newly constituted Board wanted to assess the overall economic
prospects, direction and goals of the Company. The Board reviewed the history of
each of its core products, the expected life of those products, the development
cost of new products, the revenue and expenses of the Company and other
financial and operational matters related to the markets that we serve. The
Board became concerned that without some ability to develop new products, form
strategic alliances, or undertake some other strategic alternatives, the Company
would continue to use up its excess cash and ultimately be in a position such
that the shareholders would receive little, if any, return. As a result, the
Board considered various alternatives and strategies available to the Company,
including ways of reducing expenses, ways of increasing revenue, acquiring
additional capital, "going private", selling the Company or some or all of its
assets, and other alternatives.
In January 2004, we retained Strategy Partners, an industry consultant, to
begin contacting other companies that might have an interest in pursuing some
strategic alternative with the Company. Management was also contacted by other
industry players and others outside of the industry to assess opportunities for
strategic relationships. This approximate nine-month process resulted in the
Company entering into an Asset Purchase Agreement with PIC Acquisition, Inc. and
Pegasus Imaging Corporation, dated as of August 5, 2004 (the "Pegasus
Contract").
RECOMMENDATION OF THE BOARD
After considerable review of the operational aspects of the Company
including areas in which expenses could be reduced, areas in which revenues
could be increased and the cost of developing new products, it was determined
that the existing revenue base of the Company could not sustain itself without
the infusion of additional capital to develop new products. This is because of
the fixed overhead necessary to maintain the existing revenue base and comply
with the various requirements of being a public company. The toolkit market is
small and fractured and requires significant customer support, which keeps the
Company's costs up.
The Board considered the value of the various patents and other
intellectual property rights of the Company, the value of its existing revenue
stream and the ability to break into other markets such as education. The
Company had various discussions with Strategy Partners, an industry consultant,
regarding options available to the Company and the interest that other industry
players might have in the Company. The Company had also been approached by
Pegasus Imaging Corporation, a slightly larger imaging company that had
expressed an interest in the Company's Component Product Technologies business.
As a result, the Board of Directors appointed an independent review committee
composed of Russell W. Teubner, Arthur D. Crotzer and Don Brown. The independent
review committee excluded Mr. Scherich because of his affiliation with
Measurement Incorporated and the anticipation that we could subsequently need to
negotiate with Measurement Incorporated. The independent review committee began
the process of reviewing the business and the strategic alternatives available
to the Company. Mr. Scherich subsequently resigned from the Board in July, 2004.
The independent review committee authorized the Company's officer to engage
Strategy Partners to contact various industry players to determine their
interest in purchasing the Company, its Component Products Technologies
business, and/or some other strategic alternative with the Company. Debbie
Mosier was also authorized to begin discussions with Pegasus Imaging
Corporation. Through this process Strategy Partners identified and contacted
approximately twelve (12) third parties who Strategy Partners believed would
have an interest in some strategic arrangement with the Company. Additionally,
the Company was contacted by approximately seven (7) other industry or
non-industry players, including Pegasus Imaging Corporation. The Company also
began negotiations with Measurement Incorporated regarding possibilities for
addressing its interest in VSC Technologies, LLC in the event that either a
potential purchaser of the Company was a competitor of Measurement Incorporated
(which would give Measurement Incorporated certain rights to acquire the VSC
Technology) or any third party was not interested in the VSC Technology.
Through this process the Company had initial discussions with at least
fifteen (15) potential acquiring companies. The Company also had two (2) bona
fide offers for the Component Product Technologies Business, including Pegasus,
and one (1) discussion about an offering price for the entire Company. Of these,
the offer from Pegasus Imaging Corporation coupled with the sale of our interest
in VSC Technologies, LLC to Measurement Incorporated, was the best offer based
on price.
The final purchase price from both Pegasus and the other party was
dependent upon financial performance and related working capital balances
through a defined future date. At the time that we entered into final
negotiations with Pegasus, the other offer for our Component's business was
estimated to be approximately $175,000 to $350,000 lower than the offer from
Pegasus and was expected to have higher transaction costs primarily because of
broker fees. The other party continued to raise its offer throughout our entire
negotiations with Pegasus; however the price was never high enough to justify
the additional transaction costs that would have been required to start
developing a new contract and pay the broker fees.
With respect to our discussions with another party about an offering price
for the entire Company, the initial offer was $0.06 per share plus an undefined
earn-out that would be payable to shareholders over some period of time. That
party eventually offered $0.13 per share with no earn-out; however, that price
was still lower than what the Board estimated it could distribute to
shareholders based on the combination of the sale to Pegasus and the sale of our
LLC interest to Measurement Incorporated.
In addition to the comparison of the other offers as described above, the
Board evaluated the overall offer from Pegasus Imaging Corporation based on the
revenue stream from its Component's business, the assumption of liabilities
which the Company would otherwise continue to have, the unpredictable nature of
our Component's business, the history of operating losses, the costs burden of
continuing to operate as a publicly-held company, and the limited interest from
other parties.
Through the process described above, the independent review committee met
either in person or by conference call twelve (12) times over a nine month
period and continually evaluated changes in the business and various
alternatives for the Company. The independent review committee decided not to
obtain a fairness opinion under these circumstances. It believed that such a
fairness opinion may cost anywhere from $25,000 to $50,000 and would directly
reduce the amount of cash available for distribution to the shareholders.
Additionally, because (1) the committee believes that it conducted a thorough
job of contacting those industry players who would have an interest in the
Company and its business, evaluated the revenue streams and other assets of the
Company and obtained various offers all of which confirmed the price ultimately
negotiated with Pegasus Imaging Corporation, and (2) the Company has the ability
to terminate the Pegasus Contract if a better offer is made after the public
announcement of this transaction, the committee believes that such a fairness
opinion did not justify the reduction in the amount ultimately available to the
shareholders.
With respect to the value of the Company's interest in VSC Technologies and
its assets related to the Virtual Scoring Center software, the committee
believes that the value of the indemnification in the NCS Pearson litigation was
significant, but that these assets would be extremely difficult, if not
impossible, to value because of the uniqueness of the relationship with
Measurement Incorporated and its rights to the technologies once they were
developed. The cash purchase price of $250,000 which the Company will receive
under the plan of liquidation and the transaction with Measurement Incorporated
is equivalent to the initial purchase price that the Company and Measurement
Incorporated each invested upon formation of VSC Technologies, LLC. The Company
and Measurement Incorporated negotiated the initial purchase price on an
arms-length basis at that time. Additionally, the Company will have been paid
all but approximately $200,000 for its development work done since the formation
of VSC Technologies, LLC and has been indemnified and will continue to be
indemnified by Measurement Incorporated against the lawsuit with NCS Pearson.
The committee therefore believes that the value being received for these assets
is also fair.
The Board discussed the possibility of pursuing business and investment
opportunities other than liquidation; however, it determined that such
activities were too speculative to justify the risk of continuing to operate as
a corporate shell and bear the cost of being publicly held. Accordingly, the
Board decided to recommend liquidation of the Company to its shareholders as the
best option for obtaining value from the Company.
The members of the independent review committee of the board of directors
also considered the following potentially negative factors in their
deliberations concerning the liquidation:
- There could be no assurance that the Company would be successful in
disposing of its assets at amounts equal to or exceeding the estimated
values or that these dispositions would occur as early as expected;
- If the sale and plan are approved and implemented, shareholders will
no longer participate in any future earnings or growth of the
Company's assets or benefit from any increases in the value of the
Company's assets once such assets are sold;
- A transaction involving sale of the Company's assets and subsequent
liquidation as opposed to a business combination whereby a third party
would acquire the entire Company, would involve a longer pay-off
process and require the Company to incur potentially larger
administrative and other costs.
Based on the process that the board and management undertook to identify
strategic alternatives for the Company, their analysis of the current and
historic financial condition and results of operations of the Company, as well
as the prospects and strategic objectives of the Company, including the risks
involved in achieving those prospects and objectives, and the current and
expected conditions in markets in which the Company operates, the Board of
Directors recommends that you vote "FOR" the proposal for a plan of liquidation,
and to ratify and approve the transactions described in the accompanying proxy
statement which the Company and its board of directors have undertaken in
connection with the plan of liquidation.
DESCRIPTION OF ASSET PURCHASE AGREEMENT WITH PEGASUS
GENERAL
The Board is proposing the sale (the "Sale") of the Component Products
Technologies business to Pegasus and its subsidiary (collectively, the "Buyer")
pursuant to the Pegasus Contract for approval by the shareholders at the special
meeting. Subject to shareholder approval, the Sale was approved by the Board of
Directors on August 4, 2004 in connection with the approval of the Plan of
Liquidation and Dissolution which is further described in this proxy statement.
Certain material features of the Asset Purchase Agreement with PIC Acquisition,
Inc. and Pegasus Imaging Corporation as extended by a letter agreement effective
October 16, 2004 (the "Pegasus Contract") along with a discussion of the
development of Pegasus' business and selected financial information are
summarized below.
GENERAL DEVELOPMENT OF BUSINESS AND SELECTED FINANCIAL INFORMATION
FOR PEGASUS IMAGING CORPORATION
Pegasus Imaging Corporation, a privately-held company founded in 1991, is a
supplier of image compression technologies and digital imaging utilities. The
company has launched several new products during each year of business to offer
solutions for viewing, scanning, printing, barcode, OCR, ICR, OMR, MICR, CAD
viewing, compression (including JPEG2000, JPEG, wavelet, TIFF and lossless JPEG)
and more. Primary markets served include Document, Medical, Photo, Video and
Embedded Solutions.
Since inception, Pegasus has been successful in growing its business both
organically and through mergers and acquisitions. Its goal is to find companies
or assets in the imaging industry that have the potential to add significant
value in customer base, science and technology, or imaging expertise. In 1993
Pegasus acquired Applied Multimedia Technologies (Atlanta, GA) for its JPEG
compression algorithm and image editing technology. In 1997 Pegasus acquired
ImageFX (Rochester, NY), Imagine Software Solutions (Cincinnati, OH) and Rivet
Software (Atlanta, GA) in a single subsidiary transaction (later merged into the
parent) to create a new component products group as an easier to use "toolkit"
platform for Pegasus technology and reach a broader market of application
developers. In 2001 Pegasus purchased the ICR/OCR/OMR/Barcode intellectual
property and source code from a software technology company, Gentriqs GmbH
(Frankfurt, Germany). The acquisitions in 1993 and 1997 were stock for stock
transactions, however Pegasus ultimately repurchased the stock through a
combination of cash and notes payable and at August 31, 2004 owed approximately
$237,000 against a note, which is payable in monthly installments over the
remaining life of 36 months. The transaction in 2001 was a cash purchase.
Our agreement with Pegasus provides for our Component Products Technologies
business to be acquired via a combination of cash and issuance of a short-term
promissory note. Based on the estimated purchase price of $2.2 million, we
expect to receive cash of $1.6 million at closing and secure a promissory note
for the remaining $600,000. Pursuant to the terms of the agreement, the note
will bear interest at prime rate and must be payable within 15 days after the
date of liquidation has been set, with such date being set by the Company in its
sole an absolute discretion after January 31, 2005, or by August 15, 2005,
whichever is earlier. Pegasus is a privately-held company and for competitive
reasons does not publicly disclose its financial statements, however the
following includes certain unaudited selected information about Pegasus that may
be relevant to your evaluation of the proposals included in the accompanying
proxy statement.
At Pegasus' most recent balance sheet date of August 31, 2004, current
assets were reported at $1.5 million and current liabilities at $31,000. As of
that date, current assets included almost $1 million in cash and $460,000 in
trade accounts receivable. In April 2004, Pegasus secured an approximate $1.8
million mortgage on a building which will replace the existing rented facility
that houses its corporate headquarters and main operations in Tampa, Florida.
Other than the recent mortgage obligation, Pegasus has been able to meet its
financial obligations using cash generated from its own operations and without
any short or long-term borrowing since 1997. The Board considered these factors
along with length of time Pegasus has been in business, its history of
acquisitions and the short-term period of the note when making the final
decision to allow for the issuance of a note to Pegasus.
Following is unaudited selected financial information of Pegasus for the
year ended December 31, 2003 and the 8 month period ended August 31, 2004.
August 31, 2004 December 31, 2003
--------------- -----------------
Cash and cash equivalents $ 963,043 $1,244,305
Accounts receivable 462,898 257,703
Other current assets 28,087 33,094
---------- ----------
Total current assets 1,454,028 1,535,102
Property & equipment 2,204,222 13,199
Other long-term assets 917,856 974,305
---------- ----------
Total assets 4,576,106 2,522,606
Current liabilities 31,127 10,449
Note payable to shareholder 237,500 287,500
Mortgage payable 1,847,054
---------- ----------
Total liabilities 2,115,681 297,949
Shareholders' equity 2,460,425 2,224,657
---------- ----------
Total liabilities and shareholders' equity $4,576,106 $2,522,606
========== ==========
SALE OF ASSETS
The Company will sell and the Buyer will purchase the assets used by the
Company in the Component Products Technologies Business, which includes
developing, selling, and maintaining custom and standard imaging software
products and services. The Buyer will also purchase the Component Products
Technologies Business as a going concern. The Company will retain the assets
which it currently uses in relation to the business of developing, selling and
maintaining scoring products as well as its interest in VSC Technologies, LLC
and an exclusive, but very limited, royalty free license to the patent rights
(including the underlying source code) for the Company's DMR(R) technology on
the terms and conditions to which the Company and the Buyer agree, the material
terms of which are described under "RESERVATION OF RIGHTS" below.
PURCHASE PRICE
The final amount of the purchase price, which is currently estimated at
$2.2 million (not including the liabilities assumed), will be based on a minimum
purchase price of $2.0 million plus the amount by which certain elements of its
working capital exceed $1.4 million as of September 30, 2004. The significant
elements of working capital primarily include cash and cash equivalents,
accounts receivable, trade accounts payable, and accrued payroll expenses and
are expected to result in a net balance of $1.6 million at September 30, 2004
which would add $200,000 to the $2.0 million minimum purchase price. The final
purchase price is subject to increase or decrease based on whether the
collections of certain accounts receivable through the planned liquidation date
are higher or lower than an established reserve for uncollectible accounts. The
Buyer will pay at least $1.6 million of the final amount in cash so long as the
Company's cash balance is at least $1.2 million at the time of closing and will
pay the remaining amount in the form of a promissory note. The amount, if any,
by which the cash balance falls below $1.2 million at the closing date will be
added to the promissory note and not impact the total purchase price. The note
must be paid either fifteen (15) days after the date on which the Company sets
the liquidation date or August 15, 2005, whichever is earlier. The note provides
the Buyer the right of offset or reduction to protect the Buyer against the
accounts receivables that is purchased by the Buyer if not collected or
collectable. All amounts remaining uncollected at the time of payment of the
Note are a direct reduction of the Note and will therefore reduce the proceeds
received by the Company. The Company estimates that its accounts receivable at
September 30, 2004 will approximate $439,000, of which 56% is due from one
customer who has contributed significantly to our business over the past five
years and for which collection has not been an issue. The Company also has a
history of strong collections from other customers and estimates that its
reserve for uncollectible accounts at September 30, 2004 will approximate only
$4,000. No assurance can be given, however, as to the adequacy of the reserve
and final collection amounts. The Buyer can also offset or reduce the note for
any matters that the Company is required to indemnify the Buyer for, such as
breaches of representations in the Pegasus Contract.
In addition to the purchase price described above, the Buyer will assume
the liabilities of the Company which are related to the purchased assets. This
amount is currently estimated at $700,000 and consists primarily of certain
office leases, selected employee expenses, accounts payable and certain customer
support and maintenance obligations.
The terms surrounding the purchase price and assumption of liabilities were
based on negotiations between the officers, directors and legal and financial
advisers from the Company and Pegasus. The Board considered various factors in
finalizing such terms, including historical financial results, expectations
about the Company's future financial results, the timing of the transaction, and
the amount per share that could potentially be distributed to shareholders after
payment of costs associated with the sale and implementation of the liquidation.
VSC OBLIGATIONS
Under its agreements related to VSC Technologies, LLC, the Company is
obligated to complete certain projects related to the Virtual Scoring Center
technology. The Buyer has agreed to use its employees, on a cost-recovery basis,
to timely complete these projects which are in progress or not completed prior
to the closing of the Sale through December 31, 2004. In addition, the
disposition of the Company's interest in VSC Technologies, LLC is a condition to
its obligation to close the Sale.
EMPLOYEES
The Buyer has agreed to offer full-time employment to certain key employees
of the Company and all full-time employees of the Company on terms substantially
equivalent to their existing arrangements. Key employees for purposes of this
section include Chris Hinchey, Director Software Engineering; Donald Jones, Vice
President of Sales, who resigned from the Company effective September 24, 2004;
Richard P. Scanlan, Software Sales Engineer; and Garland S. Taylor, Senior
Software Engineer.
COMPETING PROPOSALS
The Company agreed not to solicit or initiate inquiries, discussion,
negotiations, or proposals with or from any person related to a business
combination transaction involving the Component Products Technologies business
or the purchased assets. However, the Company reserved the right to accept and
give reasonable responses to competing proposals, to negotiate with competing
purchasers (after notice to Buyer) if the failure to act would be inconsistent
with the fiduciary duties of the board of directors and to terminate the Pegasus
Contract if the Company's board determines that a competing proposal is more
favorable than the Pegasus Contract. If the Company terminates the Pegasus
Contract on the basis that a competing proposal is more favorable, it must pay
the Buyer a termination fee in the amount of $80,000.
RESERVATION OF RIGHTS
Prior to the liquidation date, the Company has reserved the right to use
its current assets and the Company will have access to the company records for
purposes of dissolving and liquidating the Company. If the expenses associated
with this use exceed $2,500 per month, the Company must pay the Buyer the
excess. The Company has also reserved the right to use the name "TMS" until
February 28, 2005.
The assets to be acquired by Pegasus include the patent rights to the
Company's DMR technology. The Company will, however, retain an exclusive royalty
free license to use and modify the DMR technology in the education market only.
This license will also be subject to the rights in the education market held by
Measurement Incorporated. The license retained by the Company will only have a
narrow application in the market. The Company is marketing the license to
interested parties, but there can be no assurance that it can realize any
significant value for this license.
CONDUCT OF BUSINESS PRIOR TO THE CLOSING OF THE SALE
Between the date of the Pegasus Contract and the closing of the asset
purchase, the Company must obtain the Buyer's consent prior to taking certain
actions such as acquiring or disposing of material assets, changing its
accounting method or waiving or releasing any material rights or claims.
Effective October 16, 2004, the Company and Pegasus mutually agreed to
extend the closing date for the Sale from November 15, 2004 to no later than
December 15, 2004. Such extension was necessary because of unanticipated delays,
outside of the control of both the Company and Pegasus, in completing the SEC
review process prior to mailing this Proxy. In addition to extending the Closing
date, Pegasus has also agreed to provide management services for the benefit of
the Company from October 16, 2004 through the Closing date. Such management
services are necessary because the Company needs to fulfill responsibilities
left vacant by certain key business development and product management and
marketing employees that have recently resigned from the Company. Because of
Pegasus' experience in the industry and markets in which the Company operates,
and based on the fact that beginning October 1, 2004 substantially all revenue
and expenses accrue to Pegasus if the Sale is approved, the Company believed
that the most effective means for continuing the operations of the Company was
through contracting with Pegasus for such services. The Company has agreed to
pay Pegasus a fee for management services of $1,000 per calendar day. The
Company estimates that fees and expenses for such services, which will primarily
cover management time and travel, will range from $60,000 to $80,000 through the
Closing date. Such fees and expenses will not reduce the amount of estimated
cash distribution to the shareholders if the Sale and Plan of liquidation are
approved, nor increase the estimated cost of liquidation if this transaction
closes.
CONDITIONS TO CLOSING AND TERMINATION
The Company's obligation to close the Sale is conditioned on the occurrence
of certain events, including but not limited to (1) shareholder approval, as
required by the Company's bylaws and certificate of incorporation, and (2) the
sale or disposition of the Company's interest in VSC Technologies, LLC.
The Company can terminate the Pegasus Contract in three situations. First,
if the Sale is not closed by December 15, 2004, the Company may terminate the
agreement. Second, if the Buyer is in material breach of the agreement, the
Company may terminate. Third, as described above, if the Company receives a
competing proposal, the board determines it to be more favorable to the Company
than the Pegasus Contract, and the Company pays the Buyer a fee of $80,000, then
the Company may terminate the agreement.
The Buyer can terminate the Pegasus Contract if the Sale is not closed by
December 15, 2004 or if the Company is in material breach of the agreement.
INDEMNIFICATION; LIQUIDATION
The indemnification obligations of the Company and/or the Buyer (as
applicable) are limited in two ways. First, claims must be made within one year
after closing or the date on which the Company liquidates, whichever is earlier.
Second, the Company is obligated to indemnify the Buyer only to extent the
Buyer's claims exceed $25,000.
The date on which the Company liquidates is a measuring date for a number
of purposes in the Pegasus Contract. This date will be determined by the Company
(pursuant to the plan of liquidation) but for purposes of the agreement it may
not occur prior to January 31, 2005. Generally, the representation and
warranties made by each of the Company and the Buyer continue in effect until
the earlier of the date the Company liquidates or one year after the closing of
the Sale.
DESCRIPTION OF PURCHASE AND SALE AGREEMENT
WITH MEASUREMENT INCORPORATED
GENERAL
Our Board of Directors has approved an agreement in principle with
Measurement Incorporated ("MI") pursuant to which, as a part of the Company's
plan of liquidation, the Company would divest its interest in VSC Technologies,
LLC in exchange for a cash payment of $250,000 and MI agreeing to indemnify and
hold the Company harmless with respect to and in all claims, expenses and
damages arising out of the infringement lawsuit involving NCS Pearson. You are
not being asked to approve or disapprove of this transaction, but you should
consider it in approving or disapproving the other proposals before you. All of
our interest in the Virtual Scoring Center Technology which we have been
developing for VSC Technologies, LLC will be included in such sale or
terminated.
SALE OF INTEREST; TERMINATION OF AGREEMENTS
The Company will sell either to MI or back to VSC Technologies, LLC all of
its 50% membership interest in VSC Technologies, LLC. This will result in MI
owning all of VSC Technologies, LLC. The Company will not retain any rights
therein. As part of this transaction, all of the existing agreements between the
Company and VSC Technologies, LLC or MI will be terminated. The Company will,
however, enter into new licensing agreements and maintenance support agreements
with MI and VSC Technologies, LLC. These licensing and maintenance agreements
will become part of the assets which are being purchased by the Buyer and the
obligations under those agreements will be assumed by the Buyer.
INDEMNIFICATION
We are a party to a lawsuit involving the Virtual Scoring Center technology
we transferred to VSC Technologies, LLC when it was formed. We do not believe
the Virtual Scoring Center technology infringes any patents or rights of NCS
Pearson, Inc. and were designed to avoid any such infringement. Nonetheless, NCS
has alleged that certain aspects of the Virtual Scoring Center technology
infringes on certain patent rights of NCS Pearson, which we have and continue to
deny. There is currently pending in the United States District Court for the
Eastern District of North Carolina a lawsuit involving these allegations to
which MI, VSC Technologies, LLC and the Company are parties. Discovery is
commencing in this case and we expect the cost of the defense of this matter to
escalate dramatically. When VSC Technologies, LLC was originally formed, MI
agreed to indemnify the Company for costs associated with these actions,
however, there was a dollar limit placed on its obligation and, under this
original agreement, the Company would be liable for anything over and above
that. We believe that the cost of defense of this matter if it goes through all
stages of litigation could exceed the previously agreed dollar limit. NCS
Pearson has claimed that the infringement of its patents was willful, which we
have always denied in addition to denying that there is any infringement, but,
if infringement is found and it is found to be willful, NCS Pearson would be
entitled to treble damages plus its attorneys fees. We cannot estimate the
extent of any potential damages, but, the attorney's fees alone could be over $1
million.
As a result, because of this pending action and the alleged liability of
the Company, NCS Pearson may object to the Company making any distribution to
its shareholders until such lawsuit has been resolved. This could take years,
unless the case is settled. The Company, therefore, desired to obtain a complete
indemnification from MI. This would allow the Company to be in a better position
to make an immediate distribution to its shareholders since NCS Pearson should
not be adversely impacted by a complete liquidation of TMS if MI has agreed to
pay all such amounts on behalf of the Company. No assurances, however, can be
given as to when and how much the Company will in fact be able to distribute to
the shareholders because of this pending lawsuit. The Company intends to seek
leave to do so from the court in the event these transactions are approved and
closed.
COOPERATION AND COORDINATON
The Company has agreed with MI that it will continue to have a coordinator
to assist MI in the ongoing discovery and defense of the lawsuit with NCS
Pearson. In this regard, Deborah D. Mosier, the President and Chief Financial
Officer will continue on a consulting basis to coordinate on behalf of the
Company during its winding-up in assembling and organizing documents, responding
to discovery request and identifying witnesses, among other things.
DESCRIPTION OF THE PLAN OF LIQUIDATION
Our Board of Directors adopted resolutions on August 4, 2004 which
authorized, subject to shareholder approval, the orderly liquidation of the
Company's assets pursuant to the Plan. The Plan provides that, if the requisite
shareholder approval is received (such time of approval deemed the "Effective
Date"), our officers and directors will initiate the complete liquidation and
subsequent dissolution of the Company. The Plan was adopted in connection with
the approval by the Board of the sale of the Component Product Technologies
business to Pegasus Imaging Corporation, which is subject to shareholder
approval and is further described above and in Proposal 1 of this Proxy
Statement. After the later of the Effective Date and the closing of a sale of
substantially all the assets of the Company (such as the Sale), we will not
engage in any business activities except for the purpose of preserving the value
of our assets, prosecuting and defending suits by or against us, adjusting and
winding up our business and affairs, selling and liquidating our properties and
assets (including our intellectual property and other intangible assets), paying
our creditors and making distributions to shareholders, in accordance with the
Plan. In addition, after the Effective Date, we will file a certificate of
dissolution with the Secretary of State of the State of Oklahoma (the "Secretary
of State"). Once we file our certificate of dissolution, the Company would be
dissolved. However, under Oklahoma law, the Company will continue to exist for a
period of three years for the limited purpose of winding up our business.
Unless required to do so by an Oklahoma court, the Company does not intend
to hold an annual meeting for the election of directors after the filing of the
certificate of dissolution and prior to any transfer of the Company's remaining
assets and liabilities to a liquidating trust. The Company expects that a
majority of its current directors will serve until the winding up is complete or
until a liquidating trust is created, whichever is earlier. Section 4.06 of
Article IV of the Company's bylaws, as amended, provides that any vacancy on the
board of directors, whether resulting from death, resignation, disqualification,
an increase in the number of directors, or any other cause, may be filled by the
affirmative vote of a majority of the remaining directors, though less than a
quorum. Consequently, we expect that any vacancies on the board that occur
during the winding up period will be filled by the remaining directors in
accordance with the Company's bylaws, as amended. Under Section 1100 of the
Oklahoma General Corporate Law ("OGCL"), an Oklahoma district court may, upon
application showing "good cause" by any stockholder, creditor or director of the
Company or any other person who shows good cause, appoint a trustee or receiver
for the purpose of taking charge of the winding up of the affairs of the
Company. Although the Company is not aware of any cases in Oklahoma interpreting
this statute, other courts applying similar statutes have found "good cause" to
exist where it was determined that the appointment of a trustee or receiver was
necessary to protect the interests of stockholders and creditors.
Our Board of Directors may, at any time, transfer to a liquidating trust
our remaining assets in order to complete the liquidation and distribution of
our assets to our shareholders pursuant to the Plan. The liquidating trust would
then succeed to all of the assets, liabilities and obligations of the Company.
Our Board of Directors may appoint one or more of its members to act as trustee
or trustees of such liquidating trust. If, however, all of our assets are not
distributed within three years after the date our certificate of dissolution is
filed with the State of Oklahoma, we will transfer our remaining assets to a
liquidating trust. Your approval of the Plan will also constitute your approval
of any appointment and compensation of such trustees. In the event of a transfer
of assets to a liquidating trust, we would distribute, pro rata to our
shareholders, beneficial interests in the trust.
During the liquidation of our assets, we may pay to our officers,
directors, employees and agents, or any of them, compensation for services
rendered in connection with the implementation of the Plan. Your approval of the
Plan will constitute your approval of the payment of any such compensation.
CESSATION OF BUSINESS ACTIVITIES
Pursuant to the Plan, after the later of Effective Date and the closing of
a sale of substantially all of the assets of the Company, we will not engage in
any business activities except for the purpose of preserving the value of our
assets, prosecuting and defending suits by or against us, adjusting and winding
up our business and affairs, selling and liquidating our properties and assets
and making distributions to shareholders in accordance with the Plan.
LIQUIDATION OF ASSETS
After the Effective Date, as provided for in the Plan, we will sell,
transfer, or otherwise dispose of all of our property and assets, including our
intellectual property and other intangible assets, to the extent, for such
consideration and upon such terms and conditions as our Board of Directors deems
expedient and in the best interests of the Company, and its shareholders,
without the requirement of further vote or action by you. Our remaining assets
and properties may be sold in bulk to one buyer or a small number of buyers or
on a piecemeal basis to numerous buyers. We will not be required to obtain
appraisals or other third party opinions as to the value of our properties and
assets in connection with the liquidation. As part of the liquidation of our
property and assets, we will collect, or make provision for the collection of,
all accounts receivable, debts and claims owing to the Company.
After the sale of the Components Products Technologies Business to Pegasus
and the sale of the VSC Technology assets to Measurement Incorporated, the only
remaining asset of the Company will be the limited license of the DMR Patent.
The Company will try to derive some value for this license, but does not expect
it to be significant.
CERTIFICATE OF DISSOLUTION
At such time as the Board of Directors determines, in its discretion, to be
appropriate after the Effective Date, the officers of the Company will execute
and file with the Secretary of State, a certificate of dissolution conforming to
the requirements of Section 1096 of the OGCL(the "Certificate of Dissolution").
From and after the date such documents are accepted by the Secretary of State,
the Company will be deemed to be completely dissolved, but will continue to
exist for three years under Oklahoma law solely for the purposes of paying,
satisfying and discharging any existing debts or obligations, collecting and
distributing its assets, and doing all other acts required to liquidate and wind
up the Company's business affairs. The members of the Board of Directors in
office at the time the Certificate of Dissolution is accepted for filing by the
Secretary of State will have all powers provided to them under the OGCL and
other applicable law.
PAYMENT OF DEBTS
Prior to making any distributions to our shareholders, we will pay, or as
determined by the Board of Directors, make reasonable provision to pay, all our
claims and obligations, including all contingent, conditional or unmatured
claims known to us. Following the Effective Date, the Board of Directors may
establish a contingent claim reserve (the "Contingent Claim Reserve") and set
aside into this reserve such amounts of our cash or property as our Board of
Directors, in its discretion, determines is sufficient to account for unknown
events, claims, contingencies and expenses incurred in connection with the
collection and defense of our property and assets and the liquidation and
dissolution provided for in the Plan. Following the payment, satisfaction or
other resolution of all such events, claims, contingencies and expenses, any
amounts remaining in the Contingent Claim Reserve would be distributed in
accordance with the Plan. See "Contingencies; Creditors; Litigation" below.
DISTRIBUTIONS TO SHAREHOLDERS
Following the payment or the provision for the payment of our claims and
obligations, we will distribute pro rata to the holders of the Common Stock all
of our remaining property and assets, in one or a series of distributions. We
estimate that you will receive total liquidation proceeds of between $0.145 and
$0.16 per share of our common stock that you own, which means that for every
1,000 shares that you own you could receive between $145.00 and $160.00. The
following table sets forth a description of the items and estimated dollar
amounts used to determine the estimated range of liquidation proceeds:
ESTIMATED PROCEEDS RECEIVED FROM: TOTAL PER SHARE
- ----------------------------------------------------------------------------------------- --------------- -----------
Sale of our assets to Pegasus Imaging Corporation $ 2,200,000
Sale of our LLC interest to Measurement Incorporated 250,000
------------
$ 2,450,000 $ 0.19
ESTIMATED DISBURSEMENTS PAID TO:
Professional service providers for:
o Asset purchase and sale agreements $ 35,000
o Preparation and printing of proxy materials, proxy mailing and
solicitation services, and special shareholder meeting costs 40,000
o Accounting fees for preparation of tax returns and other related
services associated with final disposition of assets 20,000
o Accounting and legal fees for audit of our August 31, 2004 financials
statements, including cost of filing our 10-KSB 60,000
o Cash distribution to shareholders at the time of liquidation 20,000
Officers and directors beginning October 1, 2004, and for an approximate 36 month
period thereafter, for services related to the oversight and implementation of
the Plan 45,000
Debbie Mosier for severance pursuant to "Key Employee" agreement 75,000
Insurance provider for directors and officers discovery insurance policy 100,000
Applicable taxing authorities for alternative minimum taxes due for asset sales 20,000
------------
$ 415,000 $ 0.03
ESTIMATED MAXIMUM PROCEEDS AVAILABLE FOR DISTRIBUTION $ 2,035,000 $ 0.16
RESERVE FOR UNKNOWN MATTERS 130,000
------------
ESTIMATED MINIMUM PROCEEDS AVAILABLE FOR DISTRIBUTION $ 1,905,000 $ 0.145
Our estimate of liquidation proceeds does not include any amount related to
certain DMR(R) patent license rights that we will retain after the sale to
Pegasus because it is not currently estimable, and we do not expect such amount
to be significant. Our plan is to sell our DMR(R) patent license rights to a
third-party and include any amounts received in the liquidation proceeds to our
shareholders. Our estimate of liquidation proceeds also does not include any
contingency or reserve for the NCS Pearson litigation. As discussed under
"Description of Purchase and Sale Agreement with Measurement Incorporated -
Indemnification" and under "Contingency; Creditors; Litigation" NCS Pearson has
alleged that the Company infringed certain patents of NCS Pearson. If the
Company were in fact held liable, the damages could be material, but the Company
has no way of estimating these damages at this time. Based on the agreement in
principle with Measurement Incorporated, Measurement Incorporated will agree to
indemnify the Company for any such liability. As a result, the Company has not
reserved any amount for this contingency and such contingency will ultimately
depend on the final outcome or settlement of the NCS Pearson litigation and the
ability of Measurement Incorporated to satisfy these obligations.
POWERS OF BOARD AND OFFICERS
Our Board of Directors and the officers are authorized to approve such
changes to the terms of any of the actions referred to in the Plan, to interpret
any of the provisions of the Plan, and to make, execute and deliver such other
agreements, conveyances, assignments, transfers, certificates and other
documents and take such other action as our Board of Directors and the officers
deem necessary or desirable in order to carry out the provisions of the Plan and
effect the complete liquidation and dissolution of the Company in accordance
with the OGCL and any rules and regulations of the Securities and Exchange
Commission or any state securities commission.
CANCELLATION OF STOCK
The distributions to our shareholders pursuant to the Plan will be in
complete redemption and cancellation of all of the outstanding Common Stock. As
a condition to any disbursement made under the Plan after the filing of the
Certificate of Dissolution, the Board of Directors may require shareholders to
surrender their certificates evidencing the Common Stock to us or our agent for
cancellation. If a shareholder's certificate for shares of Common Stock has been
lost, stolen or destroyed, such shareholder may be required, as a condition to
the disbursement of any distribution under the Plan, to furnish to us or our
agent satisfactory evidence of the loss, theft or destruction thereof, together
with a surety bond or other security or indemnity reasonably satisfactory to us.
RESTRICTIONS ON TRANSFER OF SHARES
The Company will close its stock transfer books and discontinue recording
transfers of Common Stock at the close of business on the record date fixed by
the Board no more than twenty (20) days after the Effective Date (the
"Dissolution Record Date"). The shareholders of record as of the Dissolution
Record Date shall be deemed to have received the right to any distribution.
Thereafter, certificates representing the Common Stock shall not be assignable
or transferable on the books of the Company except by will, intestate succession
or operation of law. The proportionate interests of all of the shareholders of
the Company shall be fixed on the basis of their respective stock holdings at
the close of business on the Dissolution Record Date. After the Dissolution
Record Date, any distributions made by the Company shall be made solely to the
shareholders of record at the close of business on the Dissolution Record Date,
except as may be necessary to reflect subsequent transfers recorded on the books
of the Company as a result of any assignments by will, intestate succession or
operation of law. The interests of the Company's shareholders in any
distributions the Company might make shall only be transferred or assigned on
the books of the Company by will, intestate succession or operation of law.
Similarly, the interest of the Company's shareholders in any liquidating trust
to which the Company may transfer its assets and liabilities will not be
transferable except by will, intestate succession or operation of law.
LIQUIDATING TRUST
If advisable for any reason to complete the liquidation and distribution of
our assets to our shareholders, our Board of Directors may at any time transfer
to a liquidating trust (the "Liquidating Trust") our remaining assets and
obligations. The Liquidating Trust thereupon will succeed to all of our then
remaining assets, including all amounts in the Contingent Claim Reserve, and any
of our remaining liabilities and obligations. However, if all of our assets are
not distributed within three years after the date our Certificate of Dissolution
is filed with the State of Oklahoma, we will transfer all of our remaining
assets to the Liquidating Trust. We are currently not aware of any circumstances
other than the lapse of time which would cause the Company to transfer its
remaining assets to a liquidating trust. However, circumstances could arise
which would cause the Board of Directors to determine that it is in the best
interest of the Company and its shareholders for the Company to transfer its
assets and liabilities to a liquidating trust, including but certainly not
limited to a situation where the Company could be relieved of certain state,
local, or federal tax, securities or general corporate filing obligations. The
sole purpose of the Liquidating Trust will be to prosecute and defend suits by
or against us, to collect amounts, settle and close our business, to dispose of
and convey our assets, to satisfy our remaining liabilities and obligations and
to distribute our remaining assets to our shareholders. Any distributions made
from the Liquidating Trust will be made in accordance with the provisions of the
Plan. Our Board of Directors may appoint one or more of its members to act as
trustee or trustees of the Liquidating Trust and to cause the Company to enter
into a liquidating trust agreement with such trustee or trustees on such terms
and conditions as the Board of Directors determines appropriate. Approval of the
Plan by the shareholders also will constitute the approval by the shareholders
of any appointment of the trustees and of the liquidating trust agreement
between the Company and such trustees.
FIDUCIARY DUTIES AND SHAREHOLDER RIGHTS
After the certificate of dissolution is filed and during the three-year
period that the Company continues in existence, the Company's shareholders will
continue to have the rights of shareholders provided by Oklahoma law, and the
directors and officers will continue to have the same basic fiduciary duties as
they did before the certificate of dissolution was filed. Additionally, if the
Company transfers its assets and liabilities to a liquidating trust, any
director or other person that is appointed as a trustee of the liquidating trust
will have the fiduciary duties of a trustee under Oklahoma law, subject to any
provisions, including any customary waiver and indemnity provisions which the
board of directors determines is appropriate, in the liquidating trust
agreement.
Including the compensation described in more detail below, the estimated costs
associated with plan of liquidation primarily include the following:
Cost Amount
---- ------
Accounting fees for preparation of tax returns and other professional services .... $ 20,000
Costs of administering cash distribution to shareholders at time of liquidation ... 20,000
Fees for officers and directors beginning October 1, 2004 and for approximately
36 months for services related to the oversight and implementation of the Plan .. 45,000
Directors and Officers Liability Insurance ........................................ 100,000
Contingency for unknown matters ................................................... 15,000
--------
Total ............................................................................. $200,000
========
REPORTS TO SHAREHOLDERS
The Company will continue to be required to file annual, quarterly, current
and other reports and information with the Securities and Exchange Commission
even after this transaction has been closed. The Company, however, intends, once
it has filed its certificate of dissolution, to seek a waiver from staff of its
obligation to continue to file its Annual Report on Form 10-KSB and its
Quarterly Reports on Form 10-QSB, to minimize the cost to the Shareholders. In
any event, the Company would continue to file current reports on Form 8-K to the
extent necessary to keep the Shareholders informed as to any material
developments relating to its winding up, dissolution and expected distribution.
COMPENSATION
We may pay to our officers, directors, employees, agents and trustees, or
any of them, compensation for services rendered in connection with the
implementation of the Plan. Further, if deemed advisable by our Board of
Directors, we may pay a "wind-down" consultant reasonable compensation for
services rendered in connection with our liquidation and dissolution.
Beginning on or about December 17, 2004, the board will retain Debbie
Mosier as a paid consultant to assist with administrative and other matters
required to implement the Plan. Compensation for such services will be based on
a proration of her current annual salary of $150,000 in relation to the amount
of time spent on such activities. The amount expected to be paid to Ms. Mosier
through December 31, 2004 is $20,000. Subsequent to December 31, 2004 and for
the thirty-six (36) month period thereafter, the Company currently expects that
it will retain no more than a total of $10,000 as payment for such services.
Additionally, the three outside directors will be paid regular board fees
of $500 per month each from October 1, 2004 through December 31, 2004.
Subsequent to December 31, 2004 they will be paid $100 per hour. The Company
estimates that the cost attributable to fees for all outside directors for the
thirty-six (36) month period beginning October 1, 2004 is approximately $15,000.
INDEMNIFICATION
We will continue to indemnify our officers, directors, employees and agents
in accordance with our Certificate of Incorporation, bylaws and any contractual
arrangements as therein or elsewhere provided, and such indemnification shall
apply to acts or omissions of such persons in connection with the implementation
of the Plan and the winding up of our affairs. Our obligation to indemnify such
persons may be satisfied out of any reserve for such contingencies or out of
assets transferred to the Liquidating Trust, if any. Our Board of Directors and
the trustees of any Liquidating Trust are authorized to obtain and maintain
insurance as may be necessary to cover our indemnification obligations.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding the beneficial
ownership of shares of the Company's Common Stock as of October 22, 2004, by
each shareholder known to the Company to be a beneficial owner of more than 5%
of the Company's Common Stock. Unless otherwise indicated, the beneficial owner
has sole voting and investment power with respect to such shares of Common
Stock.
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Class
------------------- -------------------- -----
John Gentile 785,600 (1) 6.0%
6045 Southwest 58th Court
Davie, Florida 3314
Russell W. Teubner 677,450 5.2%
5715 Woodlake Drive
Stillwater, Oklahoma 74074
- ---------------
(1) Includes 568,200 shares which are held by Mr. Gentile jointly with his
mother, with whom he shares voting and investment power.
The following table sets forth information regarding the beneficial
ownership of shares of the Company's Common Stock as of October 22, 2004 by each
director and executive officer individually and as a group. Unless otherwise
indicated, the beneficial owner has sole voting and investment power with
respect to such shares of Common Stock.
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Class
------------------- -------------------- -----
Directors:
Russell W. Teubner 677,450 5.2%
5715 Woodlake Drive
Stillwater, Oklahoma 74074
Don Brown, Jr. 316,333 (1) 2.4%
7715 E. Highway 4
Grandview, Texas 76050
Arthur D. Crotzer 80,000 (2) .6%
1823 W. University
Stillwater, Oklahoma 74074
Director and Executive Officers:
Deborah D. Mosier 47,000 (3) .4%
5811 Trenton Ave.
Stillwater, Oklahoma 74074
All directors and executive
officers as a group 1,120,783 (4) 8.5%
- ---------------
(1) Includes (i) 4,200 shares held by Mr. Brown's wife, Patricia, with whom he
shares voting and investment power; and (ii) 132,236 shares held in a
family limited partnership, of which Mr. Brown is the sole general partner
and for which Mr. Brown has sole voting and investment power. Also includes
24,000 shares held by Mr. Brown's parents, for which Mr. Brown has sole
voting and investment power, but disclaims beneficial ownership.
(2) All shares are held jointly with Mr. Crotzer's wife, Reta, with whom he
shares voting and investment power.
(3) Includes 47,000 shares held by Ms. Mosier in joint tenancy with her
husband, Gregory, with whom she shares voting and investment power.
Excludes 102,000 shares subject to currently exercisable common stock
options because the price per share of such options exceeds the total per
share price expected to be distributed upon liquidation.
(4) Includes 47,000 shares as to which directors and executive officers share
voting and investment power with others.
As of the close of business on October 22, 2004, Cede & Co. owned of record
but not beneficially, 8,900,488 shares (67.83%) of Common Stock. Cede & Co., the
nominee for the Depository Trust Company, holds securities of record for
participating financial institutions such as banks and broker/dealers.
MARKET FOR COMMON EQUITY
Our common stock is traded in the over-the-counter market, and Pink Sheets
LLC (formerly the National Quotation Bureau, Incorporated) quotes prices on the
"pink sheets," and the NASD Non-NASDAQ OTC Bulletin Board. The following table
sets forth the quarterly range of high and low bid prices of our Common Stock
for fiscal years 2004 and 2003. The quotations are inter-dealer prices without
retail markups, markdowns, or commissions and may not represent actual
transactions. The source of such quotations is Pink Sheets LLC.
Bid Prices
Fiscal 2004 High Low
- --------------------------- --------------- ---------------
First Quarter $ 0.13 0.10
Second Quarter 0.15 0.08
Third Quarter 0.10 0.08
Fourth Quarter 0.13 0.10
Fiscal 2003 High Low
- --------------------------- --------------- ---------------
First Quarter $ 0.16 0.14
Second Quarter 0.14 0.09
Third Quarter 0.11 0.08
Fourth Quarter 0.11 0.07
ABSENCE OF APPRAISAL RIGHTS
Under the OGCL, our shareholders are not entitled to appraisal rights or to
any similar rights of dissenters for their shares of Common Stock in connection
with the approval or consummation of the transactions contemplated by the sale
of the assets to Pegasus or the Plan of Liquidation.
REGULATION DURING LIQUIDATION
Except for filing of the Certificate of Dissolution and compliance by the
Company with the applicable rules and regulations of the Securities and Exchange
Commission, no United States federal or state regulatory requirements must be
complied with or approvals obtained in connection with the sale of the assets to
Pegasus or the liquidation. The Company may seek the approval of the court
related to the litigation involving NCS Pearson, Inc. described under
"DESCRIPTION OF PURCHASE AND SALE AGREEMENT WITH MEASUREMENT INCORPORATED -
INDEMINIFICATION."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion is a general summary of the federal income tax
consequences that may result from our liquidation and the distribution of our
assets to our shareholders pursuant to the Plan and in accordance with the
provisions of the Internal Revenue Code as currently in force. This summary does
not discuss all aspects of federal income taxation that may be relevant to a
particular shareholder or to certain types of persons subject to special
treatment under federal income tax laws (for example, life insurance companies,
tax-exempt organizations or financial institutions) and does not discuss any
aspects of state, local or foreign tax laws that may apply to a particular
shareholder. Because distributions pursuant to the Plan may occur at various
times and in more than one tax year, no assurances can be given that the tax
treatment described herein will continue to apply unchanged at the time of later
distributions. SHAREHOLDERS ARE URGED TO CONSULT THEIR PERSONAL TAX ADVISORS AS
TO THEIR OWN TAX SITUATION.
CONSEQUENCES TO THE COMPANY
After adoption of the Plan, we will continue to be subject to federal
income tax on our income until we complete the distribution of all of our cash
and other properties to shareholders or to liquidating trusts which are approved
by the shareholders. The Company will recognize gain or loss on each of the
assets it sells in an amount equal to the difference between its tax basis in
the asset and the amount received with respect to such asset. The Company may be
able to utilize certain deductions and tax operating loss carryforwards to
reduce the amount of any gain to the Company. At August 31, 2004, the Company
estimates that it will have at least $2.5 million of tax operating loss
carryforwards. There may be limitations on the amount of these loss
carryforwards which the Company could use in a particular tax year.
CONSEQUENCES TO THE SHAREHOLDERS
If we make liquidating distributions with respect to our outstanding Common
Stock, each shareholder may recognize gain or loss equal to the difference
between (i) the sum of the amount distributed to such shareholder, and (ii) the
shareholder's tax basis in his or her shares of Common Stock. Provided the
shareholder holds the shares of Common Stock as capital assets, gain or loss
recognized by a shareholder will be capital gain or loss and will be long-term
if the shareholder's holding period for the shares of Common Stock is more than
one year, and short-term if such holding period is one year or less.
If our assets are insufficient to permit us to make liquidating
distributions with respect to our outstanding Common Stock, each shareholder may
be entitled to claim a loss to the extent of that shareholder's tax basis at the
time it becomes certain that no such distributions will be made. Additionally,
if the total amount we distribute in liquidation is less than a shareholder's
tax basis in his or her shares of Common Stock, that shareholder may be entitled
to claim a loss in the amount of the shortfall. Provided the shareholder holds
the shares of Common Stock as capital assets, any loss will be a capital loss
and will be long-term if the shareholder's holding period for such shares of
Common Stock is more than one year, and short-term if such holding period is one
year or less.
A shareholder's gain or loss will be computed on a "per share" basis. Each
shareholder must allocate liquidating distributions from the Company, if any,
equally to each share of Common Stock and compare the allocated portion of each
liquidating distribution with the shareholder's tax basis in each such share.
Although the Company currently intends to make a single distribution in
liquidation, if a distribution is made in installments or if multiple
distributions are made, each shareholder would be required to first recover the
shareholder's tax basis in each share before recognizing any gain or loss. Thus,
each shareholder may recognize gain on an installment only to the extent that
the aggregate value of the installment, and all prior installments the
shareholder received with respect to any share of Common Stock, exceeds the tax
basis in that share, and may recognize a loss with respect to any share of
Common Stock only when the shareholder has received the final installment and
the aggregate value of all liquidating distributions from the Company with
respect to that share of Common Stock is less than the shareholder's tax basis
in such share.
LIQUIDATING TRUST
Under the Plan, the Board has the ability in certain circumstances to
transfer all of the Company's remaining assets to a liquidating trust.
Generally, a liquidating trust is treated as a trust for purposes of federal
income taxes only if certain requirements are met, including that the trust be
controlled by the shareholders, the shareholders select the trustee, and the
trust distribute at least annually to known shareholders any proceeds from the
sale of assets or income from investments. The primary federal income tax
consequences of a liquidating trust being treated as a trust are (1) it is not
subject to separate income tax and the items of tax flow through to the
shareholders, as discussed below, and (2) the timing of taxation to shareholders
is different, as generally described below. The Plan would allow the Board, in
its discretion, to appoint a trustee, enter into a trust agreement and transfer
the Company's assets to a liquidating trust without further shareholder
approval. We can provide no assurance as to whether such a liquidating trust
would be treated as a trust for federal income tax purposes.
If a liquidating trust does not satisfy the requirements to be treated as a
trust for federal income tax purposes, it would continue to be subject to a
separate income tax. However, the shareholders generally would not be treated as
having received their pro rata shares of the Company assets at the time of the
transfer to the liquidating trust. Also, the items of income, gain, deduction or
loss which the liquidating trust recognizes would not be allocated to the
shareholders. Instead, shareholders generally would be taxed on distributions
made from the liquidating trust at the time of the distribution or would be
taxed on distributions which are made in installments when the installment
payment is received.
If we transfer our assets to a liquidating trust that qualifies as a trust
for federal income tax purposes, the shareholders may be treated (for federal
income tax purposes) as having received their pro rata shares of those Company
assets when the transfer occurs and they receive interests in the liquidating
trust. Under these circumstances, the amount of the taxable distribution to the
shareholders on the transfer of the Company's assets to the liquidating trust
would be reduced by the amount of the Company's known liabilities which the
liquidating trust assumes or to which such transferred assets are subject. After
the formation of such a liquidating trust, each shareholder would take into
account for federal income tax purposes the shareholder's allocable portion of
any income, gain, deduction or loss which the liquidating trust recognizes.
Distributions by such a liquidating trust to the shareholders generally would
not be taxable to them at the time of the distribution. However, each
shareholder may become liable for tax as a result of the ongoing operations of
such a liquidating trust, even if the liquidating trust had not made any actual
distributions to shareholders.
TAXATION OF NON-UNITED STATES SHAREHOLDERS
Foreign corporations or persons who are not citizens or residents of the
United States should consult their tax advisors with respect to the U.S. and
non-U.S. tax consequences of the Plan.
STATE AND LOCAL TAX
Shareholders may also be subject to state or local taxes, and should
consult their tax advisors with respect to the state and local tax consequences.
THE FOREGOING SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS INCLUDED FOR
GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO ANY
SHAREHOLDER. THE TAX CONSEQUENCES OF THE PLAN MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF THE SHAREHOLDER. THE COMPANY RECOMMENDS THAT EACH
SHAREHOLDER CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF
THE PLAN.
CONTINGENCIES; CREDITORS; LITIGATION
Under the OGCL and with respect to creditors' rights in general, the
Company will need to identify all amounts owed by the Company and any contingent
claims. The Company will need to quantify these contingent claims and attempt to
resolve all of these matters. The Company is required to pay or make reasonable
provisions to pay all claims and obligations, including all contingent,
conditional, or unmatured contractual claims known to it and is required to make
provisions as will be reasonably likely to be sufficient to provide compensation
for any claim against the Company which is the subject of a pending action, suit
or preceding to which the Company is a party.
Under the OGCL, in the event we fail to create an adequate Contingent Claim
Reserve for payment of our expenses and liabilities, or should such Contingency
Reserve and the assets held by a Liquidating Trust be exceeded by the amount
ultimately found payable in respect of expenses and liabilities, each
shareholder could be held liable for the payment to creditors of such
shareholder's pro rata share of such excess. However, each shareholder's
liability is limited to only such shareholder's pro rata share of amounts
received by such shareholder from the Company or a liquidating trust. The
Company has not at this time obtained a solvency opinion. Prior to making any
distribution to the shareholders the Board of Directors will reconsider whether
such an opinion is necessary in order to assist in establishing an adequate
Contingent Claim Reserve.
If we were held by a court to have failed to make adequate provision for
our expenses and liabilities or if the amount ultimately required to be paid in
respect of such liabilities exceeded the amount available from the Contingent
Claim Reserve and the assets of the Liquidating Trust, a creditor of the Company
could seek an injunction against the making of distributions under the Plan on
the ground that the amounts to be distributed were needed to provide for the
payment of our expenses and liabilities. Any such action could delay or
substantially diminish the distributions, if any, to be made to shareholders
and/or interest holders under the Plan.
We are a party to a lawsuit involving the Virtual Scoring Center technology
we transferred to VSC Technologies, LLC when it was formed. NCS Pearson, Inc.
has alleged that certain aspects of the Virtual Scoring Center technology
infringes on certain patent rights of NCS which we have and continue to deny.
There is currently pending in the United States District Court for the Eastern
District of North Carolina a lawsuit involving these allegations to which
Measurement Incorporated, VSC Technologies, LLC and the Company are parties.
Discovery is commencing in this case and we expect the cost of defense of this
matter to escalate dramatically. The parties have agreed on a discovery plan,
which anticipates a trial date in or after October 2005. We believe that the
Virtual Scoring Center technology does not infringe the NCS Pearson patents as
alleged by NCS Pearson in the lawsuit pending in the Eastern District of North
Carolina and we designed that technology to carefully avoid infringement, but we
cannot assure you that we will be successful in our claims or our defense
against NCS Pearson's counterclaims. If the court rules that the Virtual Scoring
Center technology infringes the NCS Pearson patents and NCS Pearson prevails in
its counterclaims, this could result in a monetary judgment against us. Because
this action is at an early stage, we cannot estimate the extent of any potential
damages if there is a judgment against us. With the indemnification from MI,
however, we may, with or without court approval be in a position to make a
distribution to the shareholders. The Board will have to consider the issues
involved once it is in a position to make such distribution. NCS has said that
it will not voluntarily release the Company from the lawsuit. As a result, the
Company may have to continue as a party to the lawsuit and not be in a position
to make a distribution or be able to determine the exact amount of any
distribution, if any, that would ultimately be made until after the trial of
this matter and any appeal. This could take several years. In any event, based
on the indemnification being provided by Measurement Incorporated and the fact
that the Company is assigning all of the allegedly infringing software to
Measurement Incorporated and will no longer be conducting any ongoing business
activities, the Company intends to seek court approval for a distribution and/or
dismissal from the lawsuit. We can give no assurance that we will be successful
in this.
Because of the above contingencies, and the Company's need to determine and
value any claims against the Company, the Company will not be in a position to
make any distribution to the shareholders for at least six (6) months and it may
in fact be much longer as a result of the litigation with NCS Pearson.
PROPOSAL 1
TO APPROVE THE SALE OF THE
COMPONENT PRODUCTS TECHNOLOGIES BUSINESS
TO PEGASUS IMAGING CORPORATION
Our Board of Directors is proposing the sale (the "Sale") of the Component
Products Technologies business to Pegasus Imaging Corporation, pursuant to an
Asset Purchase Agreement (the "Pegasus Contract") dated August 5, 2004 with
Pegasus and PIC Acquisition, Inc., a subsidiary of Pegasus for approval by our
shareholders at the special meeting. Subject to shareholder approval, the Sale
and the Pegasus Contract were approved by the Board of Directors on August 4,
2004 in connection with the approval of the Plan of Liquidation and Dissolution
which is further described above and in Proposal 2 of this Proxy Statement.
Certain material features of the Pegasus Contract are summarized above.
The following resolution will be offered at the special meeting:
"RESOLVED, THAT THE SALE OF THE COMPONENT PRODUCTS TECHNOLOGIES
BUSINESS TO PEGASUS IMAGING CORPORATION AND PIC ACQUISITION, INC. PURSUANT
TO THE ASSET PURCHASE AGREEMENT DATED AUGUST 5, 2004, AS AMENDED,
RECOMMENDED BY THE BOARD OF DIRECTORS, BE AUTHORIZED AND APPROVED, SUBJECT
TO THE SHAREHOLDERS APPROVING THE PLAN OF LIQUIDATION."
Considering the facts and reasons described in this Proxy Statement, our
Board of directors believes that the Sale would enhance shareholder value and is
in the best interests of our shareholders.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE SALE AS DESCRIBED IN PROPOSAL 1.
If the Sale is not approved by the shareholders, the Board of Directors
will explore the alternatives then available for the future of the Company.
PROPOSAL 2
TO APPROVE AND ADOPT THE PLAN OF
LIQUIDATION AND DISSOLUTION
GENERAL
Our Board of Directors is proposing the Plan of Liquidation and Dissolution
(the "Plan") for approval by our shareholders at the special meeting. The Plan
was adopted by the Board of Directors, subject to shareholder approval, on
August 4, 2004. A copy of the Plan is attached as Appendix A to this Proxy
Statement. Certain material features of the Plan are summarized above.
SHAREHOLDERS SHOULD READ THE PLAN IN ITS ENTIRETY.
The following resolution will be offered at the special meeting if Proposal
1 is approved:
"RESOLVED, THAT THE PLAN OF LIQUIDATION AND DISSOLUTION RECOMMENDED BY
THE BOARD OF DIRECTORS BE AUTHORIZED AND APPROVED."
Considering the facts and reasons described in this Proxy Statement, our
Board of Directors believes that the liquidation and dissolution of the Company
would enhance shareholder value and is in the best interests of our
shareholders.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PLAN AS DESCRIBED IN PROPOSAL 2.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Pegasus Contract, as amended, is incorporated into this Proxy statement
by this reference. The Pegasus Contract has been filed as an exhibit to the
Company's current report on Form 8-K as filed with the Securities and Exchange
Commission on October 29, 2004. In addition, the Company's financial statements
and Management's Discussion and Analysis or Plan of Operation in its annual
report on Form 10-KSB for the year ended August 31, 2004, have been incorporated
by this reference, and are being provided to the shareholders along with this
Proxy Statement.
Any statements contained in any of the documents incorporated reference herein
shall be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein (or in any other subsequently filed documents
which also is incorporated by reference herein) modifies or supersedes such
statements. Any statements so modified or superseded shall not be deemed to
constitute a part hereof except as modified or superseded. ANY DOCUMENTS WHICH
ARE INCORPORATED BY REFERENCE HEREIN (EXCLUDING EXHIBITS) ARE AVAILABLE WITHOUT
CHARGE UPON WRITTEN OR ORAL REQUEST TO DEBORAH D. MOSIER, 206 W. 6TH AVENUE,
STILLWATER, OKLAHOMA 74074 (TELEPHONE 405-377-0080).
APPENDIX A
PLAN OF LIQUIDATION AND DISSOLUTION OF TMS, INC.
WHEREAS, the Board of Directors (the "Board") of TMS, Inc. (the "Company"),
an Oklahoma corporation, has approved the sale of its Component Product
Technologies business (the "CPT Business") to Pegasus Imaging Corporation and in
connection with such sale deemed it advisable that the Company should be
liquidated and subsequently dissolved and has approved and determined that this
Plan of Liquidation and Dissolution of TMS, Inc. (this "Plan") is advisable and
in the best interests of the shareholders of the Company; and
WHEREAS, the Board has directed that this Plan be submitted to the
shareholders of the Company for their approval or rejection at a special meeting
of shareholders of the Company to be held in or about December 17, 2004 or such
other date as the Board may determine, in accordance with the requirements of
the Oklahoma General Corporation Law (the "OGCL") and the Company's Certificate
of Incorporation (the "Certificate of Incorporation") and has authorized the
filing with the Securities and Exchange Commission (the "SEC"), and the
distribution of a proxy statement to shareholders (the "Proxy Statement"), in
connection with the solicitation of proxies for such meeting; and
WHEREAS, the Board, upon substantial completion of the liquidation of the
Company's properties and assets or such earlier time as determined in its
discretion, may voluntarily dissolve the Company in accordance with the OGCL and
the Internal Revenue Code of 1986, as amended (the "Code"), upon the terms and
conditions set forth in this Plan;
NOW, THEREFORE, the Board hereby adopts and sets forth this Plan of
Liquidation and Dissolution of TMS, Inc. as follows:
I. EFFECTIVE DATE OF PLAN.
The effective date of this Plan (the "Effective Date") shall be the date on
which the shareholders of the Company vote to approve this Plan.
II. LIQUIDATION OF ASSETS.
After the Effective Date, the Company shall sell, exchange, transfer,
lease, license, or otherwise dispose of all of its property and assets,
including the Company's intellectual property and other intangible assets, to
the extent, for such consideration (which may consist in whole or in part of
money or other property) and upon such terms and conditions as the Board deems
expedient and in the best interests of the Company and its shareholders, without
any further vote or action by the Company's shareholders. The Company's assets
and properties may be sold in bulk to one buyer or a small number of buyers or
on a piecemeal basis to numerous buyers. The Company will not be required to
obtain appraisals or other third party opinions as to the value of its
properties and assets in connection with the liquidation. As part of the
liquidation of its property and assets, the Company shall collect, or make
provision for the collection of, all accounts receivable, debts and claims owing
to the Company.
III. CESSATION OF BUSINESS ACTIVITIES.
This Plan is intended to be a complete plan of liquidation and dissolution.
After the later of the Effective Date and the closing of the sale of
substantially all of the assets of the Company, the Company shall not engage in
any business activities except for the purpose of preserving the value of its
assets, prosecuting and defending suits by or against the Company, adjusting and
winding up its business and affairs, selling and liquidating its properties and
assets and making distributions to shareholders in accordance with this Plan.
The directors in office on the Effective Date and, at the pleasure of such
directors, the officers of the Company, shall continue in office solely for
these purposes and as otherwise provided in this Plan.
IV. PAYMENT OF DEBTS.
Prior to making any distributions to the Company's shareholders, the
Company shall pay, or as determined by the Board, make reasonable provision to
pay, all claims and obligations of the Company, including all contingent,
conditional or unmatured claims known to the Company.
Following the Effective Date, the Board may, if and to the extent deemed
necessary or advisable by the Board, establish a contingency reserve (the
"Contingency Reserve") and set aside into the Contingency Reserve such amounts
of cash or property of the Company as the Board, in its discretion, determines
is sufficient to account for unknown events, claims, contingencies and expenses
incurred in connection with the collection and defense of the Company's property
and assets and the liquidation and dissolution provided for in this Plan.
Following the payment, satisfaction or other resolution of all such events,
claims, contingencies and expenses, any amounts remaining in the Contingency
Reserve shall be distributed in accordance with this Plan.
V. DISTRIBUTIONS TO COMMON SHAREHOLDERS.
Following the payment or the provision for the payment of the Company's
claims and obligations as provided in Section IV, the Company shall distribute
pro rata to the holders of the common stock of the Company (the "Common Stock")
all of its remaining property and assets, if any, in one or a series of
distributions, in the discretion of the Board. The final distribution shall
sometimes be referred to as the "Dissolution Distribution."
VI. NOTICE OF LIQUIDATION.
As soon as practicable after the Effective Date, the Board may direct the
officers to mail notice in accordance with the OGCL to all its remaining
creditors and employees that this Plan has been approved by the Board and the
Company's shareholders.
VII. CERTIFICATE OF DISSOLUTION.
At such time as the Board determines, in its discretion to be appropriate,
the officers of the Company shall execute and cause to be filed with the
Secretary of the State of Oklahoma (the "Secretary of State") and elsewhere as
may be required or deemed appropriate, such documents as may be required to
effectuate the dissolution of the Company, including a Certificate of
Dissolution conforming to the requirements of Section 1096 of the OGCL (the
"Certificate of Dissolution"). From and after the date such documents are
accepted by the Secretary of State, the Company will be deemed to be completely
dissolved, but, as provided in the OGCL, will continue to exist under Oklahoma
law for the purposes of paying, satisfying and discharging any existing debts or
obligations, collecting and distributing its assets, and doing all other acts
required to liquidate and wind up the Company's business affairs. The members of
the Board in office at the time the Certificate of Dissolution is accepted for
filing by the Secretary of State shall have all powers provided to them under
the OGCL and other applicable law.
VIII. POWERS OF BOARD AND OFFICERS.
The Board and the officers of the Company are authorized to approve such
changes to the terms of any of the actions referred to herein, to interpret any
of the provisions of this Plan, and to make, execute and deliver such other
agreements, conveyances, assignments, transfers, certificates and other
documents and take such other action as the Board and the officers of the
Company deem necessary or desirable in order to carry out the provisions of this
Plan and effect the complete liquidation and dissolution of the Company in
accordance with the Code and the OGCL and any rules and regulations of the SEC
or any state securities commission, including, without limitation, any
instruments of dissolution or other documents, and withdrawing any qualification
to conduct business in any state in which the Company is so qualified, as well
as the preparation and filing of any tax returns. To the extent inconsistent,
this plan amends and supercedes the Bylaws of the Company.
IX. CANCELLATION OF STOCK.
The distributions to the Company's shareholders pursuant to this Plan, if
any, shall be in complete redemption and cancellation of all of the outstanding
Common Stock. As a condition to any disbursement made under the Plan after the
filing of the Certificate of Dissolution, made the Board may require
shareholders to surrender their certificates evidencing the Common Stock to the
Company or its agent for cancellation. If a shareholder's certificate for shares
of Common Stock has been lost, stolen or destroyed, such shareholder may be
required, as a condition to the disbursement of any distribution under this
Plan, to furnish to the Company satisfactory evidence of the loss, theft or
destruction thereof, together with a surety bond or other security or indemnity
reasonably satisfactory to the Company.
X. RESTRICTIONS ON TRANSFER OF SHARES.
The Company shall close its stock transfer books and discontinue recording
transfers of Common Stock at the close of business on the record date to be
fixed by the Board at least twenty (20) days after the Effective Date (the
"Dissolution Record Date"), and thereafter, certificates representing the Common
Stock shall not be assignable or transferable on the books of the Company except
by will, intestate succession or operation of law. The shareholders of record as
of the Dissolution Record Date shall be deemed to have received the right to
receive any future distributions pursuant to this Plan. The proportionate
interests of all of the shareholders of the Company shall be fixed on the basis
of their respective stock holdings at the close of business on the Dissolution
Record Date, and, after the Dissolution Record Date, any distributions made by
the Company shall be made solely to the shareholders of record at the close of
business on the Dissolution Record Date, except as may be necessary to reflect
subsequent transfers recorded on the books of the Company as a result of any
assignments by will, intestate succession or operation of law.
XI. LIQUIDATING TRUST.
If advisable for any reason to complete the liquidation and distribution of
the Company's assets to its shareholders, the Board may at any time transfer to
a liquidating trust (the "Trust") the remaining assets of the Company. The Trust
thereupon shall succeed to all of the then remaining assets of the Company,
including all amounts in the Contingency Reserve, and any remaining liabilities
and obligations of the Company. However, if all of the Company's assets are not
distributed within three years after the date the Certificate of Dissolution is
filed, the Company will transfer all of its remaining assets to the Trust. The
sole purpose of the Trust shall be to prosecute and defend suits by or against
the Company, to settle and close the business of the Company, to dispose of and
convey the assets of the Company, to satisfy the remaining liabilities and
obligations of the Company and to collect and distribute the remaining assets of
the Company to its shareholders. Any distributions made from the Trust shall be
made in accordance with the provisions of this Plan. The Board may appoint one
or more of its members to act as trustee or trustees of the Trust and to cause
the Company to enter into a liquidating trust agreement with such trustee or
trustees on such terms and conditions as the Board determines. Approval of this
Plan by the shareholders also will constitute the approval by the shareholders
of any appointment of the trustees and of the liquidating trust agreement
between the Company and such trustees.
XII. COMPENSATION.
The Company may pay to the Company's officers, directors, employees and
agents or trustees, or any of them, compensation for services rendered in
connection with the implementation of this Plan. Approval of this Plan by the
shareholders of the Company shall constitute the approval of the shareholders of
the payment of any such compensation referred to in this Section.
XIII. INDEMNIFICATION.
The Company shall continue to indemnify its officers, directors, employees,
agents and trustees in accordance with its Certificate of Incorporation, bylaws
and any contractual arrangements as therein or elsewhere provided, and such
indemnification shall apply to acts or omissions of such persons in connection
with the implementation of this Plan and the winding up of the affairs of the
Company. The Company's obligation to indemnify such persons may be satisfied out
of the Contingency Reserve or out of assets transferred to the Trust, if any.
The Board and the trustees of any Trust are authorized to obtain and maintain
insurance as may be necessary to cover the Company's indemnification
obligations.
XIV. COSTS.
The Company is authorized, empowered and directed to pay all legal,
accounting, printing and other fees, costs and expenses for services rendered to
the Company in connection with the preparation, adoption and implementation of
this Plan, including, without limitation, any such fees and expenses incurred in
connection with the preparation of a proxy statement for the meeting of
shareholders to be held for the purpose, among others, of voting upon the
approval of this Plan.
TMS, Inc.
206 West Sixth Street
Stillwater, Oklahoma 74074
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
You can vote in one of three ways:
1. Internet.
2. Phone.
3. Mail.
VOTE BY INTERNET
Your Internet vote is quick, convenient and your vote is immediately submitted.
Just go to the following website: http://www.eproxyvote.com/tmss enter your
control number and follow the simple instructions on the screen.
Please note that all votes cast by internet must be submitted prior to 12:00
a.m. Eastern Daylight Savings Time, December 15, 2004. Your Internet vote
authorizes the named proxies to vote your shares to the same extent as if you
marked, signed, dated and returned the proxy card.
If you vote by Internet, please do not return your proxy by mail.
VOTE BY TELEPHONE
Your Telephone vote is quick, easy and immediate. Using a Touch-Tone Telephone,
Dial 1-800-758-6973 from the U.S. or Canada, enter your control number (found on
your proxy card) and follow the voice prompts.
Please note that all votes cast by telephone must be submitted prior to 12:00
a.m. Eastern Daylight Savings Time, December 15, 2004. Your telephone vote
authorizes the named proxies to vote your shares to the same extent as if you
marked, signed, dated and returned the proxy card.
If you vote by telephone, please do not return your proxy by mail.
VOTE BY MAIL
To vote by mail, complete, sign and date the proxy card below. Detach the card
and return it in the envelope provided herein.
IF YOU ARE NOT VOTING BY INTERNET OR BY TELEPHONE,
DETACH PROXY CARD AND RETURN.
- -------------------------------------------------------------------------------
TMS, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
December 17, 2004
This Proxy is solicited on behalf of the Board of Directors of TMS, Inc.
(the "Company").
The undersigned hereby appoints Deborah D. Mosier and Arthur D. Crotzer as
proxies, each with the power to appoint his substitute, and hereby appoints and
authorizes them to represent and vote as designated below, all the shares of
common stock of the Company held of record by the undersigned on October 22,
2004, at the Special Meeting of Shareholders to be held on December 17, 2004, or
any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" ITEMS 1 AND 2
1. Approve the sale of the Company's Component Products Technologies business to
Pegasus Imaging Corporation and the Asset Purchase Agreement entered into by the
Company, Pegasus, and PIC Acquisition, Inc., a subsidiary of Pegasus.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Approve the Plan of Liquidation and Dissolution.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE upon such other
business as may properly come before the meeting or any adjournment thereof.
This proxy, when properly executed, dated and delivered, will be voted in the
manner directed herein by the undersigned shareholder. If no direction is made,
this proxy will be voted FOR Proposals 1 and 2.
Please sign exactly as your name appears
below. When shares are held by joint tenants,
both should sign. When signing as attorney or
as executor, administrator, trustee or
guardian, please give full title as such. If
shares are held by a corporation, please sign
in full corporate name by president or other
authorized officer. If shares are held by a
partnership, please sign in partnership name
by authorized person.
Date:____________________, 2004
Signature_______________________________________
Signature, if held jointly______________________
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.