<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT
ON FORM SB-2
UNDER
THE SECURITIES ACT OF 1933
INTRANET SOLUTIONS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MINNESOTA 7373 41-1652566
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
9625 W. 76TH STREET SUITE 150
MINNEAPOLIS, MINNESOTA 55344
(612) 903-2000
(ADDRESS AND TELEPHONE NUMBER
OF PRINCIPAL EXECUTIVE OFFICES)
ROBERT F. OLSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
9625 W. 76TH STREET SUITE 150
MINNEAPOLIS, MINNESOTA 55344
(612) 903-2000
(Name, address, and telephone number of agent for service)
COPIES TO:
WILLIAM M. MOWER, ESQ.
MASLON EDELMAN BORMAN & BRAND,
A PROFESSIONAL LIMITED LIABILITY PARTNERSHIP
3300 NORWEST CENTER
MINNEAPOLIS, MINNESOTA 55402-4140
(612) 672-8200
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE NUMBER OF SHARES TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED BE REGISTERED PER SHARE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
COMMON STOCK
$.01 PAR VALUE(1)(2) 245,579 $7.50 $1,841,842.50 $558.14
COMMON STOCK
$.01 PAR VALUE (3) 18,750 $9.00 $ 168,750 $ 51.14
COMMON STOCK
$.01 PAR VALUE(4) 19,400 $6.00 $ 116,400 $ 35.27
COMMON STOCK
$.01 PAR VALUE(5) 294,546 $4.00 $ 1,178,184 $357.02
COMMON STOCK
$.01 PAR VALUE(6) 43,077 $2.32 $ 99,938.64 $ 30.28
COMMON STOCK
$.01 PAR VALUE (7) 59,394 $0.294 $ 17,462.00 $ 6.02
</TABLE>
(1) Shares offered by Selling Shareholders
(2) Estimated solely for purposes of computing the registration fee in
accordance with Rule 457(h) and based upon the average of the high and low
prices of the Common Stock as quoted on the National Association of
Securities Dealers Automated Quotation System Small-Cap Market on October
9, 1996.
(3) Shares issuable by the Company upon exercise of 18,750 outstanding
Warrants. The per share exercise price of the Warrants is $9.00.
(4) Shares issuable by the Company upon exercise of 19,400 outstanding
Warrants. The per share exercise price of the Warrants is $6.00.
(5) Shares issuable by the Company upon exercise of 294,546 outstanding
Warrants. The per share exercise price of the Warrants is $4.00.
(6) Shares issuable by the Company upon exercise of 43,077 outstanding
Warrants. The per share exercise price of the Warrants is $2.32.
(7) Shares issuable by the Company upon exercise of 59,394 outstanding
Warrants. The per share exercise price of the Warrants is $.294.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION
DATED OCTOBER 15, 1996
PROSPECTUS
INTRANET SOLUTIONS, INC.
680,746 SHARES OF COMMON STOCK
Of the 680,746 shares of Common Stock offered hereby, 435,167 are being
sold by IntraNet Solutions, Inc. (the "Company") and 245,579 are being sold by
the Selling Shareholders. The 435,167 shares offered by the Company are
issuable upon the exercise of (i) 183,500 outstanding, publicly traded,
redeemable warrants (the "Redeemable Warrants") and (ii) an aggregate of
251,667 non-publicly traded, non-redeemable warrants (the "Non-Redeemable
Warrants," together with the Redeemable Warrants, the "Warrants"). The Company
will not receive any proceeds from the sale of the shares being sold by the
Selling Shareholders. See "Principal and Selling Shareholders." No
underwriter is being used in connection with this offering. The Company will
bear the expenses of registration of the securities offered by this Prospectus,
which are expected to be approximately $200,000.
The Company's Common Stock, the Redeemable Warrants and units consisting
of one share of Common Stock and one warrant to acquire one share of Common
Stock at an exercise price of $4.00 per share (the "Units") are traded in the
over-the-counter market through the National Association of Securities Dealers
Automated Quotation System Small-Cap Market(SM) ("NASDAQ") under the symbols
INRS, INRSW and INRSU respectively. On October 9, 1996, the closing bid prices
of the Common Stock and the Redeemable Warrants were $8.00 and $4.50
respectively. No Units traded on such date.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_____________________________
<PAGE> 4
The per share exercise price of the 183,500 Redeemable Warrants is $4.00.
The per share exercise price of the Non-Redeemable Warrants is $9.00 with
respect to 18,750 Non-Redeemable Warrants, $6.00 with respect to 19,400
Non-Redeemable Warrants, $4.00 with respect to 111,046 Non-Redeemable Warrants,
$2.32 with respect to 43,077 Non-Redeemable Warrants, and $.294 with respect to
59,394 Non-Redeemable Warrants. In the event that all of the Redeemable
Warrants are exercised and none of the Non-Redeemable Warrants are exercised,
the Company will receive an aggregate of $734,000, before deducting estimated
offering expenses of $200,000. In the event that all of the Non-Redeemable
Warrants are exercised and none of the Redeemable Warrants are exercised, the
Company will receive an aggregate of $846,733, before deducting estimated
offering expenses of $200,000. In the event that all of the Warrants are
exercised, the Company will receive an aggregate $1,580,732 before deducting
estimated offering expenses of $200,000. There can be no assurance that any or
all of the Warrants will be exercised.
It is anticipated that each of the persons named herein as Selling
Shareholders will offer and sell the shares that may be sold by such person
hereunder from time to time in ordinary transactions to or through one or more
brokers or dealers in the over-the-counter market or in private transactions at
such prices as may be obtainable.
The date of this Prospectus is ___________, 1996.
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<PAGE> 5
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a registration statement on Form SB-2, under
the Securities Act of 1933, as amended (the "Securities Act") covering the
securities offered by this Prospectus. This Prospectus does not contain all of
the information set forth in the registration statement and the exhibits
thereto. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein are not necessarily complete and
in each instance such statement is qualified by reference to each such contract
or document. The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports and other information with the Commission.
Reports and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities of the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, as well as
at the following Regional Offices: 7 World Trade Center, 13th Floor, New York,
New York 10048 and 500 West Madison Street--Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Commission by mail at
prescribed rates. Requests should be directed to the Commission's Public
Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549. The Common Stock and the Redeemable Warrants are listed
on the NASDAQ Small-Cap Market. Material filed by the Company can be inspected
at the offices of the National Association of Securities Dealers, Inc., 1735 K
Street N.W., Washington, D.C. 20006.
-iii-
<PAGE> 6
GLOSSARY OF TECHNICAL TERMS
<TABLE>
<S> <C>
CAD FILE A file containing an electronic drawing created using Computer Automated Design Software.
COMPUTER NETWORK A group of one or more computers connected together for the purpose of sharing data and networked resources
such as printers, modems or fax servers.
DATA VAULT SYSTEM Secure electronic storage of data files using document management software combined with database management
software.
DIGITAL DOCUMENT
DISTRIBUTION Distribution of documents through a computer network by sending the version contained in a computer file
rather than a version printed on paper.
DIGITAL DOCUMENT
MANAGEMENT Software technology that manages information contained in electronic document files, or unstructured data,
providing revision control, configuration management, and workflow.
DISTRIBUTION
TECHNOLOGY The various methods of using state-of-the-art technology to distribute documents, both electronically and in
hardcopy.
DISASTER RECOVERY
SYSTEM A combination of hardware and software designed to provide automated backup and archiving of computer files
to allow rapid recovery in the event of a catastrophic loss of data.
DOCUMENT-BASED
INFORMATION MANAGEMENT Software technology that manages business critical documents and the information contained in those
SYSTEM documents by automating and accelerating the creation, assembly, control, modification and distribution of
such documents.
ELECTRONIC DOCUMENT
WAREHOUSING Using digital document management technology to provide off-site storage of documents contained in computer
files.
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C>
ELECTRONIC DEMAND
PUBLISHING Providing printed documents "on demand" through the use of high-speed laser printers in order to reduce
inventory and production costs of frequently revised documents.
HARDWARE PLATFORM A standard computer hardware configuration on which a comprehensive approach to a computer solution of a
problem can be based. Examples of well-known hardware platforms include the IBM PC and MacIntosh personal
computers.
HYPERTEXT LINK An automatic link for navigation between electronic documents activated by point and click with a computer
mouse.
INTERNET An open global network of interconnected commercial, educational and governmental computer networks which
utilize a common communications protocol.
INTRANET An organization's private network of its local area networks which utilize Internet data formats and
communications protocols, and which may use the Internet's facilities as the backbone for network
communications.
OVERLAY FILE A file containing markup to communicate changes to a computer file.
POST-SCRIPT An industry standard data file format for communication with printing devices.
SYSTEM INTEGRATOR An organization that specialized in delivering solutions to end-user organizations by combing a variety of
software components and integrating them into a complete end-user solution.
UNSTRUCTURED BUSINESS-
CRITICAL DATA Information that typically exists in the form of word processing documents, spreadsheets, or CAD files that
are maintained on a variety of hardware platforms with little compatibility or data sharing capability
between systems.
VALUE ADDED RESELLER
(VAR) A business that purchases equipment or software from a vendor, usually at a discount, adds value and resells
the altered product.
</TABLE>
-v-
<PAGE> 8
<TABLE>
<S> <C>
WEB A collection of electronically retrievable documents related by hypertext links.
WEB GENERATION The process of programmatically constructing a set of interlinked electronic documents.
WORKFLOW A computer application which provides management, control and tracking of a business process such as the routing of
a business document for approval signatures.
WORLD WIDE WEB
(WWW) The worldwide collection of electronically retrievable hypertext linked documents resident on the Internet.
This worldwide collection of documents is unified by standard file format and retrieval protocol standards to
allow document retrieval as if from a single library.
</TABLE>
-vi-
<PAGE> 9
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the information and
financial statements (including the notes thereto) appearing elsewhere in this
Prospectus all share amounts reflected herein give effect to a 1-for-4 reverse
stock split effective November 11, 1996 to shareholders of record on October
31, 1996.
THE COMPANY
The Company is a Minneapolis-based technology company focused on assisting
large companies in designing and implementing open, integrated solutions for
managing and distributing business-critical information across and outside
their enterprises. The Company is divided into the following three distinct
business groups: (i) IntraNet Integration Group, which provides open
client-server products to assist companies in managing their intellectual
capital, including hardware and software products, as well as system
installation, support and training; (ii) IntraNet Distribution Group, which
offer customers various service for off-site electronic document warehousing,
electronic demand publishing and multiple methods of digital distribution of
information and (iii) IntraNet Professional Services Group, which is involved
in product development, project management and customized software
applications.
The Company's products and services provide integrated solutions for the
management and distribution of business-critical information contained in
documents. The Company has focused its marketing efforts toward large
companies who have begun to more aggressively reengineer their business
processes. The Company believes that as the trend toward network-based
computing environments as the primary computing resource continues, the demand
for its products, especially its recently developed proprietary products, will
continue. The Company delivers its products primarily through a direct sales
force and currently has more than 250 clients, principally in the Fortune 1000.
The Company currently has operations in Minneapolis, Atlanta, Boston, Denver,
Milwaukee and Phoenix.
On July 30 and 31, 1996, the Company's predecessor, MacGregor Sports and
Fitness, Inc. ("MSF") and IntraNet Integration Group, Inc., a Minnesota
corporation ("IntraNet," formerly known as Technical Publishing Solutions, Inc.
("TPSI")) closed on a tax-free reorganization pursuant to which IntraNet
became a wholly-owned subsidiary of the Company, and MSF changed its name to
IntraNet Solutions, Inc. The transaction was accomplished through a tax-free
reverse subsidiary merger whereby IntraNet merged with and into a wholly owned
subsidiary of MSF, with IntraNet as the surviving corporation (the "Merger").
Accordingly, all financial information provided in this Prospectus for dates
prior to the Merger is that of IntraNet.
The Company was incorporated in the State of Minnesota in November, 1990.
The Company's corporate headquarters are located at 9625 W. 76th Street Suite
150, Minneapolis, Minnesota 55344. The Company's telephone number is (612)
903-2000.
<PAGE> 10
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by the Company......... 435,167 shares of Common Stock that are
issuable upon exercise of the outstanding
Warrants.
Securities Offered by Selling
Shareholders............................. 245,579 shares of Common Stock.
Common Stock Outstanding Before this
Offering................................. 7,440,606 shares of Common Stock
Common Stock Outstanding After this
Offering................................. 7,875,773 shares of Common Stock(1)
Use of Proceeds........................... Day-to-day working capital needs. The
Company will not receive any proceeds
from the sale of securities by the
Selling Shareholders. See "Use of
Proceeds."
Risk Factors.............................. This offering involves a high degree of
risk and immediate substantial dilution.
See "Risk Factors" and "Dilution."
NASDAQ Small Cap
Market(SM) Symbols....................... INRS Common Stock
INRSW Redeemable Warrants(2)
INRSU Units(3)
</TABLE>
(1) Includes 435,167 shares of Common Stock that may be issued upon
exercise of the Warrants.
(2) The Redeemable Warrants will cease to trade on NASDAQ upon their full
exercise or earlier redemption.
(3) Each Unit consists of one share of Common Stock and one warrant to
purchase one share of Common Stock at an exercise price of $4.00.
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<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTH
FISCAL YEAR ENDED PERIOD ENDED
MARCH 31, JUNE 30,
1995 1996 1995 1996
--------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues $10,446,661 $14,235,742 $2,851,243 $4,180,934
Cost of revenues 7,600,690 10,708,253 2,060,322 3,264,005
----------- ----------- ---------- ----------
Gross profit 2,845,971 3,527,489 790,921 916,929
Operating expenses 2,612,262 3,670,773 792,945 1,304,604
Interest expense 97,033 230,293 27,737 48,173
----------- ----------- ---------- ----------
Income (loss) before income taxes 136,676 (373,577) (29,761) (435,848)
Provision for (benefit of) income taxes 64,553 (125,770) 0 (150,000)
----------- ----------- ---------- ----------
Net income (loss) $ 72,123 $ (247,807) $ (29,761) $ (285,848)
=========== =========== ========== ==========
Net income (loss) per share $ 0.01 $ (0.03) $ (0.00) $ (0.04)
=========== =========== ========== ==========
Shares used in per share calculation 7,351,516 7,351,516 7,351,516 7,351,516
=========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION> JUNE 30, 1996
-------------------------------------------
MARCH 31, 1996 PRO FORMA, AS
ACTUAL ACTUAL PRO FORMA (1) ADJUSTED(1)(2)
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................. $(1,076,767) $(1,546,432) $1,753,568 $ 3,134,300
Total assets..................... 5,712,866 6,201,318 8,951,318 10,332,050
Long-term debt................... 706,406 618,931 618,931 618,931
Shareholders' equity
(deficiency).................... (21,183) $ (277,070) 3,022,930 4,403,662
</TABLE>
(1) Assumes completion of the Merger on June 30, 1996. See "Prospectus
Summary."
(2) As adjusted to reflect the exercise of all of the Warrants and the receipt
of the net proceeds therefrom. Does not include (i) 2,500,000 shares of
Common Stock reserved for issuance under the Company's 1994-1997 Stock
Option Plan of which 1,433,523 have been granted and (ii) 219,512 shares
of Common Stock issuable upon exercise of certain warrants which shares
are not registered hereunder. There can be no assurance that any or all
of the Warrants will be exercised.
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<PAGE> 12
RISK FACTORS
The securities offered hereby are speculative in nature, involve a high
degree of risk and an investment in the securities should not be made by any
investor who cannot afford the loss of his or her entire investment. Prior to
making an investment decision with respect to the securities offered hereby,
prospective investors should carefully consider, along with the other matters
discussed in this Prospectus, the following risk factors:
Lack of Profitability. The Company had a net loss of $285,848 for the
quarter ended June 30, 1996, and a net loss of $247,807 for the year ended
March 31, 1996. The Company had an accumulated deficit of $308,113 at June 30,
1996. The likelihood of success of the Company must be considered
in light of the problems, expenses, difficulties, complications and delays
frequently encountered in connection with the establishment of any company.
There is no assurance that the Company can operate profitably or that it will
successfully implement its expansion plans.
Need for Additional Financing. The Company's capital requirements depend
on numerous factors, including the progress of the Company's product
development programs, the resources the Company devotes to the development,
manufacture and marketing of its products, facilities requirements, market
acceptance and demand for its products, and other factors. The timing and
amount of such capital requirements cannot accurately be predicted.
Consequently, the Company believes that the approximately $3.0 million in gross
proceeds it derived from the Merger, together with operating revenues, and its
existing line of credit, will meet only its immediate anticipated needs for
working capital and capital expenditures.
The Company will be required to raise additional funds through public or
private financings, through collaborative relationships or other arrangements.
The Company has recently retained a New York Stock Exchange member, investment
banking firm to act as its exclusive financial consultant for a one year term
to assist the Company in its capital formation efforts and to explore other
strategic opportunities.
Although the Company will require additional funding beyond the proceeds
of this offering, there can be no assurance that such additional funding will
be available on terms attractive to the Company, or at all. Any additional
equity financings may be dilutive to shareholders, and additional debt
financing, if available, may involve restrictive covenants. Collaborative
arrangements may require the Company to relinquish rights to certain of its
technologies, products or marketing territories. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
Warrant Exercise; Current Prospectus and State Registration Required to
Exercise Warrants. Holders of Warrants will be able to exercise such Warrants
only if a current prospectus relating to the underlying securities is then in
effect and only if such Warrants are qualified for
-4-
<PAGE> 13
sale or exempt from qualification under the applicable securities
laws of the states in which the various holders of the Warrants reside.
Although the Company will use its best efforts to maintain the effectiveness of
a current prospectus covering such securities, there can be no assurance that
the Company will be able to do so. The Company will be unable to issue shares
of Common Stock to those persons desiring to exercise their Warrants if a
current prospectus covering the Common Stock issuable upon exercise thereof is
not kept effective or if such securities are not qualified nor exempt from
qualification in the states in which the holders reside. The Non-Redeemable
Warrants are not registered under federal or state securities laws and may not
be sold except pursuant to an exemption from registration and no public market
exists or is expected to develop for the Non-Redeemable Warrants. See
"Description of Securities -- Warrants."
Fluctuations in Future Operating Results. The Company's future operating
results may vary substantially from quarter to quarter. At its current stage
of operations, the Company's quarterly revenues and results of operations may
be materially affected by the timing of the development, introduction and
market acceptance of the Company's and its competitors' products. Product
development and marketing costs are often incurred in periods before any
revenues are recognized from the sales of products. Operating expenses are
higher during periods in which such product development costs are incurred and
marketing efforts are commenced. In addition, the irregular receipt of
significant contracts could add to quarter to quarter variation in operating
results. Due to these and other factors, including the general economy, stock
market conditions and announcements by the Company or its competitors, the
market price of the securities offered hereby may be highly volatile.
Dependence Upon Continued Market Expansion. The continued expansion of
the Company's business is dependent on the continued expansion of the markets
for which its products were developed. As such, the Company's future success
is dependent upon a continuation of the trend toward network-based computing
environments and the continued willingness of large businesses to reengineer
the processes they employ to create, store manage and distribute data. In
addition, the Company's future success is dependent upon the continued
expansion of the on-demand printing market. Any factors which have an adverse
impact on the continued expansion of these markets generally could have a
material adverse impact on the Company.
Risks Associated with Acquisitions. The Company's ability to achieve its
growth strategy depends in part on the success of the Company's efforts to
expand the Distribution Group concept to regional centers throughout the United
States and its ability to successfully acquire complementary businesses that
will facilitate the provision of integrated communications products and
services. The Company plans to evaluate several potential acquisitions,
primarily in complimentary software development areas, which it believes are
necessary to expand its presence in the document management marketplace. It is
anticipated that funds required for future acquisitions and expansion will be
provided from operating cash flow, the proceeds expected from future debt or
equity financings and proceeds from future borrowings. However, there can be no
assurance that suitable acquisitions candidates will be available to the
Company on favorable terms, that suitable financing for any such acquisitions
or expansion can be obtained by the
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<PAGE> 14
Company, that the Company will be able to integrate successfully acquired
businesses into the Company's existing operations, or that any such acquisitions
or expansions will occur. To the extent it is unable to do so, the Company's
business, operating results and financial condition could be adversely affected.
Dependence on Narrow Product Line; Technology Risks; Risk of Market
Acceptance. The Company's future success will depend, to a large extent, on
its ability to increase sales from existing products and derive sales from new
products. There can be no assurance that the Company will be able to further
penetrate the market with its existing products and to introduce and gain
acceptance of its new products. The market is highly competitive and
characterized by rapid innovation and technological change. The Company's
products were specifically designed to meet the needs of the document
management market, but other companies have also introduced or announced the
development of products designed to address the same markets as the Company's
products. The Company's ability to maintain a competitive position will also
depend on its ability to develop enhancements and upgrades to its existing
product line. In addition, technological advances that would make the
Company's products less attractive to current and potential customers could
adversely impact the business of the Company. The Company's plans with respect
to the development of new products are subject to the risks inherent in the
development and marketing of complex software products, including the risks
that the release of the product may be delayed, errors may be found in the
product after its release despite extensive testing, and discovered errors may
not be corrected in a timely manner. Further, the commercial success of the
Company's products will depend on the willingness of potential customers to
perform and accept the use of the Company's products to create, manage and
distribute unstructured business-critical data.
Dependence on Development of New Products. The Company's future strategy
to extend its product line will depend on its ability to design, develop and
market new and innovative products. There can be no assurance that the
Company's will be successful in introducing new products. The Company's
devotes resources to research and development and believes it will have
sufficient resources to support its research and development efforts. However,
there can be no assurance that the level of research and development expenses
necessary for the Company to remain competitive will be as currently
anticipated or that the Company's revenues will be sufficient to cover its
research and development costs.
Intellectual Property. In the absence of significant patent or copyright
protection, the Company may be vulnerable to competitors who attempt to develop
functionally equivalent products. Although the Company believes that it has all
rights necessary to market its products without infringing upon any patents,
copyrights or trademarks held by others, there can be no assurance that
conflicting patent, copyright or trademark rights do not exist. The Company
relies upon trade secret protection for its confidential and proprietary
information. There can be no assurance that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's trade secrets or disclose such
technology, or that the Company can meaningfully protect its trade secrets.
The Company
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<PAGE> 15
has applied for trademark registration for the following marks: INTRANET,
INTRANET SOLUTIONS, DOCUMENT REFINERY, WEB REFINERY, WEB VAULT, Intra.doc!,
Intra.plt!, Intra.img! and Intra.rpt!. There can be no assurance that any
trademarks which have been applied for but not yet issued will be issued. In
the absence of trademark protection, the Company may be unable to take advantage
of the brand name recognition it is attempting to build. Further, even if all
trademarks applied for are issued, there can be no assurance that such
trademarks will prove valuable to the Company.
Dependence Upon Key Vendor Relationships. The Company's is materially
dependent on Sun Microsystems, Inc. and Interleaf, Inc. for the supply of the
hardware and non-proprietary software products sold as part of its systems.
The Company does not currently have a secondary source of supply for these
products. Any disruption in the relationship between the Company and either of
Sun Microsystems, Inc. or Interleaf, Inc. would have a material adverse impact
on the Company.
Dependence on Key Personnel; Need for Additional Employees. The Company
is currently greatly dependent on the personal knowledge and experience of
Messrs. Olson and Sjobeck. The Company believes that its senior management
team has knowledge which, due to the Company's relatively small size, is
personal to such individuals and has not been institutionalized. As such, the
loss of any of these key personnel could be detrimental to the Company. To
avoid the negative impact which the loss of a senior manager could have on the
Company, as well as to achieve its business plan, the Company must hire
additional employees at various operational levels. The future development and
success of the Company will depend in part upon its ability to attract and
retain additional personnel with the highly specialized expertise necessary to
provide, engineer, design and support the integration of such products and
services. There can be no assurance that the Company will be able to attract or
retain such personnel or that the hiring and retention of such personnel will
result in the institutionalization of vital information.
Significant Competition. Some of the Company's competitors currently
marketing products into the document management market are more established
than the Company and have the benefits of pre-existing relationships with
potential customers and greater name recognition than the Company. Some of the
Company's current and potential competitors have significantly greater
technical, financial, and marketing resources than the Company. Although the
Company believes it competes effectively with respect to such factors, there
can be no assurance that the Company will have the financial resources,
technical expertise or marketing, distribution or support capabilities to
compete successfully in the future.
Former Shareholder Lien. Prior to the Merger, TPSI redeemed 50% of its
outstanding shares of its common stock from a former shareholder and director
for $200,000 on July 31, 1995. TPSI paid $150,000 of the purchase price in
cash and delivered a $50,000 note to the former shareholder for the balance of
the purchase price. The note requires annual principal payments of $10,000 and
matures in August, 2000. TPSI also entered into Consulting and Non-Competition
Agreements with the former shareholder. To secure the purchase price of the
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<PAGE> 16
redeemed shares and TPSI's monetary obligations under the agreements, TPSI
pledged the redeemed shares to the former shareholder as collateral. The
Company has met, and intends to meet its monetary obligations to the former
shareholder, in the event it should fail to do so, the former shareholder may
be able to assert a claim of ownership interest in the Company. If the Company
were to fail to make payment to the former shareholder and the former
shareholder were successful in obtaining an ownership interest in the Company,
the value of the shares of Common Stock would be reduced substantially.
Control by Founder. TPSI's founder, Mr. Robert F. Olson, holds
approximately 54% of the Company's outstanding Common Stock. As such, Mr.
Olson is be able to exercise control over the business policies and affairs of
the Company. Additionally, directors, executive officers and principal
shareholders of the Company, and certain of their affiliates, will beneficially
own approximately 62.7% of the Company's outstanding Common Stock upon
completion of this offering (assuming full exercise of all of the Warrants).
Accordingly, these persons, individually and as a group, effectively control
the Company and can direct its affairs and business, including all
determinations with respect to the acquisition or disposition of assets by the
Company, future issuances of Common Stock or other securities by the Company,
and any dividend payable on the Common Stock. Such concentration of ownership
may also have the effect of delaying, deferring or preventing a change in
control of the Company. See "Principal and Selling Shareholders."
Effects of Delisting from Nasdaq SmallCap Market; Lack of Liquidity of Low
Priced Stocks. If the Company fails to maintain the qualification for its
Common Stock to trade on the Nasdaq SmallCap Market, its securities would be
delisted from the Nasdaq SmallCap Market. Factors giving rise to such delisting
could include, but not be limited to, a reduction of the Company's assets to
below $1,000,000, stockholder's equity being reduced to below $2,000,000, a
minimum bid price being less than $1.00 per share, a reduction to one active
market maker or a reduction in the value of the Company's publicly held
securities to less than $250,000. In such event, trading, if any, in the
Common Stock would thereafter be conducted in the over-the-counter markets in
the so-called "pink sheets" or the National Association of Securities Dealer's
"Electronic Bulletin Board." Consequently, the liquidity of the Company's
Common Stock would likely be impaired, not only in the number of shares which
could be bought and sold, but also through delays in the timing of the
transactions, reduction in security analysts' and the news media's coverage if
any, of the Company and lower prices for the Company's securities than might
otherwise prevail. If the Company's Common Stock were to be delisted from the
Nasdaq SmallCap Market, it would become subject to Rule 15g-9 under the
Exchange Act (the "Penny Stock Rules"), which imposes additional sales practice
requirements on broker-dealers which sell such common stock to persons other
than established customers and certain institutional investors. For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchasers and have received the purchaser's
written consent to the transaction prior to sale. Consequently, the Penny
Stock Rules may adversely affect the ability of broker-dealers to sell the
Company's Common Stock and may adversely affect the ability of the Company's
shareholders to sell any of their shares of Common Stock in the secondary
market.
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<PAGE> 17
Demand and Piggy-Back Registration Rights. Certain shareholders and
warrant holders of the Company, including, Robert F. Olson, have the right,
subject to certain conditions, to participate in and demand registrations and
to cause the Company to register certain shares of Common Stock owned by them
encompassing approximately 4.75 million shares of Common Stock. Pursuant to
these registration rights, if the Company proposes to register any of its
Common Stock, other than in certain specified instances, on its own behalf or
on account of others, such holders are entitled to notice of such registration
and must be given the opportunity to participate. In certain circumstances,
the holders also have the right to demand that the Company file a registration
statement covering such shares. These demand and piggyback registration rights
are subject to certain terms and limitations.
Absence of Dividends. The Company has never paid cash dividends on its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. See "Dividend Policy."
Shares Eligible for Future Sale. Immediately following this offering,
assuming the exercise of all Warrants, and assuming no exercise or conversion
of any other securities, there will be an aggregate of 4,420,969 shares of
Common Stock outstanding that will be freely tradable without restriction
except for volume limitations on sales by affiliates under Rule 144 under the
Securities Act ("Rule 144"). The Company will issue 183,500 shares of Common
Stock in the event all the Redeemable Warrants are exercised and will issue
251,667 shares of Common Stock in the event all the Non-Redeemable Warrants
are exercised, all of which are registered and will be freely tradable without
restriction except for volume limitations on sales by affiliates under Rule
144. The Company may issue up to an additional 1,066,477 shares under its
employee stock option plan. The Company may issue additional options,
warrants, or equity securities in the future. The sale, or availability for
sale, of substantial amounts of Common Stock in the public market subsequent
to this offering could adversely affect the prevailing market price of the
Common Stock and could impair the Company's ability to raise additional capital
through the sale of its equity securities.
Dilution. An individual who exercises a Redeemable Warrant, assuming all
other such securities are exercised simultaneously, will experience immediate
and substantial dilution of $3.57 per share, respectively, in that the exercise
price of the Redeemable Warrants exceeds the per share net tangible book value
of the Company after giving effect to the exercise of all the Redeemable
Warrants. An individual who exercises a Non-Redeemable Warrant, assuming all
other such securities are exercised simultaneously, will experience immediate
and substantial dilution of approximately $2.92 per share, in that the weighted
average exercise price of the Non-Redeemable Warrants exceeds the per share net
tangible book value of the Company after giving effect to the exercise of all
the Non-Redeemable Warrants, but none of the Redeemable Warrants. Purchasers
in this offering may experience further dilution upon exercise of any remaining
outstanding warrants and options. The Company may issue additional options,
warrants, or equity securities in connection with future financings which may
result in further dilution, and may necessitate anti-dilution adjustments to
outstanding warrants and options. The Company currently
-9-
<PAGE> 18
has options outstanding to purchase approximately 1,433,523 shares of its
Common Stock and Warrants outstanding to purchase approximately 654,679 shares
of its Common Stock. The exercise price of these options and Warrants range
from $0.20 to $10.40. See "Dilution" and "Description of Securities."
Volatility of Stock Price. The market prices of the Company's securities
have experienced and may continue to experience substantial volatility. The
securities markets have from time to time experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. The market prices of the common stock of many publicly
traded technology companies have in the past been, and can in the future be
expected to be, especially volatile. Announcements of technological
innovations or new products by the Company or its competitors, developments or
disputes concerning patents or proprietary rights, and economic and other
external factors, as well as period-to-period fluctuations in the Company's
financial results, may have a significant impact on the market price of the
Common Stock.
Determination of Exercise Price. The exercise prices of the Warrants were
determined by negotiation between the Company and the Warrant holders and are
not necessarily related to the Company's asset value, net worth or other
established criteria of value and should not be construed to be predictive of
or to imply that any price increases will occur in the Company's securities.
Voting Control; Potential Anti-Takeover Effect. The Company's
shareholders do not have the right to cumulative voting in the election of
directors. The Company is subject to Minnesota statutes regulating business
combinations and restricting voting rights of certain persons acquiring shares
of the Company, which may hinder or delay a change in control of the Company.
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<PAGE> 19
USE OF PROCEEDS
The Company intends to utilize the net proceeds after expenses from the
exercise of the Warrants, estimated to be approximately $1,400,000 for
day-to-day working capital requirements and a reduction in the Company's
Revolving Credit Line. Borrowings under the Company's Revolving Line of Credit
accrue interest at the bank's base lending rate plus 2.5% (10.75% as of June
30, 1996). The reduction of indebtedness upon application of the net proceeds
of this offering will enhance the Company's capacity to finance development and
acquisition of the products, skills and technologies necessary to achieve the
Company's growth strategy.
The foregoing represents the Company's best estimate of the use of the net
proceeds of the offering based upon the current status of its business. Future
events, including the problems, expenses, difficulties, complications, and
delays frequently encountered by newer businesses, as well as changes in the
economic climate and/or the Company's operations, may make revisions in the
allocation of funds necessary or desirable. Any such revisions in the
allocation of proceeds will be made at the discretion of the Board of Directors
of the Company.
The Company will not receive any proceeds from the sale of the shares
being sold by the Selling Shareholders.
DIVIDEND POLICY
To date, the Company has not declared or paid any dividends with respect
to its capital stock, and the current policy of the Board of Directors is to
retain any earnings to provide for the growth of the Company. Consequently, no
cash dividends are expected to be paid on the Company's Common Stock in the
foreseeable future. The Company's Revolving Credit Facility contains covenants
which prevent the Company from paying cash dividends. Further, there can be no
assurance that the operations of the Company will generate the funds needed to
declare a cash dividend or that the Company will have legally available funds
to pay dividends.
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<PAGE> 20
DILUTION
The net tangible book value of the Company (giving effect to the Merger as
if it had occurred on June 30, 1996) as of June 30, 1996 was $2,749,905 or
approximately $.37 per share. Net tangible book value represents the amount of
the Company's tangible assets less all liabilities. Without taking into
account any further changes in net tangible book value after June 30, 1996,
other than to give effect to (i) the exercise of the Redeemable and
Non-redeemable Warrants and (ii) the application of the net proceeds therefrom,
the pro forma net tangible book value as of such date would have been
$4,130,637 or approximately $.56 per share ($3,396,637 or approximately $.44
per share if only the Non-redeemable Warrants are considered and $3,283,905 or
approximately $.43 per share if only the Redeemable Warrants are considered).
This represents an immediate dilution to investors exercising Warrants of
approximately $3.07 per share ($2.92 with respect to the Non-redeemable
Warrants only and $3.57 with respect to the Redeemable Warrants only).
"Dilution" represents the difference between the weighted average exercise
price per share paid by investors exercising their Warrants and the Pro Forma
Net Tangible Book Value. There can be no assurance that any or all of the
Warrants will be exercised.
<TABLE>
<CAPTION>
REDEEMABLE NON-REDEEMABLE
ALL WARRANTS WARRANTS
WARRANTS ONLY ONLY (1)
<S> <C> <C> <C>
Exercise price or weighted
average exercise price per
share $3.63 $4.00 $3.36
Net tangible book value
per share before exercise 0.37 0.37 0.37
Increase per share
attributable to exercise 0.19 0.06 0.07
Pro forma net tangible book
value per share after exercise 0.56 0.43 0.44
Dilution of exercise price or
weighted average exercise
price per share 3.07 3.57 2.92
</TABLE>
- ----------------
(1) The per share exercise price of the Non-Redeemable Warrants is $9.00
with respect to 18,750 Non-Redeemable Warrants, $6.00 with respect to
19,400 Non-Redeemable Warrants, $4.00 with respect to 111,046
Non-Redeemable Warrants, $2.32 with respect to 43,077 Non-Redeemable
Warrants, and $.294 with respect to 59,394 Non-Redeemable Warrants.
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<PAGE> 21
CAPITALIZATION
The following table sets forth the Capitalization of the Company at June
30, 1996, as adjusted to reflect the exercise of all of the Warrants, and the
receipt of the net proceeds therefrom. See Consolidated Financial Statements.
<TABLE>
<CAPTION>
PRO FORMA, AS
-------------
ACTUAL PRO FORMA(1) ADJUSTED(1)(2)
---------- ------------ --------------
<S> <C> <C> <C>
Long-term debt, net of current portion 618,931 618,931 618,931
Stockholders' Equity (Deficiency):
Common stock,$.01 par value,
12,500,000 shares authorized, 2,513,355
shares issued and outstanding, 7,440,606
on a pro forma basis and 7,875,773,
pro forma, as adjusted 25,133 74,404 78,758
Additional paid-in capital 20,896 3,271,625 4,648,003
Retained earnings (deficit) (308,113) (308,113) (308,113)
Unearned compensation (14,986) (14,986) (14,986)
--------- ---------- ----------
Total stockholders' equity (deficiency) (277,070) 3,022,930 4,403,662
--------- ---------- ----------
Total capitalization $ 341,861 $3,641,861 $5,022,593
========= ========== ==========
</TABLE>
- ---------------
(1) Assumes completion of the Merger on June 30, 1996. (See "Prospectus
Summary")
(2) As adjusted to reflect the exercise of all of the Warrants and the receipt
of the net proceeds therefrom. Does not include (i) 2,500,000 shares of
Common Stock reserved for issuance under the Company's 1994-1997 Stock
Option Plan of which 1,433,523 have been granted and (ii) 219,512 shares of
Common Stock issuable upon exercise of certain warrants which shares are not
registered hereunder. There can be no assurance that any or all of the
Warrants will be exercised.
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<PAGE> 22
PRICE RANGE OF SECURITIES
The Company's Common Stock, Redeemable Warrants and Units have traded
separately in the over-the-counter market through the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") under the symbols INRS,
INRSW, and INRSU, respectively, since July 31, 1996. Prior to the Merger, the
Common Stock, Redeemable Warrants, and Units traded under the symbols MACG
MACGW and MACGU, respectively. Trading in the Redeemable Warrants will cease
upon their exercise in full or upon their earlier redemption. The following
table sets forth the range of high and low bid prices for the Common Stock, and
Redeemable Warrants and Unitsfor the periods indicated, as reported by NASDAQ.
The quotes represent "Inter-Dealer" prices without adjustment or mark-ups,
mark-downs or commissions and may not necessarily represent actual transactions.
On October 9, 1996, the last bid prices of the Common Stock and Redeemable
Warrants were $8.00 and $4.50, respectively. As of October 9, 1996, the Company
had approximately 66 record holders of Common Stock.
<TABLE>
<CAPTION>
REDEEMABLE
COMMON STOCK WARRANTS UNITS
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
<S> <C> <C> <C>
Fiscal 1995:
- ------------
First Quarter ended 6/30/94 3.000 1.500 0.750 0.500 3.000 2.000
Second Quarter ended 9/30/94 3.750 1.000 1.500 0.375 4.500 1.750
Third Quarter ended 12/31/94 3.250 2.625 1.500 1.000 4.125 3.500
Fourth Quarter ended 3/31/95 7.750 2.500 1.750 1.000 6.250 3.000
Fiscal 1996:
- ------------
First Quarter ended 6/30/95 4.000 2.875 1.563 1.250 5.000 4.000
Second Quarter ended 9/30/95 6.250 3.000 3.5000 1.188 10.000 4.000
Third Quarter ended 12/31/95 14.000 5.000 10.250 2.750 20.500 8.500
Fourth Quarter ended 3/31/96 16.250 8.750 12.500 5.500 26.000 15.500
Fiscal 1997:
- ------------
First Quarter ended 6/30/96 23.500 9.500 18.500 5.250 43.000 17.000
Second Quarter ended 9/30/96 21.000 8.000 16.250 4.000 31.000 17.500
Third Quarter (through October 9, 1996) 10.500 8.000 6.000 5.000 NT
</TABLE>
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<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
On July 30 and 31, 1996, the Company's predecessor, MacGregor Sports and
Fitness, Inc. ("MSF") and IntraNet Integration Group, Inc., a Minnesota
corporation ("IntraNet," formerly known as Technical Publishing Solutions, Inc.
("TPSI")) closed on a tax-free reorganization pursuant to which IntraNet
became a wholly-owned subsidiary of the Company, and MSF changed its name to
IntraNet Solutions, Inc. The transaction was accomplished through a tax-free
reverse subsidiary merger whereby IntraNet merged with and into a wholly owned
subsidiary of MSF, with IntraNet as the surviving corporation (the "Merger").
The Company is a Minneapolis-based technology company focused on assisting
large companies in designing and implementing open, integrated solutions for
managing and distributing business-critical information across and outside
their enterprises. The Company is divided into three distinct business groups,
including: (i) IntraNet Integration Group which provides open client-server
products to assist companies in managing their intellectual capital, including
hardware and software products, as well as system installation, support and
training; (ii) IntraNet Distribution Group, which offer customers various
service for off-site electronic document warehousing, electronic demand
publishing and multiple methods of digital distribution of information and
(iii) IntraNet Professional Services Group which is involved in product
development, project management and customized software applications.
Except for the historical information contained herein, certain matters
discussed in this prospectus are forward-looking statements which involve risks
and uncertainties, including, but no limited to, economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices and other factors discussed in the
Company's filings with the Securities and Exchange Commission. Therefore, if,
for any reason, the Company's planned operations require more capital than
anticipated, revenues do not increase as planned, or operating income is less
than planned, the Company may need additional financing in order to maintain
its operations. There can be no assurances that the Company would be able to
obtain any such required financing, if and when needed, or that such financing,
if obtained, would be on terms and conditions favorable or acceptable, to the
Company.
RESULTS OF OPERATIONS
Quarter Ended June 30, 1995 Compared to the Quarter End June 30, 1996
For the quarter ended June 30, 1996, total revenues increased to $4.2
million from $2.9 million for the same period in 1995, or $1.3 million (46.6%).
This increase resulted primarily from increases in hardware integration
revenues of $1.0 million ($1.4 million in 1995 compared to $2.4 million in
1996) and increased distribution service revenue of $400,000 ($300,000 in 1995
compared to $700,000 in 1996). The Company's software, technical and support
revenues declined slightly, primarily due to a focus on development of
proprietary software products.
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<PAGE> 24
Cost of hardware integration revenues was $1.2 million for the first
quarter of 1995 and $2.0 million for the first quarter of 1996. Cost of
hardware integration revenues as a percent of hardware integration revenues was
83.2% for the first quarter of 1995 compared to 83.7% for the first quarter of
1996.
Cost of software, technical services, and support revenues was $700,000
for both the first quarter of 1995 and 1996. Cost of software, technical
services, and support revenues as a percent of software, technical services,
and support revenue was 59.1% for the first quarter of 1995 compared to 67.9%
for the first quarter of 1996. Lower margins on software, technical services
and support were primarily due to competitive pricing on non-custom software
products and lower technical service billings.
Cost of distribution services revenue was $200,000 for the first quarter
of 1995 compared to $500,000 for the first quarter of 1996. Cost of
distribution services revenues as a percent of distribution services revenue
was 70.1% for the first quarter of 1995 compared to 75.0% for the first quarter
of 1996. Lower margins on distribution services were primarily due to large
fixed costs associated with additional high speed laser printing devices and
expansion costs related to the opening of locations in Denver and Boston.
Sales and marketing expenses were $400,000 for the first quarter of 1995
compared to $600,000 for the first quarter of 1996. Sales and marketing
expenses as a percent of total revenues were 12.4% for the first quarter of
1995 compared to 13.9% for the first quarter of 1996. Sales and marketing
expenses increased as a percent of revenues primarily due to increases in
staffing and marketing programs.
General and administrative expenses increased by $100,000 from $300,000
for the first quarter of 1995 compared to $400,000 for the first quarter of
1996. General and administrative expenses as a percent of total revenue were
10.2% for the first quarter of 1995 compared to 9.8% for the first quarter of
1996.
Research and development expenses were $100,000 for the first quarter of
1995 compared to $300,000 for the first quarter of 1996. Research and
development expenses as a percent of total revenue were 4.1% for the first
quarter of 1995 and 6.2% for the first quarter of 1996. Total research and
development expenses increased $200,000 for the first quarter of 1996 compared
to 1995 due to a focus on development of proprietary software products.
Year Ended March 31, 1995 compared to the Year Ended March 31, 1996
In fiscal 1996, total revenues increased to $14.2 million from $10.4
million in fiscal 1995, or $3.8 million (36.3%). This increase related
primarily to increases in hardware integration revenues of $3.2 million ($5.0
million in fiscal 1995 compared to $8.2 million in fiscal 1996) and increased
on-demand printing service revenue of $800,000 ($700,000 in fiscal 1995
compared to $1.5 million in fiscal 1996). The Company's on-demand printing
subsidiary (formed in August of 1994) operated for only eight months of the
comparable 1995 fiscal period. Software, technical and support revenues
declined by approximately $200,000 ($4.7 million in fiscal 1995 compared
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<PAGE> 25
to $4.5 million in fiscal 1996) primarily due to a focus on development of
proprietary software products.
Cost of hardware integration revenues was $4.4 million in fiscal 1995 and
$6.8 million in fiscal 1996. Cost of hardware integration revenues as a
percent of hardware integration revenues was 86.7% in fiscal 1995 compared to
82.9% in fiscal 1996. Higher margins on hardware integration revenues were
achieved primarily by taking advantage of larger vendor discounts and other
volume incentives.
Cost of software, technical services, and support revenues were $2.9
million in fiscal 1995 and $2.8 million in fiscal 1996. Cost of software,
technical services, and support revenues as a percent of software, technical
services, and support revenue was 60.8% in fiscal 1995 compared to 61.9% in
fiscal 1996. Lower margins on software, technical services and support were
primarily due to competitive pricing on non-custom software products and lower
technical service billings.
Cost of on-demand printing services revenue was $400,000 in fiscal 1995
compared to $1.1 million in fiscal 1996. Cost of on-demand printing services
revenues as a percent of on-demand printing services revenue was 53.6% in
fiscal 1995 compared to 73.4% in fiscal 1996. Lower margins on on-demand
printing services were primarily due to larger fixed costs associated with a
second high speed laser printing device added in January, 1995.
Sales and marketing expenses were $1.2 million in fiscal 1995 compared to
$1.8 in fiscal 1996. Sales and Marketing expenses as a percent of total
revenues were 11.9% in fiscal 1995 compared to 12.8% in fiscal 1996. Sales and
marketing expenses increased as a percent of revenues primarily due to
increases in staffing and marketing programs.
General and administrative expenses increased by $300,000, from $900,000
in fiscal 1995 compared to $1.2 million in fiscal 1996. General and
administrative expenses as a percent of total revenue were 8.8% in fiscal 1995
compared to 8.3% in fiscal 1996. Increases in general and administrative
expenses were primarily attributable to growth in the business infrastructure
including an overall 46% increase in staffing.
Research and development expenses were $300,000 in fiscal 1995 compared to
$500,000 in fiscal 1996. Research and development expenses as a percent of
total revenue were 3.3% in fiscal 1995 and 3.5% in fiscal 1996. Total research
and development expenses increased $200,000 in fiscal 1996 compared to fiscal
1995 due to a focus on development of proprietary software products.
Depreciation and amortization expense was $100,000 in fiscal 1995 compared
to $159,000 in fiscal 1996. Depreciation and amortization expense increased by
$59,000 in fiscal 1996 compared to fiscal 1995 primarily due to the acquisition
of office and computer equipment.
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<PAGE> 26
Interest expense was $100,000 in fiscal 1995 compared to $200,000 in 1996.
Interest increased by $100,000 in fiscal 1996 compared to fiscal 1995
primarily due to increased borrowings under the Company working capital
revolving line of credit.
LIQUIDITY AND CAPITAL RESOURCES.
Since its inception and prior to the Merger (see financial statement note
3), the Company has funded its operations primarily through revolving working
capital and term loans through banking institutions and capital equipment
leases. In December 1995, the Company issued $550,000 of unsecured convertible
notes to a limited number of accredited investors. The unsecured notes accrued
interest rate of 10%, and were converted into Common Stock immediately prior to
the Merger at a rate of $6.00 per share. See "Prospectus Summary."
As of June 30, 1996 the Company had cash and cash equivalents of $146,407.
Net cash used in operating activities for the quarter ended June 30, 1995 was
$272,000 compared to net cash provided by operations for the quarter ended June
30, 1996 of $5,000. Capital expenditures for the quarters ended June 30, 1995
and 1996, including equipment financed with capital lease obligations, were
$88,000 and $234,000 respectively.
The Company's revolving working capital line of credit allows for
borrowings of up to $1.5 million based on available collateral with interest at
the bank's base lending rate plus 2.5%. At June 30, 1996, the Company had
advances of $1.5 million, which are due on demand. At June 30, 1996, the
Company also had a term loan outstanding in the amount of $183,338. The term
loan requires monthly principal payments of $8,333 plus interest at the bank's
base lending rate plus 2.5%. At June 30, 1996 the Company also had a demand
note payable to its majority stockholder in the amount of $27,500 which accrues
interest at a rate of 12%.
The Company acquired a substantial portion of its distribution services
production equipment with capital lease obligations. These leases require total
monthly payments of $19,556 and carry interest rates between 14.6% and 16.6%.
The Company also has a long-term consulting agreement with a former stockholder
that requires monthly payments of $10,300 through July 2000.
The Company believes that the approximately $3.0 million in gross proceeds
it derived from the Merger along with its existing line of credit, will meet
only its immediate anticipated needs for working capital and capital
expenditures. The Company plans to expand its distribution group concept to
regional centers throughout the United States over the next three years. The
Company also plans to evaluate several potential acquisitions, primarily in
complimentary software development areas, which it believes are necessary to
expand its presence in the document management marketplace. Future financings,
if needed to pursue such short-term objectives, may result in dilution to
holders of Common Stock. It is anticipated that funds required for future
acquisitions and expansion will be provided from operating cash flow, the
proceeds expected from future debt or equity financings and proceeds from
future borrowings. However, there can be no assurance that suitable
acquisitions candidates will be identified by the Company in the future, that
suitable financing for any such acquisitions or expansion can be obtained by
the Company or that any such acquisitions or expansions will occur.
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<PAGE> 27
BUSINESS
GENERAL
The Company is a Minneapolis-based technology company focused on assisting
large companies in designing and implementing open, integrated solutions for
managing and distributing business-critical information across and outside
their enterprises. The Company is divided into three distinct business groups,
including: (i) IntraNet Integration Group which provides open client-server
products to assist companies in managing their intellectual capital, including
hardware and software products, as well as system installation, support and
training; (ii) IntraNet Distribution Group, which offer customers various
service for off-site electronic document warehousing, electronic demand
publishing and multiple methods of digital distribution of information and
(iii) IntraNet Professional Services Group which is involved in product
development, project management and customized software applications.
The Company's products and services provide integrated solutions for the
management and distribution of business-critical information contained in
documents. The Company has focused its marketing efforts toward large
companies who have begun to more aggressively reengineer their business
processes. The Company believes that as the trend toward network-based
computing environments as the primary computing resource continues, the demand
for its products, especially its recently developed proprietary products, will
continue. The Company delivers its products primarily through a direct sales
force and currently has more than 250 clients, principally in the Fortune 1000.
The Company currently has operations in Minneapolis, Atlanta, Boston, Denver,
Milwaukee and Phoenix.
On July 30 and 31, 1996, the Company's predecessor, MacGregor Sports and
Fitness, Inc. ("MSF") and IntraNet Integration Group, Inc., a Minnesota
corporation ("IntraNet," formerly known as Technical Publishing Solutions, Inc.
("TPSI")) closed on a tax-free reorganization pursuant to which IntraNet
became a wholly-owned subsidiary of the Company, and MSF changed its name to
IntraNet Solutions, Inc. The transaction was accomplished through a tax-free
reverse subsidiary merger whereby IntraNet merged with and into a wholly owned
subsidiary of MSF, with IntraNet as the surviving corporation (the "Merger").
INTRANET INTEGRATION GROUP
The IntraNet Integration Group provides open, client-server products to
help companies manage their intellectual capital. Data communications
integration consists of consulting, design and implementation of local area
networks, wide area networks, client/server environments and other data and
image communications applications. These products range from powerful hardware
and software for solid system foundation and disaster recovery to
off-the-shelf, custom and proprietary Company software for document creation,
management, and distribution. Until 1994, all of these solutions were sold to
the Company's customers for use internally, running on customer's internal
networks or "intranets". IntraNet Integration Group revenues currently
represent approximately 57% of the Company's total revenues.
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<PAGE> 28
INTRANET DISTRIBUTION GROUP
In 1994, the Company expanded its services to include off-site production
and distribution services by forming a wholly-owned subsidiary, IntraNet
Distribution Group, Inc. (formerly known as DocuPro Services, Inc., "IDG").
IDG is a full-service demand publishing organization providing management and
control of document-based information, using the latest technology for
automating the publishing process, and sophisticated systems for remote
document management -- both of which help organizations manage information
better, reduce costs, save time, and prevent document waste by allowing
customers to take advantage of digital document management and distribution
technology with a minimal incremental investment, along with the added benefit
of maximizing their current technology investments. The range of IDG's
available products and services includes demand printing services, ranging from
printing and bindery to order fulfillment and shipping; secure document
warehousing and remote revision control and Internet publishing and electronic
delivery services including CD-ROM distribution applications, and Web access
services for distributing information using World Wide Web technology over a
private network or using the Internet. IDG also provides installation and
support and education to help organizations maximize their investments. IDG's
revenues currently represent approximately 16% of the Company's total revenues.
INTRANET PROFESSIONAL SERVICES GROUP
The IntraNet Professional Services Group concentrates its efforts in the
area of application development and software customization for organizations
with complex or demanding information management needs. As an integrator of
document management solutions, the Company's professional services group
automate repetitive or time-consuming tasks, or create custom-tailored
interfaces to suit a customer's document management needs. Examples of this
type of application development include: Web creation and management tools;
engineering data management; automatic parts catalog generation; custom
installers and viewers; automated document conversion and format clean-up;
application integration; and project management.
PRODUCTS
The Company has also jointly and independently developed a proprietary
line of software that seeks to make unstructured business data more accessible
to the ultimate consumer of a client's "corporate knowledge." The Company's
proprietary software product line includes: the Intra.doc! management system,
which automates the process of intranet web generation for the management and
viewing of unstructured business data using internet technology; the IntraNet
Remote Print Manager(TM) system which allows customers to manage and order
on-demand printing remotely using World Wide Web technology; and the IntraNet
Order Management(TM) system which facilitates the placement of print orders for
organizations that have multiple locations, such as retail chains.
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<PAGE> 29
The Intra.doc! (TM) Management System
The Company recently launched the release of a comprehensive system for
automatic management of documents on an internal or external World Wide Web
site called the Intra.doc! management system ("Intra.doc!(TM)"). Through the
Intra.doc!(TM) management system, a company can now automates the process of
IntraNet web generation for the management and viewing of unstructured
business-critical data using Internet technology. The Intra.doc!(TM) management
system also reduces the cost and time required to launch and maintain a
content-oriented Web site by automating hyperlink generation and content
updates and therafter continually updating a Web site with the most current
information.
The Company believes that Intra.doc! is able to fill a gap in current
"common gateway interface" ("CGI") technology between the repository of
business data, and the searching and viewing needs of Web site users. CGI-only
solultions are limited in their inability to use H TM L menu hierarchies. Thus
CGI users can view documents in the repository but often must do searches
manually, depending on the limitations of the repository. The Intra.doc!(TM)
management system overcomes both concerns by generating H TM L links
automatically and providing Web access to the information repository. It
refines the source documents directly into web-ready formats using architecture
that overcomes problems of volume, organization, and timely updates. Widely
diverse document types are automatically converted into one virtually universal
format for information searching and sharing.
This system is designed to move information through a three-layer
architecture. First, information in various formats is placed in repository
called the IntraNet Web Library, where it is structured and organized. Second,
information is converted by the IntraNet Web Refinery(TM) software and Document
Refinery(TM) software to the common HTML menu hierarchies and PDF or other
formats necessary for controlled publishing to a Web site. Third, users with
Netscape and other common Internet browsers can use easy navigational menus to
access the information they need, when they need it.
The Intra.doc! (TM) management system also eliminates the need to manually
generate links and navigation aids, overcomes database querying limitation,
provides revision control, allows diverse document types to be accessible on a
Web, and continually updates the site with the most current information.
Viewing capabilities are significantly expanded with the use of
Intra.doc! (TM). Any user on the system can view a document created in
virtually any application without having the origin software loaded on their
desktop.
When maintaining a Web site with the Intra.doc!(TM) management system, the
labor-intensive tasks of making information Web-ready are automated. More
importantly, the information itself becomes more accessible, up-to-date, and
meaningful to the users, while still preserving controls necessary for data
security.
Unless well-managed and well-structured, web managers find that more data
can actually mean a less useful system. Web sites become burdensome and
frustrating to control, uncommon document types such as CAD files cannot be
accommodated on the system, and the higher the volume of information, the more
labor-intensive the task. Many organizations are researching
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<PAGE> 30
internal Web sites as a means of controlled access to vital business data, but
while nearly all companies acknowledge they need document management systems to
remain competitive, many organization express concerns about the investment in
research, hardware, software, implementation, training and maintenance of the
system, and companies worry that today's technology will not adapt to
tomorrow's needs. The Intra.doc!(TM) management system attempts to addresses
each of these concerns.
The Company's Intra.doc!(TM) management system reduces the cost of
deployment, and the architecture of the system is specifically designed to
allow for future needs, such as increasing volumes of information, new and
diverse document types, and advances in Web technology. Intra.doc!(TM) provides
an information flow that structures and manages high volumes of data for
timely, organized knowledge distribution.
The Company believes that the following features of the Intra.doc!(TM)
management system may provided advantages over existing technologies:
- The IntraNet Web Library. The IntraNet Web Library feature of the
Intra.doc!(TM) management system is a storage and control repository
for information that allows document-based data to be
custom-structured to suit the needs of users. Information is checked
into the Web Library, where meta-data for each document -- such as its
format, version, title, subject and group -- is recorded. In the Web
Library, the meta-data is used to organize files so that different
groups within an organization can find the information they need, when
they need it. For example, an engineering and manufacturing firm might
need to retrieve data by part number for the manufacturing group, by
catalog number for the sales and marketing group, by drawing file name
for the engineering group, and by vendor name for the purchasing
group. Without hierarchical structure, this would be unmanageable.
With the Intra.doc!(TM) management system, an ever-expanding quantity
of information can be accommodated and organized.
- The IntraNet Web Refinery and Document Refinery. The IntraNet
Web Refinery and Document Refinery features of the Intra.doc!(TM)
management system work in concert to press the data out to a Web site
for use either as an internal means of sharing information, or to a
public Web site for use by customers or others outside the
organization. The Intra.doc!(TM) management system automatically
generates the hyperlinks, navigation tools, file formats and
information protocols necessary for genuine Web-readiness. This
system is based on the most commonly accepted standards for the flow
of information. The Web Refinery uses the meta-data for each document
to control the retrieval and organization of information. It
configures the meta-data to meet the HTML standards for World Wide
Web publishing, generating the hyperlinks and navigational aids. At
the same time, the Document Converter retrieves the document itself,
converting it to the PDF/Acrobat format that has the ability to
preserve the graphic look, feel, and layout of a document. Because
information is automatically made Web-ready, documents become
accessible on the Web without delay, ensuring that the most
up-to-date information is available to users.
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<PAGE> 31
- Expanded Viewing Capabilities. With the Intra.doc!(TM) management
system, viewing capabilities are expanded. Any user on the system can
view a document created in virtually any application. The user need
not have a CAD program loaded on their desktop to view a CAD drawing.
Data security is still well-protected. Restrictions can be placed on
any document or user to prevent viewing without permission, and to
restrict editing permissions to specific users.
IntraNet Remote Print Manager(TM)
In November of 1995 the Company introduced its proprietary IntraNet Remote
Print Manager(TM) ("RPM") system. This interface allows customers to "check in,"
electronically order and then retrieve documents for revision using a data
vault system that controls accuracy and security.
Using a data vault system that controls accuracy and security, users of
the interface can send copies of documents -- either electronically or
physically -- to IDG for electronic document warehousing. Once the documents
have been stored, customers then access them via the Internet or with a modem,
retrieve then to the users' desktop for revision or viewing in their native
applications - Interleaf documents into Interleaf, Printerleaf files into
WorldView, CAD drawings into their original CAD program, and so forth.
The security and integrity of the documents are insured while warehoused;
passwords are used to restrict access to authorized users, and offsite storage
of valuable documents provides an added backup in case of disaster. Once the
revisions are complete, the documents are checked back into the vault, where
revision histories are controlled and kept. The latest information is stored
there for viewing or editing by authorized users. This system can also be used
for high-speed PostScript output of large or frequently produced documents. The
RPM interface gives users an easy mechanism for check-in, check-out, and
viewing of information from document repositories such as the Interleaf
relational Document Manager (RDM) vault.
Using the abilities of the data vault, customers can view and confirm
documents prior to printing, improving accuracy and timeliness. Because
complete bindery and print support services are also available, virtually every
aspect of a print job can be ordered remotely. Finished printed documents can
be shipped directly from IDG and electronic documents can be sent via the World
Wide Web. Using IntraNet RPM to access and revise documents over the Internet
is ideal for companies with remote locations, remote customer sites, or
distribution channels.
IntraNet Order Management(TM)
The IntraNet Order Management(TM) system facilitates the placement of print
orders for organizations that have multiple locations, such as retail chains.
Each location can order according to their needs, while the central office
receives accurate cost-accounting reports by location.
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<PAGE> 32
SUPPLIERS
To date, the majority of the hardware and software products sold by the
Company have been through reseller arrangements with Sun Microsystems, Inc.
("Sun") and Interleaf, Inc. ("Interleaf'), although the Company maintains its
own internal development staff which has provided the customization required by
a significant number of implementations, as well as the research and
development of its recently introduced proprietary products.
The Company has been named Sun's exclusive sales representative for all
public and private educational institutions in Minnesota and Wisconsin. Sun is
one of the leading providers of IntraNet hardware and software, and is the
industry's most popular platform for software development and other Unix
applications. The Company also sells other Sun equipment for applications such
as computational and analysis server platforms, high-end computer simulation
and physical modeling, Internet services, and other demanding technologies.
The Company has also partnered with Interleaf, to expand the North
American sales and marketing channels for Intra.doc!(TM). Interleaf, one of the
world's leading provider of enterprise-wide document management solutions, will
add the new NT-based application to its current line of web-enabled document
applications. The Intra.doc!(TM) management system allows the World Wide Web to
become a low-cost, workgroup access point for easy exchange of
business-to-business information, while offering a growth path into Interleaf's
enterprise document management system.
The Intra.doc!(TM) management system provides crucial document management
capabilities not currently offered in Web management tools. The program
automatically places documents into a Web-ready format while preserving the
formats in which the documents were created. Additionally, the system
automatically indexes and creates the Web hyperlinks that make it possible to
navigate through the information.
The Intra.doc!(TM) management system has already enabled for Interleaf's
RDM system which gives customers a smooth path from a departmental document
management solution into a comprehensive enterprise system with configuration
management, workflow, integrated batch output choices and hundreds of vertical
application solutions. The Intra.doc!(TM) management system is also compatible
with Interleaf's authoring, electronic distribution, Web publishing and filter
products. The Intra.doc!(TM) management system is a business-to-business
intranet/internet application that uses Web technology to distribute
information. It eliminates the need to manually generate links and navigational
aids; continually updates the Web site with the most current information;
permits secure file management and revision control; overcomes database
querying limitations; allows diverse documents (including those in CAD formats)
to be accessible and linked on a Web; allows simultaneous access to multiple
repositories of information; allows users to search for and view business
information from any location; and reduces the cost of installation and
day-to-day management of business information on a Website. All an authorized
user needs to access the site is a standard Web browser and a Web document
viewer.
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<PAGE> 33
SALES AND MARKETING
The Company believes that as the trend toward network-based computing
environments continues, the demand for its products, especially its recently
developed proprietary products, will continue. The Company's marketing
strategy entails emphasizing and leveraging its competitive advantages with an
aggressive direct sales approach, combined with seminar selling, media
advertising, and regional direct mail campaigns. Additionally, the Company is
developing an "alternate channels" marketing strategy for its software
products, allowing third-party organizations to market the product in strategic
niches and geographical areas.
A substantial part of the Company's growth strategy is geographic
expansion of its Distribution Group which the Company hopes to accomplish
through continued development of existing sites while increasing national
presence with expansion into new cities. A national presence should afford the
Company an "electronically ship then print" approach to document distribution
in order to offer its customers faster time to market and decreased shipping
costs. To facilitate this expansion, the Company has established a sales
training program to reduce training lead-time and increase salesperson
effectiveness.
The Company intends that as its expansion continues, it will install its
proprietary technology at each new site; documented processes from the
Minneapolis facility will be used to increase operational effectiveness; a
centralized accounting and production workflow system will be used by all
facilities, as well as delivery of a centralized technical systems
administration to remote sites through a high-speed frame relay network.
RESEARCH AND DEVELOPMENT
The Company has divided its software development personnel into two
departments - Custom Applications, focused on providing billable services, and
Research and Development, focused on IntraNet applications for resale. The two
primary software products that are currently the focus of its research and
development team are the Intra.doc!(TM) management system, the web-based
document control and distribution system, and the IntraNet Remote Print
Manager (TM), for web-accessed remote print management and ordering.
The Intra.doc!(TM) management system is designed to automatically control
and distribute documents for viewing on a web site. The product was in
development much of 1996, with the initial release of the first commercial
off-the-shelf version, in August 1996. The Company is currently developing a
revised version with 32-bit support and enhancements, as well as improved
marketing collateral and manuals. This version should be commercially
available in the fourth calendar quarter of 1997.
Intra.rpm!(TM) system is a web-based tool used by customers of the
Distribution Group for checking files into and out of the IntraNet Library over
the internet, ordering documents for on-demand publishing, and consolidation of
orders within an Oracle database to increase efficiency in production. The
Company is presently focused on expanding this software in an effort to
increase the market for Distribution sales, as well as to create a product to
be sold by the
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<PAGE> 34
Company's resellers. An update version of the Intra.rpm! system is currently
in development and is scheduled to be released prior to the end of 1996.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company has applied for trademark registration for the following
marks: INTRANET, INTRANET SOLUTIONS, DOCUMENT REFINERY, WEB REFINERY, WEB
VAULT, Intra.doc!, Intra.plt!, Intra.img! and Intra.rpt!. There can be no
assurance that any trademarks which have been applied for but not yet issued
will be issued. In the absence of trademark protection, the Company may be
unable to take advantage of the brand name recognition it is attempting to
build. Further, even if all trademarks applied for are issued, there can be no
assurance that such trademarks will prove valuable to the Company.
In the absence of significant patent or copyrights protection, the Company
may be vulnerable to competitors who attempt to develop functionally equivalent
products. Although the Company believes that it has all rights necessary to
market its products without infringing upon any patents, copyrights or
trademarks held by others, there can be no assurance that conflicting patent,
copyright or trademark rights do not exist. The Company relies upon trade
secret protection for its confidential and proprietary information. There can
be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or disclose such technology, or that the Company's
can meaningfully protect its trade secrets.
It is the Company's policy to require its employees, consultants, and
advisors to execute confidentiality agreements upon the commencement of
employment or other relationships with the Company. These agreements include
standard non-disclosure and non-competition provisions prohibiting employees or
former employees from disclosing the Company's Confidential Information (as
defined therein) and prohibiting employees, and former employees for a period
of one year following termination of their employment with the Company from
organizing or participating in a Competing Business (as defined therein) or
developing or selling Competing Products (as defined therein).
ACQUISITIONS
The Company plans to expand its distribution group concept to regional
centers throughout the United States over the next three years. The Company
also plans to evaluate several potential acquisitions, primarily in
complimentary software development areas, which it believes are necessary to
expand its presence in the document management marketplace. Future financings,
if needed to pursue such short-term objectives, may result in dilution to
holders of Common Stock. It is anticipated that funds required for future
acquisitions and expansion will be provided from operating cash flow, the
proceeds expected from future debt or equity financings and proceeds from
future borrowings. However, there can be no assurance that suitable
acquisitions candidates will be identified by the Company in the future, that
suitable financing for any such acquisitions or expansion can be obtained by
the Company or that any such acquisitions or expansions will occur.
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<PAGE> 35
COMPETITION
Some of the Company's competitors currently marketing products into the
document management market are more established than the Company and have the
benefits of pre-existing relationships with potential customers and greater
name recognition than the Company. Some of the Company's current and potential
competitors have significantly greater technical, financial, and marketing
resources than the Company. Although the Company believes it competes
effectively with respect to such factors, there can be no assurance that the
Company will have the financial resources, technical expertise or marketing,
distribution or support capabilities to compete successfully in the future.
The market is highly competitive and characterized by rapid innovation and
technological change. The Company's products were specifically designed to
meet the needs of the document management market, but other companies have also
introduced or announced the development of products designed to address the
same markets as the Company's products. The Company's ability to maintain a
competitive position will also depend on its ability to develop enhancements
and upgrades to its existing product line.
EMPLOYEES
At June 30, 1996, the Company had approximately 100 employees. No
employee of the Company is currently represented by a labor union. Management
considers its employee relations to be good.
PROPERTIES
The executive offices of the Company and its subsidiaries are located in
Eden Prairie, Minnesota, where the Company leases approximately 42,000 square
feet of office and warehouse space. The Company also has office and warehouse
space in Milwaukee, Wisconsin, where the Company leases approximately 14,000
square feet, Denver, Colorado where the Company leases approximately 6,000
square feet of office space, and Boston, Massachusetts where the Company leases
approximately 3,000 square feet of office space. The Company believes that the
above mentioned facilities are adequate and suitable for its current needs.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
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<PAGE> 36
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each of
the directors and executive officers of the Company.
NAME AGE POSITION(S) HELD
---- --- ----------------
<TABLE>
<S> <C> <C>
Robert F. Olson 40 President, Chief Executive Officer and
Chairman of the Board
Ronald E. Eibensteiner 45 Director
Henry Fong 59 Director
David D. Koentopf 52 Director
Jeffrey J. Sjobeck 36 Chief Financial Officer, Secretary and Director
</TABLE>
ROBERT F. OLSON. Mr. Olson, age 40, serves as the Company's President and
Chief Executive Officer. Prior to the Merger, Mr. Olson served as TPSI's
Founder, President, Chief Executive Officer and Chairman of the Board of
Directors since its inception in April 1990. From 1987 to 1990, Mr. Olson
served as the General Manager of the Greatway Communications Division of
Anderberg-Lund Printing Company, an electronic publishing sales and services
organization. From 1981 to 1987, Mr. Olson was involved in several electronic
publishing service and resale start-up organizations in general management and
marketing capacities. From 1979 to 1981, Mr. Olson served as Large Account
Sales Representative of Burroughs Corporation.
RONALD E. EIBENSTEINER. Since 1983, Mr. Eibensteiner, age 45, has been
involved in the formation of several technology companies and, as president of
Wyncrest Capital, Inc., has been a seed investor in numerous development stage
companies. Mr. Eibensteiner is a co-founder and a director of Diametrics
Medical, Inc., a manufacturer of blood gas systems; IVI Publishing, Inc., an
electronic publisher of health and medical titles in interactive multimedia
formats; Reality Interactive, an electronic publisher of Quality information
for Fortune 5000 companies; and was Chairman of Prodea Software Corporation, a
data warehousing software company, until its sale to Platinum Technology, Inc.
in January, 1996. Mr. Eibensteiner is also currently Chairman of Rezound
Media, Inc. and a Director of Bank Windsor. He also co-founded Arden Medical
Systems, Inc. in 1983 and served as its Chief Financial Officer until its sale
to Johnson & Johnson in 1987.
HENRY FONG. Mr. Fong, age 59, a founder and promoter of the entity that
merged with and into MSF on December 30, 1991, served as its Chairman of the
Board of Directors and Treasurer from February, 1991, until the merger, at
which time he was elected Chairman of the
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<PAGE> 37
Board and Secretary of MFS. From July 1989 until September 1990, he served as a
Director of MacGregor Sports, Inc., the wholly-owned operating subsidiary of
MacGregor Sporting Goods Corporation, which on February 15, 1991, filed for
protection under Chapter 11 of the United States Bankruptcy Code. Mr. Fong has
been the President, a Director and controlling shareholder of Equitex, Inc., a
Denver-based business development company, since January 1983. He has been the
President, Chief Executive Officer and a Director of Roadmaster Industries,
Inc., since 1987. Equitex and Roadmaster are subject to SEC reporting
requirements.
DAVID D. KOENTOPF. Since 1993, Mr. Koentopf, age 52, has been a private
investor and business consultant to several companies primarily in industrial
and health care related industries. Mr. Koentopf is currently Chairman of the
Board of Everest Medical Corporation, a manufacturer of electrosurgical
instruments and related medical devices. Mr. Koentopf serves as a director of
Arden Industrial Products, Inc., a national distributor of fasteners to the
industrial market, and LifeRate Systems, Inc., a developer of software
operating systems for the health care industry. From 1985 to 1992, Mr.
Koentopf served as President and Chief Operating Officer of Lifetouch, Inc.,
the largest school photography business in the United States. From 1975 to
1985, Mr. Koentopf served in a number of executive positions for Steiger
Tractor, Inc., including President and Chief Executive Officer from 1979 to
1985.
JEFFREY J. SJOBECK. Mr. Sjobeck, age 36, serves as the Company Chief
Financial Officer and Secretary. Prior to the Merger, Mr. Sjobeck served as
Director of TPSI since June 1995 and Chief Financial Officer of TPSI since
December 1994. From June 1993 to November 1994, Mr. Sjobeck served as Chief
Financial Officer of Innovative Gaming Corporation of America. From June 1990
to May 1993, Mr. Sjobeck served as Controller and Chief Financial Officer of
James Phillips Company. From October 1984 to May 1990, Mr. Sjobeck was
employed in the Audit and Accounting division of Coopers & Lybrand LLP. From
August 1982 to September 1984, Mr. Sjobeck was an accountant for Larson, Allen
& Weishair & Co.
DIRECTORS AND COMMITTEES
The Board of Directors has an Audit Committee comprised of Messrs.
Eibensteiner, Fong and Koentopf. The Audit Committee recommends to the Board
of Directors the appointment of independent auditors, reviews and approves the
scope of the annual audit of the Company's financial statements, reviews and
approves any non-audit services performed by the independent auditors, reviews
the findings and recommendations of the internal and independent auditors and
periodically reviews and approves major accounting policies and significant
internal accounting control procedures.
The Board of Directors also has a Compensation Committee comprised of
Messrs. Eibensteiner, Fong and Koentopf. The Compensation Committee reviews and
recommends compensation of officers and directors, administers stock option
plans and reviews major personnel matters.
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<PAGE> 38
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or accrued
during the fiscal years ended March 31, 1996, 1995 and 1994 for the Company's
Chief Executive Officer (the "Named Executive Officer"). No other executive
officer had aggregate cash compensation, determined in accordance with Item
402(a)(2) of Regulation S-B, in excess of $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
FISCAL SALARY ALL OTHER
NAME AND PRINCIPAL POSITION YEAR $ COMPENSATION$(1)
------ ------- ----------------
<S> <C> <C> <C>
Robert F. Olson 1996 111,083 14,382
President and Chief Executive Officer 1995 108,282 9,609
1994 105,000 8,009
</TABLE>
(1) Represents matching contributions by the Company under the Company's
401(k) Savings Incentive Plan, term life and disability insurance
premiums.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The Named Executive Officer did not receive any option grants in the last
fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The Named Executive Officer did not exercise any stock options in the last
fiscal year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Stock Option and Compensation Committee (the "Compensation
Committee") consists of Messrs. Eibensteiner, Fong and Koentopf. There were no
"interlocks" within the meaning of the rules and regulations of the SEC.
EMPLOYMENT AGREEMENTS
In July, 1996, the Company entered into three-year employment agreement
with each of Robert F. Olson, the Company's President and Chief Executive
Officer, and Jeffrey J. Sjobeck, the Company's Chief Financial Officer. Mr.
Olson receives an annual base salary of $155,000 and Mr. Sjobeck receives an
annual base salary of $75,000, and each has the opportunity to earn
performance-related bonuses, including stock options issued pursuant to the
Company's 1994-1997 Stock Option Plan. Pursuant to their respective agreements,
neither Mr. Olson nor Mr. Sjobeck may disclose confidential information about
the Company and each has agreed not to compete with the Company for a two-year
period after any termination of employment. The Company may terminate either
Mr. Olson's or Mr. Sjobeck's employment without "cause" upon 120 days' written
notice to the Board of Directors. In the event of any such termination, Mr.
Olson will be
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<PAGE> 39
entitled to receive severance compensation equal to the greater of six months
of his base salary or the balance of the compensation due and owing to him
under his employment agreement, and Mr. Sjobeck will be entitled to 120 days'
severance pay.
STOCK OPTIONS PLANS
The Company adopted and shareholders approved as a condition to the
Merger, the 1994-1997 Stock Option and Compensation Plan (the "Plan") for
officers, directors (excluding outside directors), employees and certain key
consultants and advisors of the Company. The purpose of the Plan is to enhance
shareholder value and to advance the interests of IntraNet by furnishing a
variety of economic incentives (the "Incentives") designed to attract, retain
and motivate those persons eligible for Incentives under the Plan. Incentives
under the Plan consist of opportunities to purchase or receive shares of
IntraNet Common Stock, monetary payments or both.
The Plan is administered by either a stock option committee of
disinterested persons of the Board of Directors of IntraNet (the "Committee"),
or by the entire IntraNet Board of Directors until such time as a Committee is
formed and established. The Committee, or the Board, as the case may be, has
complete and final authority with respect to the interpretation and
administration of the Plan. Immediately after the effective date of the Merger
approximately 70 persons, currently in the employ of the Company, or in key
consulting relations with it (or with its subsidiaries or affiliates), became
eligible to participate in the Plan. Eligibility for Incentives under the Plan
is determined by the Committee, or the Board, as the case may be, with respect
to both individuals and groups based on a variety of criteria, including, but
not limited to, pay grade, job performance, job responsibility, length of
service and various other factors that the Committee, or the Board, may deem
appropriate at the time of granting any Incentives. To date, the Company
estimates that grants of Incentives to 60 persons currently in its employ have
been made in the form of non-statutory or non-qualified stock options.
Incentives under the Plan may be granted in any one or more or any
combination of the following forms, as determined by the Committee, or the
Board, as the case may be: (a) incentive stock options; (b) non-statutory or
non-qualified stock options; (c) stock appreciation rights; (d) stock awards;
(e) restricted stock awards; (f) performance shares; and (g) cash awards
(collectively hereinafter the "Incentives"). Prices and expiration dates of,
and material conditions to, the granting of options under the Plan shall be
determined by the Committee, or the Board, based on its assessment of
employment, tax and other financial factors affecting IntraNet from time to
time. Incentives granted under the Plan shall generally not be transferable.
Subject to certain adjustments, the maximum number of shares of Common Stock
that may be issued under the Plan is 2,500,000. Generally, an optionee may pay
the exercise price to exercise a stock option in the form of cash or the
surrender of shares of Common Stock. Options granted under the Plan shall be
exercisable for up to a ten (10) year period from the date of grant, or, in
case the optionee ceases to be employed by IntraNet for any reason, generally
six (6) months after the date of such termination of employment.
-31-
<PAGE> 40
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with regard to the
beneficial ownership of the shares of the Company's Common Stock as of the date
of this Prospectus by (i) each person known by the Company to be the beneficial
owner of more than 5% of the outstanding Common Stock, (ii) each director and
executive officer of the Company, and (iii) all executive officers and
directors as a group and (iv) each selling shareholder. Unless otherwise
indicated, each of the following persons has sole voting and investment power
with respect to the shares of Common Stock set forth opposite their respective
names. Unless otherwise indicated, the address of 5% shareholders, directors
and executive officers is 9625 W. 76th Street Suite 150, Minneapolis, Minnesota
55344.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO THE OFFERING SHARES TO AFTER THE OFFERING
---------------------- BE SOLD IN ---------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE THE OFFERING NUMBER PERCENTAGE
- ------------------------- ---------- ---------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Henry Fong
7315 E. Peakview Avenue
Englewood, CO (1)........................... 789,679 10.5% 0 789,679 9.9%
Equitex, Inc. (1)
7315 E. Peakview Avenue
Englewood, CO............................... 636,011 8.5% 0 636,011 8.0%
Robert F. Olson(2).......................... 4,055,918 54.5% 0 4,055,918 51.5%
David Koentopf (3).......................... 38,262 * 0 38,262 *
Ronald E. Eibensteiner (4).................. 188,570 2.5% 0 188,571 2.4%
Jeffrey J. Sjobeck(5)....................... 16,143 * 0 16,143 *
John Coleman (6)............................ 60,731 * 20,305 40,426 *
Dale Ragan (7).............................. 41,897 * 20,305 21,592 *
John Stapleton (8).......................... 20,947 * 10,152 10,795 *
Craig Avery (9)............................. 29,589 * 7,997 21,592 *
William Max McGee (10)...................... 41,897 * 20,305 21,592 *
Laurential American Equity Fund (11)........ 36,599 * 36,599 0 0
Laurentian Special Equity Fund (12)......... 65,688 * 65,688 0 0
Robert Maietta (13)......................... 18,750 * 18,750 0 0
Boston Financial Partners (14).............. 26,379 * 26,379 0 0
Security Pacific Business Credit Inc. (15).. 59,394 * 59,394 0 0
MCPED (16).................................. 44,384 * 44,384 0 0
D. Bradly Olah (17)......................... 3,834 * 3,834 0 0
Kim Hensley (18)............................ 6,250 * 6,250 0 0
J. T. Emerson (19).......................... 8,750 * 8,750 0 0
C. Frederick LeBaron, Jr. (20).............. 96,099 * 12,500 83,599 1.0%
T. B. Olson (21)............................ 2,500 * 2,500 0 0
Timothy Duuos (22).......................... 6,250 * 6,250 0 0
Vance Vinar (23)............................ 1,000 * 1,000 0 0
Mark Cates (24)............................. 1,000 * 1,000 0 0
Raymond Rossini (25)........................ 2,000 * 2,000 0 0
Floyd Adelman (26).......................... 3,000 * 3,000 0 0
F. Stephen Gill (27)........................ 1,500 * 1,500 0 0
Keith J. Nelson (28)........................ 500 * 500 0 0
Raymond Dykema (29)......................... 26,250 * 26,250 0 0
Aaron Grunfeld (30)......................... 19,400 * 19,400 0 0
</TABLE>
-32-
<PAGE> 41
<TABLE>
<S> <C> <C> <C> <C> <C>
Joel Ronning (31)........................... 5,000 * 5,000 0 0
Joseph Buska (32)........................... 500 * 500 0 0
Richard Lockwood............................ 35,000 * 8,750 26,250 *
Joseph G. Fredericks........................ 5,000 * 5,000 0 0
Bruce Reichert.............................. 3,000 * 3,000 0 0
Okabena Partnership K....................... 50,000 * 50,000 0 0
A ll directors and executive officers.......
as a group (5 persons) (33)................. 5,088,572 66.3% 0 5,088,572 62.7%
</TABLE>
- ----------------
*Less than 1%.
(1) Mr. Fong, who owns no shares in his own name, may be, through his
control of certain entities, as described below, deemed to be a beneficial
owner of shares held by such entities. The shares of such entities are,
therefore, duplicated in the table above, and include 62,500 shares of
Common Stock subject to warrants exercisable within 60 days. Mr. Fong is
President and a Director of Equitex, Inc., and President and Chairman of
Roadmaster Industries, Inc. and Chairman of California Pro Inc.
California Pro Sports, Inc. owns 55,965 Common Shares, Equitex, Inc. owns
636,011 Common Shares, and Roadmaster Industries, Inc., directly or
indirectly through its subsidiary Roadmaster Corporation, owns 35,152
Common Shares. Other portfolio companies of Equitex, Inc. own a total of
13,486 Common Shares. Equitex disclaims direct and indirect beneficial
ownership of all such shares.
(2) Includes 109,619 shares of common stock subject to currently exercisable
warrants.
(3) Includes 1,034 shares of common stock subject to currently exercisable
warrants.
(4) Includes 28,939 shares of common stock and 17,071 shares of common
stock subject to currently exercisable warrants owned by Wyncrest Capital,
Inc., an investment fund controlled by Mr. Eibensteiner.
(5) Includes 16,143 shares of common stock subject to currently
exercisable stock options.
(6) Includes 13,107 shares of common stock subject to currently
exercisable warrants and 18,834 shares of common stock subject to
currently exercisable stock options.
(7) Includes 13,107 shares of common stock subject to currently
exercisable warrants.
(8) Includes 6,553 shares of common stock subject to currently
exercisable warrants.
(9) Includes 799 shares of common stock subject to currently exercisable
warrants.
(10) Includes 13,107 shares of common stock subject to currently
exercisable warrants.
(11) Includes 989 shares of common stock subject to currently exercisable
warrants.
(12) Includes 1,775 shares of common stock subject to currently exercisable
warrants.
(13) Includes 18,750 shares of common stock subject to currently exercisable
warrants.
(14) Includes 26,379 shares of common stock subject to currently exercisable
warrants.
(15) Includes 59,394 shares of common stock subject to currently exercisable
warrants.
(16) Includes 1,199 shares of common stock subject to currently exercisable
warrants.
-33-
<PAGE> 42
(17) Includes 103 shares of common stock subject to currently exercisable
warrants.
(18) Includes 6,250 shares of common stock subject to currently exercisable
warrants.
(19) Includes 8,750 shares of common stock subject to currently exercisable
warrants.
(20) Includes 12,500 shares of common stock subject to currently
exercisable warrants and 82,141 shares of common stock that may be
deemed to be owned by Mr. LeBaron through his control of certain entities,
as to which he disclaims beneficial ownership.
(21) Includes 2,500 shares of common stock subject to currently exercisable
warrants.
(22) Includes 6,250 shares of common stock subject to currently exercisable
warrants.
(23) Includes 1,000 shares of common stock subject to currently exercisable
warrants.
(24) Includes 1,000 shares of common stock subject to currently exercisable
warrants.
(25) Includes 2,000 shares of common stock subject to currently exercisable
warrants.
(26) Includes 3,000 shares of common stock subject to currently exercisable
warrants.
(27) Includes 1,500 shares of common stock subject to currently exercisable
warrants.
(28) Includes 500 shares of common stock subject to currently exercisable
warrants.
(29) Includes 26,250 shares of common stock subject to currently exercisable
warrants.
(30) Includes 19,400 shares of common stock subject to currently exercisable
warrants.
(31) Includes 5,000 shares of common stock subject to currently exercisable
warrants.
(32) Includes 500 shares of common stock subject to currently exercisable
warrants.
(33) Includes 203,331 shares of common stock subject to currently
exercisable warrants and 34,986 shares of common stock subject to
currently exercisable options. Also includes shares that may be deemed to
be owned by Mr. Henry Fong through his control of certain entities, as to
which he disclaims beneficial ownership. (See notes 1 and 2 above).
-34-
<PAGE> 43
CERTAIN TRANSACTIONS
Prior to the Merger, MSF's assets consisted solely of its ownership of all
of the rights in and to the "MacGregor" trademark pursuant to certain license
agreements and certain related assets (the "MacGregor Rights"). Pursuant to,
and as a condition of the closing of the Merger, MSF was required to dispose of
all of its existing assets such that, prior to closing, its balance sheet would
show a tangible net worth less non-current assets of at least $3,000,000, cash
of at least $1,000,000 and no liabilities. MSF was also required to have
satisfied, in full, all existing indebtedness owed to its lenders and all
indebtedness in favor of its then trade debtors of the Company including all
affiliates. To meet such condition, and to produce a balance sheet prior to
closing indicating such tangible net worth, cash and no liabilities, MSF
completed a series of transactions prior to closing that the Company's
shareholders approved on July 30, 1996. Such transactions included the sale of
all the rights of MSF in and to the MacGregor Rights to Hutch Sports USA Inc.
("Hutch"), a subsidiary of Roadmaster Industries, Inc. ("Roadmaster"). MSF
and Roadmaster were affiliates in that they were both under the indirect common
control of Mr. Henry Fong, the former chairman of MSF and a director of the
Company. As a result of his interest in such transaction, Mr. Henry Fong (and
his affiliates) abstained from voting in connection with the sale and transfer
of the MacGregor Rights from MSF to Hutch.
The MSF disposition of assets required under the Merger Agreement resulted
in Hutch's acquiring the MacGregor Rights for a purchase price of $2,910,000,
payable as follows: (i) $1,000,000 in cash on or prior to closing; and (ii) the
delivery of a one-year unsecured installment promissory note in the amount of
$1,910,000 to be paid in twelve (12) equal monthly installments bearing
interest at the rate equal to the prime or base rate from time to time publicly
announced by Bank America, N.A. MSF closed on the disposition of such assets
immediately prior to closing on Merger, but made such transaction effective
February 1, 1996. In response to such agreement, MSF reduced the carry amount
of its intangible assets at January 31, 1996 by $1,200,000. Previously, MSF
anticipated realizing approximately $4,000,000 on the sale of the MacGregor
Rights. However, in late 1995, as previously disclosed, due to the competitive
retail environment in which the MSF trademarks operate, MSF's Board of
Directors believed the approximately $2,900,000 offered by Hutch would be the
maximum amount a buyer would reasonably offer for these assets. Over the last
two years, management and the Board of Directors of MSF investigated the sale
of the MacGregor Rights to various potential buyers, and based on the results
of those prior negotiations, believed the transaction with Hutch offered the
best outcome for MSF and its shareholders.
Additionally, during the past two years, MSF engaged, as required under
the terms of the Merger Agreement in various transactions as follows:
In April of 1995, Equitex, Inc. converted $1,000,000 of the indebtedness
owed to it by MSF into Class C Preferred Stock, and MSF agreed to pay the
remaining outstanding balance of principal and interest in the amount of
$805,254 subsequent to July 31, 1995. In contemplation of the Merger, and in
order to fulfill the conditions to the Merger that all preferred shares be
converted to MSF Common Stock, and that all outstanding indebtedness of MSF be
eliminated,
-35-
<PAGE> 44
Equitex agreed, as of January 31, 1996, to convert the Class C preferred shares
into 250,000 MSF Common Stock, and did so in May of 1996. In addition, to
satisfy the remaining balance of its indebtedness to Equitex (which had been
outstanding since 1991, pursuant to various agreements between the parties),
MSF agreed in October of 1995, when the amount of the indebtedness was $824,021
to convert its indebtedness to shares of common stock. On the conversion date
of January 31, the amount of the indebtedness (including accrued interest) was
approximately $916,000. In conversion of that amount, therefore, the Company
issued an additional 163,444 shares of Common Stock. The indebtedness was
converted at the rate of $5.60 per share, which management believes
approximated the fair market price of the newly issued restricted MSF Common
Stock at the time of the conversion based on the price MSF was able to obtain
from the sale of a large block of similarly restricted stock to unrelated third
parties. Those shares (which were similarly restricted in that as unregistered
shares they would not be freely tradeable for two years) were sold at a price
of $4.80 to the following third parties in February of 1996: Wayne R. Mills,
20,750; Russell Casement, 5,625; George Arellano, 4,792; Joseph Hovorka, 3,750;
Bertrand T. Ungar, 8,333; K. Keating, 12,708; and David Olson, 1,209.
In addition to the conversion of the Class C Shares into shares of MSF
Common Stock, Equitex engaged in the following transactions on the following
dates: On May 21, 1996 Equitex sold warrants for the purchase of 21,750 shares
of MSF Common Stock with an expiration date of October 31, 1996 and an exercise
price of $4.00, for a price of $14.00 per share. Between the dates of May 15
and May 24, 1996 Equitex sold 86,750 shares of MSF Common Stock at prices
ranging from $13.32 to $20.50. All of the warrants and shares of MSF Common
Stock sold by Equitex in the referenced transactions had previously been
acquired by Equitex from time to time in the open market and were sold in the
open market. Such sales yielded aggregate proceeds of $1,655,345.
Henry Fong is also Chairman of California Pro Sports, Inc. Michael S.
Casazza, the former President of MSF and Barry Hollander, the former Chief
Financial Officer of MSF, held those same offices at California Pro Sports,
Inc. MSF previously physically occupied office space leased by California Pro
Sports, Inc., and has used office equipment, employees and other facilities and
services of California Pro Sports, Inc. in connection with the MSF operations.
In consideration of the provision of those services, MSF incurred indebtedness
of $313,000 to California Pro Sports, Inc. during the quarter ended January 31,
1996. MSF similarly determined to convert the amount of such indebtedness, as
of January 31, 1996, to MSF Common Stock at $5.60 per share, which management
believes approximated the fair market price of newly issued restricted MSF
Common Stock at the time of the conversion based on the price MSF was able to
obtain from the sale of a larger block of similarly restricted stock to
unrelated third parties.
On April 5, 1996 MSF issued 98,800 warrants for the purchase of shares of
MSF Common Stock, at an exercise price of $4.00 per share, of which 62,500 were
issued to Mr. Fong. $790,400, the difference between the quoted market price
of the common stock at the date of grant and the exercise price of the
warrants, was recognized as compensation expense.
-36-
<PAGE> 45
In December 1995, TPSI issued $550,000 of unsecured convertible notes to a
limited number of accredited investors. The unsecured notes accrued interest
rate of 10%, and were converted into common stock immediately prior to the
Merger at a rate of $6.00 per share. In consideration of such loans, TPSI also
issued common stock purchase warrants which, pursuant to the terms of the
Merger Agreement became warrants to acquire an aggregate of 55,385 shares of
Common Stock.
Prior to the Merger, TPSI redeemed 50% of its outstanding shares of its
common stock from a former shareholder and director for $200,000 on July 31,
1995. TPSI paid $150,000 of the purchase price in cash and delivered a $50,000
note to the former shareholder for the balance of the purchase price. The note
requires annual principal payments of $10,000 and matures in August, 2000.
TPSI also entered into Consulting and Non-Competition Agreements with the
former shareholder. To secure the purchase price of the redeemed shares and
TPSI's monetary obligations under the agreements, TPSI pledged the redeemed
shares to the former shareholder as collateral.
-37-
<PAGE> 46
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 12,500,000 shares of
Common Stock, $.01 par value per share. Prior to this offering, there were
7,440,606 shares of Common Stock issued and outstanding and 2,088,202 shares
reserved for issuance upon exercise of outstanding options and warrants.
Holders of the Common Stock are entitled to receive such dividends as may
be declared by the Board of Directors out of assets legally available
therefore, and to share ratably in the assets of the Company available upon
liquidation.
Each share of Common Stock is entitled to one vote for all purposes.
Accordingly, the holders of more than fifty percent of all of the outstanding
shares of Common Stock can elect all of the directors. Significant corporate
transactions such as mergers, sales of assets and dissolution or liquidation
require approval by the affirmative vote of the majority of the outstanding
shares of Common Stock. Other matters to be voted upon by the holders of Common
Stock normally require the affirmative vote of a majority of the shares present
or represented by proxy at the particular shareholders' meeting. The Company's
directors and officers, as a group beneficially own approximately 67.6% of the
outstanding Common Stock of the Company. Upon completion of this Offering, such
persons will beneficially own approximately 63.9% of the outstanding shares.
See "Principal and Selling Shareholders." Accordingly, such persons will
continue to be able to control the Company's affairs, including, without
limitation, the sale of equity or debt securities of the Company, the
appointment of officers, the determination of officers' compensation and the
determination whether to cause a registration statement to be filed.
WARRANTS
As of September 30, 1996, the Company had outstanding 183,500 Redeemable
Warrants, and an aggregate of 471,179 Non-Redeemable Warrants. All of the
foregoing warrants are collectively referred to herein as the "Warrants."
General. The Redeemable Warrants may be exercised upon surrender of the
certificate therefor on or prior to the expiration or redemption date at the
offices of the Company's warrant agent (the "Warrant Agent") with the form of
"Election to Purchase" on the reverse side of the certificate filled out and
executed as indicated, accompanied by payment (in the form of certified or
cashier's check payable to the order of the Warrant Agent or the Company, as
applicable) of the full exercise price for the number of Warrants being
exercised.
The exercise price of the Warrants were determined by negotiation between
the Company and the warrant holders and should not be construed to be
predictive of or to imply that any price increases will occur in the Company's
securities. The Warrants contain provisions that protect the holders thereof
against dilution by adjustment of the exercise price in certain events, such as
stock dividends, stock splits, mergers, combinations or recapitalizations, and
for other unusual
-38-
<PAGE> 47
events (other than employee benefit and stock option plans for employees,
directors, or consultants to the Company).
The Company is not required to issue fractional shares, and in lieu
thereof will make a cash payment based upon the current market value of such
fractional shares (determined as the last sale price reported by NASDAQ on the
business day prior to the date of exercise or, if no such sale is made on such
day, the mean between the last reported bid and asked prices reported by NASDAQ
as of the business day prior to the date of exercise). The holder of a Warrant
will not possess any rights as a shareholder of the Company unless and until he
or she exercises the Warrant.
MINNESOTA ANTI-TAKEOVER LAW
The Company is governed by the provisions of Sections 302A.671 and
302A.673 of the Minnesota Business Corporation Act, which are anti-takeover
laws. In general, Section 302A.671 provides that the shares of a corporation
acquired in a "control share acquisition" have no voting rights unless voting
rights are approved in a prescribed manner. A "control share acquisition" is
an acquisition, directly or indirectly, of beneficial ownership of shares that
would, when added to all other shares beneficially owned by the acquiring
person, entitle the acquiring person to have voting power in the election of
directors of 20% or more. In general, Section 302A.673 prohibits a public
Minnesota corporation from engaging in a "business combination" with an
"interested shareholder" for a period of four years after the date of
transaction in which the person became an interested shareholder, unless the
business combination is approved in a prescribed manner. "Business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested shareholder. An "interested shareholder"
is a person who is the beneficial owner, directly or indirectly, of 10% or more
of the corporation's voting stock or who is an affiliate or associate of the
corporation and at any time within four years prior to the date in question was
the beneficial owner, directly or indirectly, of 10% or more of the
corporation's voting stock.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A., is the transfer agent and registrar for the
Common Stock and the warrant agent for the Redeemable Warrants.
REPORTS TO SHAREHOLDERS
The Company will furnish to its shareholders annual reports containing audited
financial statements and quarterly reports containing unaudited financial
information.
-39-
<PAGE> 48
PLAN OF DISTRIBUTION
The Company hereby offers: (i) 183,500 shares of Common Stock that are
issuable upon the exercise of the Redeemable Warrants and (ii) 251,667 shares
of Common Stock that are issuable upon exercise of the Non-Redeemable Warrants.
The Selling Shareholders hereby offer 245,579 shares of Common Stock. No
underwriter is being used in connection with this offering. See "Principal and
Selling Shareholders" and "Description of Securities."
The Selling Shareholders and/or their pledgees, donees, transferees or
other successors in interest will sell the securities of the Company covered by
this Prospectus to the public in the over-the-counter market or in negotiated
transactions, or otherwise, at prices and on terms then obtainable.
Broker-dealers either may act as agents for the Selling Shareholders and/or
their pledgees, donees, transferees or other successors in interest for such
commissions as may be agreed upon at the time, or may purchase any of the
securities covered hereby as principals and thereafter may sell such securities
from time to time in the over-the-counter market or in negotiated transactions,
or otherwise, at prices and on terms then obtainable.
LEGAL MATTERS
The validity of the securities offered hereby was passed upon for the
Company by Maslon Edelman Borman & Brand, a Professional Limited Liability
Partnership Minneapolis, Minnesota.
EXPERTS
The financial statements as of March 31, 1996 and for the two years
then ended included herein have been audited by Lund Koehler Cox & Company,
PLLP independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.
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<PAGE> 49
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants F-1
Consolidated Financial Statements:
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
<PAGE> 50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To IntraNet Solutions, Inc.:
We have audited the accompanying consolidated balance sheets of IntraNet
Solutions, Inc. (formerly known as Technical Publishing Solutions, Inc.) and
Subsidiaries as of March 31, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
two-year period ended March 31, 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of IntraNet
Solutions, Inc. and Subsidiaries as of March 31, 1996, and the results of their
operations and their cash flows for each of the years in the two-year period
ended March 31, 1996 in conformity with generally accepted accounting
principles.
LUND KOEHLER COX & COMPANY, PLLP
Minneapolis, Minnesota
October 15, 1996
F-1
<PAGE> 51
INTRANET SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, JUNE 30,
1996 1996
---- ----
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $37,513 $146,407
Accounts receivable, net 3,102,394 2,933,557
Inventories 324,523 510,079
Prepaid expenses and other 418,438 654,374
---------- ----------
Total current assets 3,882,868 4,244,417
PROPERTY AND EQUIPMENT, NET 1,539,318 1,683,876
INTANGIBLE ASSETS, NET 290,680 273,025
---------- ----------
$5,712,866 $6,201,318
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Revolving credit facility $1,108,098 $1,488,644
Convertible promissory notes 550,000 550,000
Current portion of long-term debt 127,496 127,496
Current portion of capital lease obligations 148,045 163,223
Current portion of stock redemption payable 9,500 9,500
Accounts payable 2,701,244 3,223,503
Sales tax payable 68,147 42,236
Accrued expenses 247,105 186,247
---------- ----------
Total current liabilities 4,959,635 5,790,849
DEFERRED INCOME TAXES 38,000 38,000
STOCK REDEMPTION PAYABLE, NET OF CURRENT PORTION 30,008 30,608
LONG-TERM DEBT, NET OF CURRENT PORTION 108,341 83,342
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 598,065 535,589
---------- ----------
Total liabilities 5,734,049 6,478,388
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, $.01 par value, 12,500,000 shares authorized,
2,500,000 and 2,513,355 shares issued and outstanding 25,000 25,133
Additional paid-in capital (7,711) 20,896
Retained earnings (deficit) (22,265) (308,113)
Unearned compensation (16,207) (14,986)
---------- ----------
Total stockholders' equity (deficiency) (21,183) (277,070)
---------- ----------
$5,712,866 $6,201,318
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 52
INTRANET SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Three Months
Ended Ended
March 31, June 30,
----------------------------- ----------------
1995 1996 1995 1996
---- ---- ---- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Hardware integration $5,015,758 $8,198,800 $1,426,883 $2,391,762
Software, technical services and support 4,738,648 4,522,054 1,142,144 1,102,957
On-demand printing services 692,255 1,514,888 282,216 686,215
---------- ---------- --------- ----------
Total revenues 10,446,661 14,235,742 2,851,243 4,180,934
---------- ---------- --------- ----------
COST OF REVENUES:
Hardware integration 4,350,199 6,795,594 1,187,365 2,000,661
Software, technical services and support 2,879,454 2,799,650 675,174 748,468
On-demand printing services 371,037 1,113,009 197,783 514,876
---------- ---------- --------- ----------
Total cost of revenues 7,600,690 10,708,253 2,060,322 3,264,005
---------- ---------- --------- ----------
Gross profit 2,845,971 3,527,489 790,921 916,929
---------- ---------- --------- ----------
OPERATING EXPENSES:
Sales and marketing 1,244,995 1,827,003 354,301 582,349
General and administrative 916,253 1,188,364 289,274 408,065
Research and development 341,740 496,066 117,734 258,080
Depreciation and amortization 109,274 159,340 31,636 56,110
---------- ---------- --------- ----------
Total operating expenses 2,612,262 3,670,773 792,945 1,304,604
---------- ---------- --------- ----------
Income (loss) from operations 233,709 (143,284) (2,024) (387,675)
INTEREST EXPENSE 97,033 230,293 27,737 48,173
---------- ---------- --------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 136,676 (373,577) (29,761) (435,848)
Provision for (benefit of) income taxes 64,553 (125,770) 0 (150,000)
---------- ---------- --------- ----------
NET INCOME (LOSS) $72,123 ($247,807) ($29,761) ($285,848)
========== ========== ========= ==========
NET INCOME (LOSS) PER COMMON SHARE
AND COMMON SHARE EQUIVALENTS $0.01 ($0.03) ($0.00) ($0.04)
========== ========== ========= ==========
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 7,351,516 7,351,516 7,351,516 7,351,516
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 53
INTRANET SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Retained
-------------------------- Paid-in Earnings Unearned
Shares Amount Capital (Deficit) Compensation Total
----------- -------- ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - MARCH 31, 1994 5,000,000 $50,000 $(50,000) $ 324,037 $ 0 $ 324,037
Grant of stock options -- -- 29,343 -- (29,343) 0
Stock options compensation earned -- -- -- -- 11,564 11,564
Net income -- -- -- 72,123 -- 72,123
---------- ------- -------- --------- -------- ---------
BALANCE - MARCH 31, 1995 5,000,000 50,000 (20,657) 396,160 (17,779) 407,724
Grant of stock options -- -- 5,236 -- (5,236) 0
Stock options compensation
earned -- -- -- -- 6,808 6,808
Repurchase of common
stock (2,500,000) (25,000) 7,710 (170,618) -- (187,908)
Net loss -- -- -- (247,807) -- (247,807)
---------- ------- -------- --------- -------- ---------
BALANCE - MARCH 31, 1996 2,500,000 25,000 (7,711) (22,265) (16,207) (21,183)
Stock options compensation
earned -- -- -- -- 1,221 1,221
Common stock sold pursuant to
stock option & warrant exercises 13,355 133 28,607 -- -- 28,740
Net loss -- -- -- (285,848) -- (285,848)
--------- ------- -------- --------- -------- ---------
BALANCE - JUNE 30, 1996 2,513,355 $25,133 $ 20,896 $(308,113) $(14,986) $(277,070)
========= ======= ======== ========= ======== =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 54
INTRANET SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Three Months
Ended Ended
March 31, June 30
-------------------------- --------------------
1995 1996 1995 1996
------------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $72,123 ($247,807) ($29,761) ($285,848)
Adjustments to reconcile net income (loss) to
cash flows from operating activities:
Depreciation and amortization 158,160 327,221 68,545 107,031
Stock option compensation earned 11,564 6,808 0 1,221
Deferred income taxes 47,766 (55,770)
Changes in operating assets and liabilities (325,039) (325,061) (310,443) 182,835
--------- -------- -------- ---------
Cash flows from operating activities (35,426) (294,609) (271,659) 5,239
--------- -------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment 0 126,286 0 0
Purchase of property and equipment (363,512) (429,193) (88,395) (233,934)
Acquisition of intangible assets 0 (325,000) 0 0
--------- -------- --------- ---------
Cash flows from investing activities (363,512) (627,907) (88,395) (233,934)
--------- -------- -------- ---------
Cash flows from financing activities:
Net advances on revolving credit facility 103,162 874,936 408,005 380,546
Proceeds from convertible promissory notes 0 550,000 0 0
Proceeds from long-term debt 640,000 0 0 0
Payments on long-term debt (456,655) (119,163) (16,666) (24,999)
Payments on capital lease obligations (16,074) (204,983) (25,248) (47,298)
Sale (Repurchase) of common stock 0 (150,000) 0 29,340
--------- -------- -------- ---------
Cash flows from financing activities 270,433 950,790 366,091 337,589
--------- -------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (128,505) 28,274 6,037 108,894
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 137,744 9,239 9,239 37,513
--------- -------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $9,239 $ 37,513 $ 15,276 $ 146,407
========= ======== ======== =========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest $97,768 $226,533 $ 50,367 $ 86,045
Cash paid for income taxes $22,387 $ 19,396 $ 750 $ 0
NONCASH FINANCING AND INVESTING ACTIVITIES:
Equipment acquired with capital lease obligation $758,817 $ 93,530 $ 0 $ 0
Common stock redeemed with note payable, net $0 $ 37,908 $ 0 $ 0
DETAIL OF CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable, net ($748,428) ($1,002,824) $ 44,540 $ 168,837
Inventories (199,530) (77,889) 82,000 (185,556)
Prepaid expenses and other (75,955) (317,061) 18,913 (235,936)
Accounts payable 628,468 969,949 (370,696) 522,259
Sales tax payable 56,968 (41,149)
Accrued expenses 13,438 143,913 (85,200) (86,769)
Other Current Assets
--------- ----------- -------- ---------
Net changes in operating assets and liabilities ($325,039) ($325,061) ($310,443) $ 182,835
========= =========== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 55
INTRANET SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996
(including data applicable to unaudited periods)
(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND PRINCIPLES OF CONSOLIDATION - IntraNet Solutions, Inc.
(formerly known as Technical Publishing Solutions, Inc.) ("ISI" or "the
Company") was incorporated in the State of Minnesota in 1990 and is the
surviving entity of the reverse merger discussed in Note 2. The Company is a
single source vendor providing computer hardware, software, development,
distribution and related services to help companies create, manage and
distribute unstructured business-critical information typically found in
documents. The Company has offices in Minneapolis, Milwaukee, Denver and
Phoenix and sales affiliates in Boston and Atlanta. The consolidated financial
statements include the accounts of IntraNet Solutions, Inc. and its
wholly-owned subsidiaries DocuPro Services, Inc. and IntraNet Integration
Group, Inc. All significant intercompany transactions have been eliminated.
CASH AND CASH EQUIVALENTS - The Company considers all short-term, highly liquid
investments that are readily convertible into known amounts of cash and have
original maturities of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE - Provision for losses on trade accounts receivable is made
in amounts required to maintain an adequate allowance to cover anticipated bad
debts. Accounts receivable are charged against the allowance when it is
determined by the Company that payment will not be received. Any subsequent
receipts are credited to the allowance. Accounts receivable is presented net
of an allowance of $30,000 as of March 31 and June 30, 1996.
INVENTORIES - Inventories, consisting primarily of computer hardware and
software and publishing supplies, are valued at the lower of cost (first-in,
first-out) or market value.
DEPRECIATION - Property and equipment, including leasehold improvements, are
recorded at cost. Depreciation is provided for using the straight-line method
over the estimated useful lives of the assets, two to ten years, or the life of
the lease, whichever is shorter. Maintenance, repairs and minor renewals are
expensed when incurred.
INTANGIBLE ASSETS - Intangible assets are recorded at cost and presented net of
accumulated amortization of $34,320 and $51,975 at March 31 and June 30, 1996.
Goodwill is amortized on a straight-line basis over eight years. The Company's
two covenants not to compete are amortized on a straight-line basis over their
terms of five and two years. Management periodically evaluates the value of
recorded intangible assets. At June 30, 1996, management believes all recorded
intangible assets will be realized.
SOFTWARE DEVELOPMENT COSTS - Software development costs generally are expensed
as incurred as development expense. Statement of Financial Accounting
Standards No. 86 requires the capitalization of certain software development
costs once technological feasibility is established. The capitalized cost is
then amortized on a straight-line basis over the estimated product life, or on
the ratio of current revenues to total projected product revenues, whichever is
greater. To date, the period between achieving technological feasibility, that
the Company has defined as the establishment of a working model, and the
general availability of such software has been short and software development
costs qualifying for capitalization have been insignificant. Accordingly, the
Company has not capitalized any software development costs.
F-6
<PAGE> 56
INTRANET SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1995 AND 1996
(including data applicable to unaudited periods)
REVENUE RECOGNITION - The Company produces its revenues from (i) the sale of
software, (ii) the sale of service and maintenance contracts and (iii) the sale
of a variety of other products and services. Revenue from the sale of software
is recognized in accordance with Statement of Position 91-1 "Software Revenue
Recognition". Accordingly, revenue is recognized at the time of product
shipment if no significant Company obligations remain and collection of the
resulting sale price is probable. In instances where significant Company
obligations remain, revenue recognition is delayed until the obligation has
been satisfied. Revenue from service and maintenance contracts is generally
recognized ratably over the term of the contract. Revenue from contracts with
original durations of one year or less is recognized at the time of sale if the
Company does not expect to have material future obligations to service the
contract. Revenue from the sale of all other products and services is
recognized at the time of delivery to the customer.
INCOME TAXES - The Company has adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", under which deferred income
tax assets and liabilities are recognized for the differences between financial
and income tax reporting bases of assets and liabilities based on currently
enacted rates and laws.
NET INCOME (LOSS) PER COMMON SHARE - Net income (loss) per common share is
determined by dividing net income (loss) by the weighted average number of
common share and common share equivalents outstanding during each period.
Common share equivalents include the dilutive effects of options and warrants
which are assumed to be exercised at the beginning of periods using the
treasury stock method and the fair value of the Company's common shares.
Common share equivalents are not included in the calculation if the effect is
anti-dilutive. Primary and fully diluted net income (loss) per share are the
same. The effects of the reverse merger discussed in Note 2 and the
stock-splits discussed in Note 7 have been retroactively applied.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LONG-LIVED ASSETS - During fiscal 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" (Statement No. 121). Statement No. 121 establishes
accounting standards for the recognition and measurement of impairment of
long-lived assets, certain identifiable intangibles and goodwill either to be
held or disposed. The adoption of Statement No. 121 did not have a material
impact on the Company's financial position or results of operations.
F-7
<PAGE> 57
INTRANET SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1995 AND 1996
(including data applicable to unaudited periods)
(2) REVERSE MERGER
On January 16, 1996, the Company and its then sole stockholder entered into an
agreement and plan of merger with MacGregor Sports and Fitness, Inc. (MSF). MSF
was a publicly traded non-operating entity. At closing on July 31, 1996, the
Company's stockholders received approximately 60% of the then outstanding
common stock of MSF in exchange for their common stock. The Company recorded
this transaction as an acquisition and recapitalization. Accordingly,
historical financial information is that of the Company as the surviving entity
of the reverse merger. The following unaudited pro forma consolidated balance
sheet presents the financial position of the Company as if the aforementioned
transaction had occurred as of June 30, 1996:
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY MSF PRO FORMA
ASSETS HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets $4,244 $3,000 $ (250)(B) $6,994
Property and equipment, net 1,684 1,684
Intangible assets, net 273 273
------ ------ ------ ------
$6,201 $3,000 ($ 250) $8,951
====== ====== ====== ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities $5,790 $ 0 (550)(A) $5,240
Long-term liabilities 688 0 688
------ ------ ------
6,478 0 5,928
Stockholders' equity (250)(B)
(277) 3,000 550 (A) 3,023
------ ------ ------ ------
$6,201 $3,000 ($ 250) $8,951
====== ====== ====== ======
</TABLE>
Pro forma adjustments to reflect:
(A) Conversion of promissory notes into common stock.
(B) Legal, accounting and banking fees and other costs of the transaction.
F-8
<PAGE> 58
INTRANET SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1995 AND 1996
(including data applicable to unaudited periods)
(3) ACQUISITION OF ASSETS
On December 14, 1995, the Company acquired the assets of a division of a
printing business in Denver, Colorado for $200,000. The Company has recorded
the acquisition using purchase accounting and allocated the purchase price
$75,000 to inventory and equipment, $40,000 to a covenant not to compete
(amortized over two years) and $85,000 to goodwill (amortized over eight
years). In addition to the purchase price, the Company agreed to sublease
certain equipment from the seller. The operations of this business are
included in the Company's consolidated financial statements from the date of
acquisition. Due to the small nature of the business acquired and the date of
acquisition, the operations did not materially impact the Company's results of
operations for the year ended March 31, 1996.
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
<TABLE>
<S> <C> <C>
March 31, June 30,
1996 1996
---------- ---------
Equipment and furniture $2,007,626 2,164,177
Leasehold improvements 13,429 88,429
---------- ---------
Total property and equipment 2,021,055 2,252,606
Less: accumulated depreciation 481,737 568,730
---------- ---------
Total property and equipment, net $1,539,318 $1,683,876
========== ==========
</TABLE>
Property and equipment includes items under capital leases of $852,346, net of
accumulated depreciation of $147,803, as of March 31, 1996.
(5) SHORT-TERM DEBT
REVOLVING CREDIT FACILITY - The Company has a revolving credit agreement that
provides for borrowings of up to $1,500,000 based on available collateral.
Advances of $1,108,098, and $1,488,644 were outstanding as of March 31 and June
30, 1996. Advances are due on demand and accrue interest at the bank's base
lending rate plus 2.5% (the effective rate of interest was 10.75% as of March
31, 1996 and June 30, 1996). The agreement is secured by substantially all
Company assets, personally guaranteed by a stockholder and requires the
Company to meet various covenants including maintenance of minimum levels of
net worth.
CONVERTIBLE PROMISSORY NOTES - In December 1995, the Company issued $550,000 of
10% unsecured convertible promissory notes. The notes were due the earlier of
August 30, 1996 or the closing of the transaction described in Note 2. The
notes were converted into common stock of the Company at $3.47 per share. In
connection with the notes, the Company issued 67,693 warrants to acquire shares
of its common stock at an exercise price of $2.32 per share (a price greater
than the fair market value at the date of issuance).
F-9
<PAGE> 59
INTRANET SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1995 AND 1996
(including data applicable to unaudited periods)
(6) LONG-TERM DEBT AND CAPITAL LEASES
LONG-TERM DEBT -
<TABLE>
<S> <C> <C>
March 31, June 30,
1996 1996
-------- --------
Note payable - bank,
monthly installments of
$8,333 plus interest at
the bank's base lending
rate plus 2.5%
(effective rate of
10.75% at March 31
and June 30,
1996), due March 1998,
secured by
substantially all
Company assets and
guaranteed by a
stockholder. $208,337 183,338
Note payable -
stockholder, due on
demand, interest at
12%, unsecured and
subordinated to bank
indebtedness. 27,500 27,500
-------- ---------
Total long-term debt 235,837 210,838
Less: current maturities 127,496 127,496
-------- ---------
Long-term debt, net $108,341 83,342
======== =========
</TABLE>
Future maturities of long-term debt are $127,496 and $108,341 for the years
ending March 31, 1997 and 1998.
CAPITAL LEASE OBLIGATIONS - The Company has certain assets under capital lease
obligations. The leases require total monthly payments of $19,556 and carry
interest rates between 14.6% and 16.6%. The minimum lease payments required
under the capital leases together with the present value of the minimum lease
payments are as follows for the years ending March 31,:
<TABLE>
<S> <C>
1997 $246,568
1998 246,568
1999 243,595
2000 164,998
2001 38,409
--------
Total 940,138
Less: amount representing interest 194,028
--------
Present value of future minimum lease payments 746,110
Less: current portion 148,045
--------
Long-term portion $598,065
========
</TABLE>
F-10
<PAGE> 60
INTRANET SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1995 AND 1996
(including data applicable to unaudited periods)
(7) STOCKHOLDERS' EQUITY
STOCK REDEMPTION - During July 1995, the Company entered into a stock
redemption agreement to acquire 50% of its outstanding common stock from a
single stockholder for $200,000. The Company paid $150,000 at closing with the
remaining $50,000 due in $10,000 annual installments without interest. The
Company has recorded the remaining payment obligation at its net present value.
STOCK SPLITS - On June 2, 1995, the Company declared a 900-for-1 stock split.
On November 6, 1995, the Company declared a 21.22-for-1 stock split. On
October 15, 1996, the Company declared a 1-for-4 reverse stock split. The
stock splits have been retroactively reflected in the accompanying consolidated
financial statements.
STOCK OPTIONS - The Company has a 1994-1997 Stock Option Plan (the Plan),
pursuant to which options and other awards to acquire an aggregate of
2,500,000 shares of the Company's common stock may be granted. The Company
integrated all previous granted options into the Plan. The Plan is
administered by the Board of Directors, which has the discretion to determine
the number and purchase price of shares subject to stock options (which may be
below the fair market value of the common stock on the date thereof), the term
of each option, and the time or times during the term when the options become
exercisable.
The following summarizes stock options activity through June 30, 1996:
<TABLE>
<CAPTION>
Number
of Exercise
Options Prices
--------- --------------
<S> <C> <C>
Outstanding as of March 31, 1995 497,771
Options granted 934,149 $0.20 - $10.40
---------
Outstanding as of March 31, 1996 1,431,920
Options Canceled (66,384)
Options exercised (10,763)
=========
Outstanding as of June 30, 1996 1,354,773 $0.20 - $10.40
=========
</TABLE>
Certain options granted above have exercise prices less than the fair market
value of the Company's common stock on the date of grant. The Company
recognizes the compensation element of these grants over the vesting period of
the related options. The options generally vest over periods of one to five
years. As of June 30, 1996, 453,667 options were exercisable. The options
expire at various dates through January 2006. Subsequent to June 30, 1996 the
Company granted 78,750 options at $8.60 per share.
(8) RETIREMENT SAVINGS PLAN
The Company maintains a pre-tax salary reduction/profit sharing plan under the
provisions of Section 401(k) of the Internal Revenue Code. The Plan covers
substantially all full-time employees who have reached the age of 21. Profit
sharing contributions by the Company are completely discretionary.
Contributions for the years ended March 31, 1995 and 1996 were $48,162 and $0.
F-11
<PAGE> 61
INTRANET SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1995 AND 1996
(including data applicable to unaudited periods)
(9) INCOME TAXES
Provision for income taxes consisted of the following components for the years
ended March 31,:
<TABLE>
<CAPTION>
1995 1996
------- ----------
<S> <C> <C>
Current:
Federal $12,787 ($59,770)
State 4,000 0
------- ----------
Total 16,787 (70,000)
Deferred 47,766 (66,000)
------- ----------
Total provision $64,553 ($125,770)
======= ==========
</TABLE>
The tax effects of temporary differences giving rise to the deferred items
consisted of the following at:
<TABLE>
<CAPTION>
March 31,
1996
---------
<S> <C>
Net current deferred tax assets:
Allowance for uncollectible accounts $12,000
Inventory 12,000
---------
Net current deferred tax assets $24,000
=========
Net long-term deferred tax liabilities
(assets):
Net operating loss carryforwards ($71,000)
Amortization of intangible assets (9,000)
Depreciation of fixed assets 118,000
---------
Net long-term deferred tax liabilities $38,000
=========
</TABLE>
Deferred tax liabilities and deferred tax assets reflect the net tax effects of
temporary differences between the approximate carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes. The net current deferred tax assets as of March 31, 1996, are
included in prepaid expenses and other in the consolidated balance sheet. At
March 31, 1996, the Company had a net operating loss carryforward of
approximately $177,000, which, if not used, expires in 2011.
F-12
<PAGE> 62
INTRANET SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1995 AND 1996
(including data applicable to unaudited periods)
(10) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company has entered into certain noncancelable
operating lease agreements related to office/warehouse space, equipment and
vehicles. Total rent expense under operating leases was $220,020 and
$254,662 for the years ended March 31, 1995 and 1996. Minimum remaining
rental commitments under operating leases are as follows for the years ending
March 31,:
<TABLE>
<S> <C>
1997 $182,961
1998 106,247
1999 73,290
--------
Total $362,498
========
</TABLE>
In April 1996, the Company entered into a seven year operating lease agreement
for approximately 34,000 square feet of office and warehouse space for its
Minneapolis operations. The lease requires monthly payments of approximately
$20,000.
SOFTWARE ROYALTIES - The Company has acquired a suite of software products
complimentary with its own software development through a royalty agreement.
Prepaid royalties of up to $60,000 are payable upon delivery and acceptance of
source code, documentation and certain upgrades. Royalties (including prepaid
royalties) are due based on 15% of product sales until a total of $250,000 has
been paid and 10% thereafter. At March 31, 1996, the Company had prepaid
$50,000 of royalties. No royalties have been earned in any period.
CONSULTING AGREEMENT - The Company has a consulting agreement with a former
stockholder that requires monthly payments of $10,300 through July 2000.
(11) MAJOR SUPPLIERS
MAJOR SUPPLIERS - The Company utilizes a single supplier to provide the
majority of its computer hardware sales. Purchases from this supplier were
approximately 54% and 68% of total product purchases during the years
ended March 31, 1995 and 1996. The Company has a supply and resale
agreement with this supplier that expires June 30, 1997 and is annually
renewable.
The Company utilizes a single supplier to provide the majority of its software
and maintenance services. Purchases from this supplier were approximately 24%
of total product purchases during the year ended March 31, 1995 and 13% for
1996. The Company has a supply and resale agreement with this supplier that
expires January 1, 1998.
F-13
<PAGE> 63
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR A SOLICITATION IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE
COMPANY OR THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
TABLE OF CONTENTS
AVAILABLE INFORMATION......................................... iii
PROSPECTUS SUMMARY............................................ 1
RISK FACTORS.................................................. 4
THE COMPANY................................................... 1
USE OF PROCEEDS............................................... 11
DILUTION...................................................... 12
CAPITALIZATION................................................ 13
DIVIDEND POLICY............................................... 11
PRICE RANGE OF SECURITIES..................................... 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 15
BUSINESS...................................................... 19
MANAGEMENT.................................................... 28
CERTAIN TRANSACTIONS.......................................... 35
PRINCIPAL AND SELLING SHAREHOLDERS............................ 32
DESCRIPTION OF SECURITIES..................................... 38
PLAN OF DISTRIBUTION.......................................... 40
LEGAL MATTERS................................................. 40
EXPERTS....................................................... 40
INDEX TO FINANCIAL STATEMENTS................................. F-1
INTRANET SOLUTIONS, INC.
680,746 SHARES OF COMMON STOCK
PROSPECTUS
____________, 1996
<PAGE> 64
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is governed by Minnesota Statutes Chapter 302A. Minnesota
Statutes Section 302A.521 provides that a corporation shall indemnify any
person made or threatened to be made a party to any proceeding by reason of the
former or present official capacity of such person against judgments,
penalties, fines, including, without limitation, excise taxes assessed against
such person with respect to an employee benefit plan, settlements, and
reasonable expenses, including attorney's fees and disbursements, incurred by
such person in connection with the proceeding, if, with respect to the acts or
omissions of such person complained of in the proceeding, such person has not
been indemnified by another organization or employee benefit plan for the same
expenses with respect to the same acts or omissions; acted in good faith;
received no improper personal benefit and Section 302A.255, if applicable, has
been satisfied; in the case of a criminal proceeding, had no reasonable cause
to believe the conduct was unlawful; and in the case of acts or omissions by
persons in their official capacity for the corporation, reasonably believed
that the conduct was in the best interests of the corporation, or in the case
of acts or omissions by persons in their capacity for other organizations,
reasonably believed that the conduct was not opposed to the best interests of
the corporation. Subdivision 4 of Section 302A.521 of the Minnesota Statutes
provides that a company's articles of incorporation or bylaws may prohibit such
indemnification or place limits upon the same. The Company's articles and
bylaws do not include any such prohibition or limitation. As a result, the
Company is bound by the indemnification provisions set forth in Section
302A.521 of the Minnesota Statutes.
As permitted by Section 302A.251 of the Minnesota Statutes, the Articles
of Incorporation of the Company provide that a director shall have no personal
liability to the Company and its shareholders for breach of his fiduciary duty
as a director, to the fullest extent permitted by law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC fees $ 1,275
Accounting fees and expenses 15,000
Legal fees and expenses 135,000
Printing expenses 30,000
Miscellaneous 18,725
--------
Total $200,000
========
</TABLE>
All of the foregoing expenses, except SEC filing fee, have been estimated.
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<PAGE> 65
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since October 1, 1993, the Company has sold the securities indicated
below. The number of shares and the aggregate consideration has not been
adjusted to give effect to the 1-for-4 reverse stock split effective November
11, 1996 to shareholders of record on October 31, 1996.
On July 30 and 31, 1996, the Company's predecessor, MacGregor Sports and
Fitness, Inc. ("MSF") and IntraNet Integration Group, Inc., a Minnesota
corporation ("IntraNet," formerly known as Technical Publishing Solutions, Inc.
("TPSI")) closed on a tax-free reorganization pursuant to which IntraNet
became a wholly-owned subsidiary of the Company, and MSF changed its name to
IntraNet Solutions, Inc. The transaction was accomplished through a tax-free
reverse subsidiary merger whereby IntraNet merged with and into a wholly owned
subsidiary of MSF, with IntraNet as the surviving corporation (the "Merger").
Pursuant to the Merger Agreement, the IntrNet shareholders received
approximately 1.73 MSF shares in exchange and conversion for each one share of
IntraNet common stock held on the Effective Date. As a result of the
reorganization, MSF issued, at closing, 18,000,000 common shares to the former
shareholders of IntraNet.
In December 1995, the Company issued $550,000 of unsecured convertible notes to
a limited number of accredited investors. The unsecured notes accrued interest
rate of 10%, and were converted into Common Stock immediately prior to the
Merger at a rate of $6.00 per share.
It was claimed that each and every issuance and sale of such stock was exempt
from registration pursuant to Sections 4(2) and 4(6) of Act and pursuant to SEC
Rules 505 and 506, as transactions not involving a public offering.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Articles of Incorporation, as amended. (2)
3.2 By-laws. (2)
5 Opinion of Maslon Edelman Borman & Brand, a Professional Limited Liability
Partnership. (2)
10.1 Lease Agreement by and between CSM Investors, Inc. and the Company dated April 24, 1996 (1)
10.2 Credit and Security Agreement by and between Diversified Business Credit, Inc. and the Company
dated March 14, 1995 (1)
10.3 Term Loan Supplement to Credit Agreement dated March 14, 1995 by and between the Company and
Diversified Business Credit, Inc. (1)
10.4 Company's 1994- 1997 Stock Option Plan. (1)
10.5 Employment Agreement dated July 30, 1996 by and between the Company and Robert Olson (1)
10.6 Employment Agreement dated July 30, 1996 1995 by and between the Company and Jeffrey J. Sjobeck (1)
21. Subsidiaries of Company. (1)
23.1 Consent of Maslon Edelman Borman & Brand, a Professional Limited Liability
Partnership (2).
23.2 Consent of Lund Koehler Cox & Company, PLLP. (1)
25.1 Powers of Attorney.*
</TABLE>
-II-
<PAGE> 66
__________
(1) Filed herewith
(2) To be filed by amendment.
ITEM 28. UNDERTAKINGS.
The undersigned small business issuer hereby undertakes:
(1) to file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on
the plan of distribution; and
(2) for determining liability under the Securities Act to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering; and
(3) to file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions,
or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the small business issuer will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned small business issuer hereby undertakes that:
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<PAGE> 67
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the small business issuer pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
-IV-
<PAGE> 68
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable ground to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Minneapolis, State of Minnesota, on
October 14, 1996.
INTRANET SOLUTIONS, INC.
Registrant
By /s/ Robert F. Olson
-------------------
Robert F. Olson
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints Robert F. Olson, Jeffrey J. Sjobeck and
William M. Mower, each or either of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same with all
exhibits thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitutes, may lawfully do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 14th day of
October, 1996 by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ Robert F. Olson President, Chief Executive Officer, ( Principal Executive
- -------------------------- Officer) and Chairman of the Board
Robert F. Olson
/s/ Jeffrey J. Sjobeck Chief Financial Officer (chief financial officer and accounting
- -------------------------- officer)
Jeffrey J. Sjobeck
/s/ Ronald E. Eibensteiner Director
- --------------------------
Ronald E. Eibensteiner
/s/ David D. Koentopf Director
- --------------------------
David D. Koentopf
/s/ Henry Fong Director
- --------------------------
Henry Fong
</TABLE>
-V-
<PAGE> 69
EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
10.1 Lease Agreement
10.2 Credit and Security Agreement
10.3 Term Loan Supplement
10.4 1994-1997 Stock Option Plan
10.5 Olson Employment Agreement
10.6 Sjobeck Employment Agreement
23.2 Consent of Lund, Koehler Cox & Company, PLLP
27 Financial Data Schedule
</TABLE>
-IV-
<PAGE> 1
LEASE
ARTICLE 1. LEASE TERMS
1.1 LANDLORD AND TENANT. This Lease ("Lease") is entered into this 24th day
of April, 1996 by and between CSM, INVESTORS, INC., a Minnesota corporation,
("Landlord") and INTRANET INTEGRATION GROUP, INC. D/B/A TECHNICAL PUBLISHING
SOLUTIONS, INC., a Minnesota corporation, ("Tenant").
1.2 PREMISES. Landlord hereby rents, leases, lets and demises to Tenant the
following described property ("Premises") as illustrated on the site plan
attached hereto as EXHIBIT A: approximately 15,242 SQUARE FEET OF WAREHOUSE
SPACE AND 17,677 SQUARE FEET OF OFFICE SPACE (32,919 TOTAL SQUARE FEET) IN THE
GOLDEN TRIANGLE BUSINESS CENTER located at 9625-9675 WEST 76TH STREET IN EDEN
PRAIRIE, MINNESOTA, and consisting of approximately 149,215 square feet
("Building"). A floor plan of the Premises and a description of improvements,
if any, to be constructed are attached hereto as EXHIBITS B AND C.
1.3 LEASE TERM. The term of this Lease shall commence on AUGUST 1, 1996
("Commencement Date") and shall terminate EIGHTY-FOUR (84) MONTHS thereafter on
JULY 31, 2003, unless sooner terminated as hereinafter provided. In the event
that Tenant does not vacate the Premises upon the expiration or termination of
this Lease, Tenant shall be a tenant at will for the holdover period and all of
the terms and provisions of this Lease shall be applicable during that period,
except that Tenant shall pay Landlord as base rental for the period of such
holdover an amount equal to two (2) times the base rent which would have been
payable by Tenant had the holdover period been a part of the original term of
this Lease, together with all additional rent as provided in this Lease.
Tenant agrees to vacate and deliver the Premises to Landlord upon Tenant's
receipt of notice from Landlord to vacate. The rental payable during the
holdover period shall be payable to Landlord on demand. No holding over by
Tenant, whether with or without the consent of Landlord, shall operate to
extend the term of this Lease. Landlord agrees to provide Tenant early
occupancy of the Premises on July 1, 1996 under the same terms and conditions
contained herein, exclusive of rent and operating expenses.
1.4 BASE RENT. Base Rent is: Months Monthly Base Rent Per Sq. Ft.
------ ----------------- -----------
1-84 $20,519.51 $7.48
1.5 PERMITTED USE: Operation of a computer assisted, document based printing
facility, and distribution of hardware and software products.
1.6 SECURITY DEPOSIT: None ($0.00)
1.7 PRO-RATA SHARE: Twenty-two and 06/100 percent (22.06%) subject to
adjustment as provided in Section 2.2 hereof.
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<PAGE> 2
1.8 ADDRESSES. LANDLORD'S ADDRESS: TENANT'S ADDRESS:
CSM INVESTORS, INC. INTRANET INTEGRATION
2575 UNIVERSITY AVENUE W. GROUP, INC.
SUITE 150 9625 WEST 76TH STREET,
ST. PAUL, MN 55114-1024 SUITE 150
(612) 646-1717 EDEN PRAIRIE, MN 55344
ARTICLE 2. RENT, OPERATING EXPENSES AND SECURITY DEPOSIT
2.1 BASE RENT. Tenant agrees to pay monthly as base rent during the term of
this Lease the sum of money set forth in Section 1.4 of this Lease, which
amount shall be payable to Landlord at the address shown above. One monthly
installment shall be due and payable on or before the first day of each
calendar month succeeding the Commencement Date during the term of this Lease;
provided, if the Commencement Date should be a date other than the first day of
a calendar month, the monthly rental set forth above shall be prorated to the
end of that calendar month, and all succeeding installments of rent shall be
payable on or before the first day of each succeeding calendar month during the
term of this Lease. Tenant shall pay, as additional rent, all other sums due
under this Lease. Notwithstanding anything in this Lease to the contrary, if
Landlord, for any reason whatsoever (other than Tenant's default), cannot
deliver possession of the Premises to the Tenant on the Commencement Date, this
Lease shall not be void or voidable, nor shall Landlord be liable for any loss
or damage resulting therefrom, nor shall the expiration of the term be
extended, but all rent shall be abated until Landlord delivers possession.
Notwithstanding the above, in the event Landlord has not delivered the Premises
to the Tenant on or before September 1, 1996 due to non-Tenant caused delays,
Tenant may terminate this Lease with no further obligation.
Landlord and Tenant agree that the base rental rate contained herein is based
on construction costs estimated at $566,390.00. Tenant agrees to contribute
$75,000.00 towards construction of the Premises, payable to Landlord in
$25,000.00 lump sum payments, the first payable upon Lease execution by both
parties, the second payable thirty (30) days following Lease execution, and the
third due sixty (60) days after Lease execution.
Construction cost increases or savings of $30,000.00 or less above or below the
estimated construction cost of $566,390.00 shall he amortized at nine percent
(9%) over the original term of this Lease and added or subtracted from the
monthly base rental. Tenant improvement cost savings above $30,000.00 shall
benefit the Landlord, and additional tenant improvement costs of more than
$30,000.00 over $566,390.00 shall be paid to Landlord upon finalization of
tenant improvement costs, at which time Landlord end Tenant agree to enter into
a Lease addendum depicting the new base rental rate, if such rate is adjusted
as contained in this section.
2.2 OPERATING EXPENSES. Tenant shall also pay as additional rent Tenant's
pro rata share of the operating expenses of Landlord for the Building. Landlord
may invoice Tenant monthly for
-2-
<PAGE> 3
Tenant's pro rata share of the estimated operating expenses for each calendar
year, which amount shall be adjusted from time-to-time by Landlord based upon
anticipated operating expenses. Within six (6) months following the close of
each calendar year, Landlord shall provide Tenant an accounting showing in
reasonable detail the computations of additional rent due under this Section.
In the event the accounting shows that the total of the monthly payments made
by Tenant exceeds the amount of additional rent due by Tenant under this
Section, the accounting shall be accompanied by evidence of a credit to
Tenant's account. In any event the accounting shows that the total of the
monthly payments made by Tenant is less than the amount of additional rent due
by Tenant under this Section, the accounting shall be accompanied by an invoice
for the additional rent. Notwithstanding any other provisions in this Lease,
during the year in which this Lease terminates, Landlord, prior to the
termination date, shall have the option to invoice Tenant for Tenant's pro rata
share of the operating expenses based upon the previous year's operating
expenses. If this Lease shall terminate on a day other than the last day of a
calendar year, the amount of any additional rent payable by Tenant applicable
to the year in which the termination shall occur shall be prorated on the ratio
that the number of days from the commencement of the calendar year to and
including such termination date bears to 365. Tenant agrees to pay any
additional rent due under this Section within ten (10) days following receipt
of the invoice or accounting showing additional rent due. Tenant's pro rata
share set forth in Section 1.7 shall, subject to reasonable adjustment by
Landlord, be equal to a percentage based upon a fraction, the numerator of
which is the area of the Premises as set forth in Article 1 and the denominator
of which shall be the net rentable area of the Building, as the same may change
from time to time.
2.3 DEFINITION OF OPERATING EXPENSES. The term "operating expenses" includes
all expenses incurred by Landlord with respect to the maintenance and operation
of the Building, including, but not limited to, the following: maintenance,
repair and replacement costs; electricity, fuel, water, sewer, gas and other
common Building utility charges; equipment used for maintenance and operation
of the Building; operational expenses; exterior window washing and janitorial
services; trash and show removal; landscaping and pest control; management
fees, not to exceed four percent (4%) of gross rents, wages and benefits
payable to employees of Landlord whose duties are directly connected with the
operation and maintenance of the Building; all services, supplies, repairs,
replacements or other expenses for maintaining and operating the Building or
project including parking and common areas; improvements made to the Building
which are required under any governmental law or regulation that was not
applicable to the Building at the time it was constructed; installation of any
device or other equipment which improves the operating efficiency of any system
within the Premises and thereby reduces operating expenses; all other expenses
which would generally be regarded as operating, repair, replacement and
maintenance expenses; all real property taxes and installments of special
assessments, including dues and assessments by means of deed restrictions
and/or owners' associations which accrue against the Building during the term
of this Lease and legal fees incurred in connection with actions to reduce the
same; and all insurance premiums Landlord is required to pay or deems necessary
to pay, including fire and extended coverage, and rent loss and public
liability insurance, with respect to the Building. Operating expenses which,
for tax purposes would be considered capital improvements, will be amortized
over the useful life of the expense.
-3-
<PAGE> 4
2.4 INCREASE IN INSURANCE PREMIUMS. If an increase in any insurance premiums
paid by Landlord for the Building is caused by Tenant's use of the Premises or
if Tenant vacates the Premises and causes an increase in such premiums, then
Tenant shall pay as additional rent the amount of such increase to Landlord.
ARTICLE 3. OCCUPANCY AND USE
3.1 USE. Tenant warrants and represents to Landlord that the Premises shall
be used and occupied only for the purpose as set forth in Section 1.5. Tenant
shall occupy the Premises, conduct its business and control its agents,
employees, invitees and visitors in such a manner as is lawful, reputable and
will not create a nuisance. Tenant shall not permit any operation which emits
any odor or matter which intrudes into other portions of the Building or
otherwise interfere with, annoy or disturb any other Lessee in its normal
business operations or Landlord in its management of the Building. Tenant
shall not permit any waste on the Premises to be used in any way which would,
in the opinion of Landlord, be extra hazardous on account of fire or which
would, in any way, increase or render void the fire insurance on the Building.
3.2 SIGNS. No sign of any type or description shall be erected, placed or
painted in or about the Premises or Building which are visible from the
exterior of the Premises, except those signs submitted to Landlord in writing,
and which signs are in conformance with Landlord's sign criteria, which is
attached hereto as EXHIBIT D.
3.3 COMPLIANCE WITH LAWS, RULES AND REGULATIONS. Tenant, at Tenant's sole
cost and expense, shall comply with all laws, ordinances, orders, rules and
regulations of state, federal, municipal or other agencies or bodies having
jurisdiction over the use, condition or occupancy of the Premises. Tenant will
comply with the reasonable rules and regulations of the Building adopted by
Landlord. Landlord shall have the right at all times to change and amend the
rules and regulations in any reasonable manner as may be deemed advisable for
the safety, care, cleanliness, preservation of good order and operation or use
of the Building or the Premises. All rules and regulations of the Building
will be sent by Landlord to Tenant in writing and shell thereafter be carried
out and observed by Tenant.
WARRANTY OF POSSESSION. Landlord warrants that it has the right and
authority to execute this Lease, and Tenant, upon payment of the required rents
and subject to the terms, conditions, covenants and agreements contained in
this Lease, shall have possession of the Premises during the full term of this
Lease as welt as any extension or renewal thereof. Landlord shall not be
responsible for the acts or omissions of any other Lessee or third party that
may interfere with Tenant's use and enjoyment of the Premises, however,
Landlord shall join Tenant in protecting Tenant's rights to quiet enjoyment
with respect to acts of any third party.
3.5 RIGHT OF ACCESS. Landlord or its authorized agents shall, during
reasonable business hours and in the presence of a Tenant representative,
except in the case of an emergency, have the
-4-
<PAGE> 5
right to enter the Premises to inspect the same, to show the Premises to
prospective purchasers, Lessees, mortgagees, insurers or other interested
parties, and to alter, improve or repair the Premises or any other portion of
the Building. Tenant hereby waives any claim for damages for injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or use of the Premises, and any other loss occasioned thereby. Tenant shall not
change Landlord's lock system or in any other manner prohibit Landlord from
entering the Premises. Landlord shell have the right to use any and all means
which Landlord may deem proper to open any door in an emergency without
liability therefor. Tenant shall permit Landlord to erect, use, maintain and
repair pipes, cables, conduits, plumbing, vents end wires in, to and through
the Premises as often and to the extent that Landlord may now or hereafter deem
to be necessary or appropriate for the proper use, operation and maintenance of
the Building.
ARTICLE 4. UTILITIES AND ACTS OF OTHERS
4.1 BUILDING SERVICES. Tenant shall pay when due, all charges for utilities
furnished to or for the use or benefit of Tenant or the Premises. Tenant shall
have no claim for rebate of rent on account of any interruption in service.
4.2 THEFT OR BURGLARY. Landlord shall not be liable to Tenant for losses to
Tenant's property or personal injury caused by criminal acts or entry by
unauthorized persons into the Premises or the Building, unless such loss or
injury is caused by the criminal act or gross negligence of the Landlord or its
representatives.
ARTICLE 5. REPAIRS AND MAINTENANCE
5.1 LANDLORD REPAIRS. Landlord shall not be required to make any
improvements, replacements or repairs of any kind or character to the Premises
or the Building during the term of this Lease except as are set forth in this
Section. Landlord shall maintain only the roof, foundation, parking and common
areas, the structural soundness of the exterior walls, doors, corridors, and
other structures serving the Premises, provided, that Landlord's cost of
maintaining, replacing and repairing the items set forth in this Section are
operating expenses subject to the additional rent provisions in Section 2.2 and
2.3. Landlord shall not be liable to Tenant, except as expressly provided in
this Lease, for any damage or inconvenience, and Tenant shall not be entitled
to any abatement or reduction of rent by reason of any repairs, alterations or
additions made by Landlord under this Lease.
5.2 TENANT REPAIRS. Tenant shall, at all times throughout the term of this
Lease, including renewals and extensions, and at its sole expense, keep and
maintain the Premises in a clean, safe, sanitary and first class condition and
in compliance with all applicable laws, codes, ordinances, rules and
regulations. Tenant's obligations hereunder shall include, but not be limited
to, the maintenance, repair and replacement, if necessary, of all heating,
ventilation, air conditioning, lighting end plumbing fixtures and equipment,
fixtures, motors and machinery, all interior walls, partitions, doors and
windows, including the regular painting thereof, all exterior entrances,
windows, doors and
-5-
<PAGE> 6
docks and the replacement of all broken glass. When used in this provision,
the term "repairs" shall include replacements or renewals when necessary, and
all such repairs made by the Tenant shall be equal in quality and class to the
original work. The Tenant shall keep and maintain all portions of the Premises
and the sidewalk and areas adjoining the same in a clean and orderly condition,
free of accumulation of dirt, rubbish, snow and ice. If Tenant fails, refuses
or neglects to maintain or repair the Premises as required in this Lease after
notice shall have been given Tenant, in accordance with this Lease, Landlord
may make such repairs without liability to Tenant for any loss or damage that
may accrue to Tenant's merchandise, fixtures or other property or to Tenant's
business by reason thereof, and upon completion thereof, Tenant shall pay to
Landlord all costs plus fifteen percent (15%) for overhead incurred by Landlord
in making such repairs upon presentation to Tenant of bill therefor. Landlord
agrees to assign all applicable warranties on equipment to Tenant upon
completion of the tenant improvements.
5.3 TENANT DAMAGES. Tenant shall not at low any damage to be committed on
any portion of the Premises or Building or common areas, and at the termination
of this Lease, by lapse of time or otherwise, Tenant shall deliver the Premises
to Landlord in as good condition as existed at the Commencement Date of this
Lease, ordinary wear and tear excepted. The cost and expense of repairs
necessary to restore the condition of the premises shall be borne by Tenant.
ARTICLE 6. ALTERATIONS AND IMPROVEMENTS
6.1 LANDLORD IMPROVEMENTS. If construction to the Premises is to be
performed by Landlord prior to or during Tenant's occupancy, Landlord will
complete the construction of the improvements to the Premises in accordance
with plans and specifications agreed to by Landlord and Tenant, which plans and
specifications are attached hereto as EXHIBITS B AND C. Within seven (7) days
of receipt of plans and specifications, Tenant shall execute a copy of the
plans and specifications and, if applicable, change orders setting forth the
amount of any costs to be borne by Tenant. In the event Tenant fails to
execute the plans and specifications and change orders within the seven (7) day
period, Landlord may, at its sole option, declare this Lease cancelled or
notify Tenant that the base rent shall commence on the completion date even
though the improvements to be constructed by Landlord may not be complete. Any
changes or modifications to the approved plans and specifications shall be made
and accepted by written change orders or agreement signed by Landlord and Tenant
and shall constitute an amendment to this Lease. Tenant shall have the option
to choose one contractor to bid on the tenant improvement work depicted in
EXHIBITS B and C, subject to Landlord's reasonable selection criteria, and
Tenant shall have the right to participate in the selection of the general
contractor in cooperation with Landlord.
6.2 TENANT IMPROVEMENTS. Tenant shall not make or allow to be made any
alterations or physical additions in or to the Premises without first obtaining
the written consent of Landlord, which consent may in the sole and absolute
discretion of Landlord be denied. Any alterations, physical additions or
improvements to the Premises made by Tenant shall at once become the property
of Landlord and shall be surrendered to Landlord upon the termination of this
Lease; provided, however, Landlord, at its option, may require Tenant to remove
any physical additions
-6-
<PAGE> 7
and/or repair any alterations in order to restore the Premises to the
conditions existing at the time Tenant took possession, all costs of removal
and/or alterations to be borne by Tenant. This clause shall not apply to
moveable equipment or furniture owned by Tenant, which may be removed by Tenant
at the end of the term of this Lease if Tenant is not then in default and if
such equipment and furniture are not subject to any other rights, liens and
interests of Landlord.
ARTICLE 7. CASUALTY AND INSURANCE
7.1 SUBSTANTIAL DESTRUCTION. If all or a substantial portion of the Premises
or the Building should be totally destroyed by fire or other casualty, or if
the Premises or the building should be damaged so that rebuilding cannot
reasonably be completed within one hundred eighty (180) working days after the
date of written notification by Tenant to Landlord of the destruction, or if
insurance proceeds are not made available to Landlord, or are inadequate, for
restoration, this Lease shall terminate at the option of Landlord by written
notice to Tenant within sixty (60) days following the occurrence, and the rent
shall be abetted for the unexpired portion of the Lease effective as of the
date of the written notification.
7.2 PARTIAL DESTRUCTION. If the Premises should be partially damaged by fire
or other casualty, and rebuilding or repairs can reasonably be completed within
one hundred eighty (180) working days from the date of written notification by
Tenant to Landlord of the destruction, and insurance proceeds are adequate and
available to Landlord for restoration, this Lease shall not terminate, and
Landlord shall at its sole risk and expense proceed with reasonable diligence
to rebuild or repair the Building or other improvements to substantially the
same condition in which they existed prior to the damage. If the Premises are
to be rebuilt or repaired and are untenantable in whole or in part following
the damage, and the damage or destruction was not caused or contributed to by
act or negligence of Tenant, its agents, employees, invitees or those for whom
Tenant is responsible, the rent payable under this Lease during the period for
which the Premises are untenantable shall be adjusted to such an extent as may
be fair and reasonable under the circumstances. In the event that Landlord
fails to complete the necessary repairs or rebuilding within one hundred eighty
(180) working days from the date of written notification by Tenant to Landlord
of the destruction, Tenant may at its option terminate this Lease by delivering
written notice of termination to Landlord, whereupon all rights and obligations
under this Lease shall cease to exist.
7.3 PROPERTY INSURANCE. Landlord shall not be obligated in any way or manner
to insure any personal property (including, but not limited to, any furniture,
machinery, goods or supplies) of Tenant upon or within the Premises, any
fixtures installed or paid for by Tenant upon or within the Premises, or any
improvements which Tenant may construct on the Premises. Tenant shall maintain
property insurance on its personal property and shall also maintain plate glass
insurance. Tenant shall have no right in or claim to the proceeds of any pot
icy of insurance maintained by Landlord even if the cost of such insurance is
borne by Tenant as set forth in Article 2.
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<PAGE> 8
7.4 WAIVER OF SUBROGATION. Anything in this Lease to the contrary
withstanding, Landlord and Tenant hereby waive and release each other of and
from any and all right of recovery, claim, action or cause of action, against
each other, their agents, officers and employees, for any loss or damage that
may occur to the Premises, the improvements of the Building or personal
property within the Building, by reason of fire or the elements, regardless of
cause or origin, including negligence of Landlord or Tenant and their agents,
officers and employees. Landlord and Tenant agree immediately to give their
respective insurance companies which have issued policies of insurance covering
all risk of direct physical loss, written notice of the terms of the mutual
waivers contained in this Section.
7.5 HOLD HARMLESS. Landlord shall not be liable to Tenant's employees,
agents, invitees, licensees or visitors, or to any other person, for an injury
to person or damage to property on or about the Premises caused by any act or
omission of Tenant, its agents, servants or employees, or of any other person
entering upon the Premises under express or implied invitation by Tenant, or
caused by the improvements located on the Premises becoming out of repair, the
failure or cessation of any service provided by Landlord (including security
service and devices), or caused by leakage of gas, oil, water or steam or by
electricity emanating from the Premises. Tenant agrees to indemnify and hold
harmless Landlord of and from any loss, reasonable attorney's fees, expenses or
claims arising out of any such damage or injury.
7.6 PUBLIC LIABILITY INSURANCE. Tenant shall during the term hereof keep in
full force and effect at its expense a policy or policies of public liability
insurance with respect to the Premises and the business of Tenant, on terms and
with companies approved in writing by Landlord, in which both Tenant and
Landlord shall be covered by being named as insured parties under reasonable
limits of liability not less than $1,000,000, or such greater coverage as
Landlord may reasonably require, combined single limit coverage for injury or
death. Such pot icy or policies shall provide that thirty (30) days' written
notice must be given to Landlord prior to cancellation thereof. Tenant shall
furnish evidence satisfactory to Landlord at the time this Lease is executed
that such coverage is in full force and effect.
ARTICLE 8. CONDEMNATION
8.1 SUBSTANTIAL TAKING. If all or a substantial part of the Premises are
taken for any public or quasi-public use under any governmental law, ordinance
or regulation, or by right of eminent domain or by purchase in lieu thereof,
and the taking would prevent or materially interfere with the use of the
Premises for the purpose for which it is then being used, this Lease shall
terminate and the rent shall be abated during the unexpired portion of this
Lease effective on the date physical possession is token by the condemning
authority. Tenant shall have no claim to the condemnation award or proceeds in
lieu thereof, except that Tenant shall be entitled to a separate award for the
cost of removing and moving its personal property.
8.2 PARTIAL TAKING. If all or a substantial part of the Premises are taken
for any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain
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or by purchase in lieu thereof, and this Lease is not terminated as provided in
Section 8.1 above, the rent payable under this Lease during the unexpired
portion of the term shall be adjusted to such an extent as may be fair and
reasonable under the circumstances. Tenant shall have no claim to the
condemnation award or proceeds in lieu thereof, except that Tenant shall be
entitled to a separate award for the cost of removing and moving its personal
property.
ARTICLE 9. ASSIGNMENT OR SUBLEASE
9.1 LANDLORD ASSIGNMENT. Landlord shall have the right to sell, transfer or
assign, in whole or in part, its rights and obligations under this Lease and in
the Building. Any such sate, transfer or assignment shall operate to release
Landlord from any and all liabilities under this Lease arising after the date
of such sate, assignment or transfer.
9.2 TENANT ASSIGNMENT. Tenant shall not assign, in whole or in part, this
Lease, or allow it to be assigned, in whole or in part, by operation of law or
otherwise (including without limitation by transfer of a majority interest of
stock, merger, or dissolution, which transfer of majority interest of stock,
merger or dissolution shall be deemed an assignment) or mortgage or pledge the
same, or sublet the Premises, in w hole or in part, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld, and in
no event shall said such assignment or sublease ever release Tenant or any
guarantor from any obligation or liability hereunder. Notwithstanding anything
in this Lease to the contrary, in the event of any assignment or sublease, any
option or right of first refusal granted to Tenant shall not be assignable by
Tenant to any assignee or sublessee. No assignee or sublessee of the Premises
or any portion thereof may assign or sublet the Premises or any portion
thereof. Notwithstanding the above, Landlord hereby consents to an assignment
of this Lease to Intranet Solutions, Inc. upon finalization of the merger
between Intranet Integration Group, Inc. and MacGregor Sports & Fitness, Inc.
9.3 CONDITIONS OF ASSIGNMENT. If Tenant desires to assign or sublet all or
any part of the Premises, it shall so notify Landlord at least thirty (30) days
in advance of the date on which Tenant desires to make such assignment or
sublease. Tenant shall provide Landlord with a copy of the proposed assignment
or sublease and such information as Landlord might request concerning the
proposed sublessee or assignee to allow Landlord to make informed judgments as
to the financial condition, reputation, operations and general desirability of
the proposed sublessee or assignee. Within fifteen (15) days after Landlord's
receipt of Tenant's proposed assignment or sublease and all required
information concerning the proposed sublease or assignee, Landlord shall have
the following options: (1) consent to the proposed assignment or sublease,
and, if the rent due and payable by any assignee or sublessee under any such
permitted assignment or sublease (or a combination of the rent payable under
such assignment or sublease plus any bonus or any other consideration or any
payment incident thereto) exceeds the rent payable under this Lease for such
space, Tenant shall pay to Landlord all such excess rent and other excess
consideration within ten (10) days following receipt thereof by Tenant; or (2)
refuse, with reasonable judgement, to consent to the proposed assignment or
sublease, which refusal shall be deemed to have been exercised unless Landlord
gives Tenant written notice providing otherwise. Upon the occurrence of an
event of
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default, if all or any part of the Premises are then assigned or sublet,
Landlord, in addition to any other remedies provided by this Lease or provided
by law, may, at its option, collect directly from the assignee or sublessee all
rents becoming due to Tenant by reason of the assignment or sublease, and
Landlord shall have a security interest in all properties on the Premises to
secure payment of such sums. Any collection directly by Landlord from the
assignee or sublessee shall not be construed to constitute a novation or a
release of Tenant or any guarantor from the further performance of its
obligations under this Lease.
9.4 RIGHTS OF MORTGAGE. Tenant accepts this Lease subject and subordinate to
any recorded mortgage presently existing or hereafter created upon the Building
and to all existing recorded restrictions, covenants, easements and agreements
with respect to the Building. Landlord is hereby irrevocably vested with full
power and authority to subordinate Tenant's interest under this Lease to any
first mortgage lien hereafter placed on the Premises, and Tenant agrees upon
demand to execute additional instruments subordinating this Lease as Landlord
may require. If the interests of Landlord under this Lease shall be
transferred by reason of foreclosure or other proceedings for enforcement of
any first mortgage or deed of trust on the Premises, Tenant shall be bound to
the transferee (sometimes called the "Purchaser") at the option of the
Purchaser, under the terms, covenants and conditions of this Lease for the
balance of the term remaining, including any extensions or renewals, with the
same force and effect as if the Purchaser were Landlord under this Lease, and,
if requested by the Purchaser, Tenant agrees to attorn to the Purchaser,
including the first mortgagee under any such mortgage if it be the Purchaser,
as its Landlord. Notwithstanding the foregoing, Tenant shall not be disturbed
in its possession of the Premises so tong as Tenant is not in default
hereunder.
9.5 TENANT'S STATEMENT. Tenant agrees to furnish, from time to time, within
ten (10) days after receipt of a request from Landlord or Landlord's mortgagee,
a statement certifying, if applicable, the following: Tenant is in possession
of the Premises; the Premises are acceptable; the Lease is in full force and
effect; the Lease is unmodified; Tenant claims no present charge, lien, or
claim or offset against rent; the rent is paid for the current month, but is
not prepaid for more than one month and will not be prepaid for more than one
month in advance; there is no existing default by reason of some act or
omission by Landlord; and such other matters as may be reasonably required by
Landlord or Landlord's mortgagee. Tenant's failure to deliver such statement,
in addition to being a default under this Lease, shall be deemed to establish
conclusively that this Lease is in full force and effect except as declared by
Landlord, that Landlord is not in default of any of its obligations under this
Lease, and that Landlord has not received more than one month's rent in
advance. Tenant agrees to furnish, from time to time, within ten (10) days
after receipt of a request from Landlord, a current financial statement of
Tenant, certified as true and correct by Tenant.
ARTICLE 10. LANDLORD'S LIEN AND SECURITY AGREEMENT
(INTENTIONALLY DELETED)
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<PAGE> 11
ARTICLE 11. DEFAULT AND REMEDIES
11.1 DEFAULT BY TENANT. The following shall be deemed to be events of
default ("Default") by Tenant under this Lease: (1) Tenant shall fail to pay
when due any installment of rent or any other payment required pursuant to this
Lease; (2) Tenant shall abandon any substantial portion of the Premises; (3)
Tenant shall fail to comply with any term, provision or covenant of this Lease,
other than the payment of rent, and the failure is not cured within ten (10)
days after written notice to Tenant; (4) Tenant shall file a petition or an
involuntary petition is filed against Tenant under any applicable federal or
state bankruptcy or insolvency law or Tenant admits that it cannot meet its
financial obligations as they become due; or if a receiver or trustee shall be
appointed for all or substantially all of the assets of Tenant; or Tenant shall
make a transfer in fraud of creditors or shall make an assignment for the
benefit of creditors; or (5) Tenant shall do or permit to be done any act which
results in a lien being filed against the Premises or the Building and/or
project of which the Premises are a part, except that Tenant shall have the
right to seek satisfaction of said lien after posting a bond of one hundred
twenty-five percent (125%) of the lien amount.
In the event that an order for relief is entered in any case under Title 11,
U.S.C. (the "Bankruptcy Code") in which Tenant Is the debtor and: (A) Tenant
as debtor-in-possession, or any trustee who may be appointed in the case (the
"Trustee") seeks to assume the tease, then Tenant, or Trustee if applicable, in
addition to providing adequate assurance described in applicable provisions of
the Bankruptcy Code, shall provide adequate assurance to Landlord of Tenant's
future performance under the Lease by depositing with Landlord a sum equal to
the lesser of twenty-five percent (25%) of the rental and other charges due for
the balance of the lease term or six (6) months' rent ("Security"), to be held
(without any allowance for interest thereon) to secure Tenant's obligation
under the Lease, and (B) Tenant, or Trustee if applicable, seeks to assign the
Lease after assumption of the sees, then Tenant, in addition to providing
adequate assurance described in applicable provisions of the Bankruptcy Code,
shall provide adequate assurance to Landlord of the proposed assignee's future
performance under the Lease by depositing with Landlord a sum equal to the
Security to be held (without any allowance or interest thereon) to secure
performance under the Lease. Nothing contained herein expresses or implies, or
shall be construed to express or imply, that Landlord is consenting to
assumption and/or assignment of the Lease by Tenant, and Landlord expressly
reserves all of its rights to object to any assumption and/or assignment of the
Lease. Neither Tenant nor any Trustee shall conduct or permit the conduct of
any "fire", "bankruptcy", "going out of business" or auction sate in or from
the Premises.
11.2 REMEDIES FOR TENANT'S DEFAULT. Upon the occurrence of a Default as
defined above, Landlord may elect either (I) to cancel and terminate this Lease
and this Lease shall not be treated as an asset of Tenant's bankruptcy estate,
or (ii) to terminate Tenant's right to possession only without cancelling and
terminating Tenant's continued liability under this Lease. Notwithstanding the
fact that initially Landlord elects under (ii) to terminate Tenant's right to
possession only, Landlord shall have the continuing right to cancel and
terminate this Lease by giving ten (10) days' written notice to Tenant of such
further election, and shall have the right to pursue any remedy at law or in
equity that may be available to Landlord.
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<PAGE> 12
In the event of election under (ii) to terminate Tenant's right to possession
only, Landlord may, at Landlord's option, enter the Premises and take and hold
possession thereof, without such entry into possession terminating this Lease
or releasing Tenant In tote or in part from Tenant's obligation to pay all
amounts hereunder for the full stated term. Upon such reentry, Landlord may
remove all persons and property from the Premises and such property may be
removed and stored in a public warehouse or elsewhere at the cost and for the
account of Tenant, without becoming liable for any loss or damage which may be
occasioned thereby. Such reentry shall be conducted in the following manner:
without resort to judicial process or notice of any kind if Tenant has
abandoned or voluntarily surrendered possession of the Premises; and,
otherwise, by resort to judicial process. Upon and after entry into possession
without termination of the Lease, Landlord may, but is not obligated to, relet
the Premises, or any part thereof, to any one other than the Tenant, for such
time and upon such terms as Landlord, in Landlord's sole discretion, shall
determine. Landlord may make repairs to the Premises to the extent deemed by
Landlord necessary or desirable to relet the Premises.
Upon such reentry, Tenant shall be liable to Landlord as follows:
A. For all attorneys' fees incurred by Landlord in connection with
exercising any remedy hereunder;
B. For the unpaid installments of base rent, additional rent or
other unpaid sums which were due prior to such reentry, including
interest and late payment fees, which sums shall be payable
immediately.
C. For the installments of base rent, additional rent, and other
sums falling due pursuant to the provisions of this Lease for the
period after reentry during which the Premises remain vacant,
including late payment charges and interest, which sums shall be
payable as they become due hereunder.
D. For all expenses incurred in releasing the Premises, including
leasing commissions, attorneys' fees, and costs of alteration or
repairs, which shall be payable by Tenant as they are incurred by
Landlord; and
E. White the Premises are subject to any new lease or leases made
pursuant to this Section, for the amount by which the monthly
installments payable under such new lease or leases is less than
the monthly installment for all charges payable pursuant to this
Lease, which deficiencies shall be payable monthly.
Notwithstanding Landlord's election to terminate Tenant's right to possession
only, and notwithstanding any reletting without termination, Landlord, at any
time thereafter, may elect to terminate this Lease, and to recover (in lieu of
the amounts which would thereafter be payable pursuant to the foregoing, but
not in diminution of the amounts payable as provided above before termination),
as damages for loss of bargain and not as a penalty, an aggregate sum equal to
the
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amount by which the rental value of the portion of the term unexpired at the
time of such election is less than an amount equal to the unpaid base rent,
percentage rent, and additional rent and all other charges which would have
been payable by Tenant for the unexpired portion of the term of this Lease,
which deficiency and all expenses incident thereto, including commissions,
attorneys' fees, expenses of alterations and repairs, shall be due to Landlord
as of the time Landlord exercises said election, notwithstanding that the term
had not expired. If Landlord, after such reentry, Leases the Premises, then
the rent payable under such new tease shall be conclusive evidence of the
rental value of the unexpired portion of the term of this Lease.
If this Lease shall be terminated by reason of bankruptcy or insolvency of
Tenant, Landlord shall be entitled to recover from Tenant or Tenant's estate,
as liquidated damages for toss of bargain and not as a penalty, the amount
determined by the immediately preceding paragraph.
11.3 LANDLORD'S RIGHT TO PERFORM FOR ACCOUNT OF TENANT. If Tenant shall be
in Default under this Lease, Landlord may cure the Default at any time for the
account and at the expense of Tenant. If Landlord cures a Default on the part
of Tenant, Tenant shall reimburse Landlord upon demand for any amount expended
by Landlord in connection with the cure, including, without limitation,
attorneys' fees and interest.
11.4 INTEREST, ATTORNEY'S FEES AND LATE CHANGE. In the event of a Default by
Tenant: (1) if a monetary default, interest shall accrue on any sum due and
unpaid at the rate of the lesser of eighteen percent (18%) per annum or the
highest rate permitted by law and, if Landlord places in the hands of an
attorney the enforcement of all or any part of this Lease, the collection of
any rent due or to become due or recovery of the possession of the Premises,
Tenant agrees to pay Landlord's costs of collection, including reasonable
attorney's fees for the services of the attorney, whether suit is actually
filed or not. Other remedies for nonpayment of rent notwithstanding, if the
monthly rental payment or any other payment due from Tenant to Landlord is not
received by Landlord on or before the fifth (5th) day of the month for which
the rent is due, a late payment charge of five percent (5%) of such past due
amount shall become due and payable in addition to such amounts owed under this
Lease.
11.5 ADDITIONAL REMEDIES, WAIVERS, ETC.
A. The rights and remedies of Landlord and Tenant set forth herein
shall be in addition to any other right and remedy now and
hereafter provided by law. All rights and remedies shall be
cumulative and not exclusive of each other. Landlord or Tenant
may exercise its rights and remedies at any times, in any order,
to any extent, and as often as Landlord or Tenant deems advisable
without regard to whether the exercise of one right or remedy
precedes, concurs with or succeeds the exercise of another.
B. A single or partial exercise of a right or remedy shall not
preclude a further exercise thereof, or the exercise of another
right or remedy from time to time.
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<PAGE> 14
C. No delay or omission by Landlord or Tenant in exercising a
right or remedy shall exhaust or impair the sees or constitute a
waiver of, or acquiescence to, a Default.
D. No waiver of Default shall extend to or affect any other Default
or impair any right or remedy with respect thereto.
E. No action or inaction by Landlord or Tenant shall constitute a
waiver of Default.
F. No waiver of a Default shall be effective unless it is in
writing and signed by Landlord or Tenant.
ARTICLE 12. RELOCATION
(INTENTIONALLY DELETED)
ARTICLE 13. AMENDMENT AND LIMITATION OF WARRANTIES
13.1 ENTIRE AGREEMENT. IT IS EXPRESSLY AGREED BY TENANT, AS A MATERIAL
CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH THE
SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF
THE PARTIES: THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS, WARRANTIES,
UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO THIS LEASE
OR TO THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT INCORPORATED IN
WRITING IN THIS LEASE.
13.2 AMENDMENT. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR EXTENDED
EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LANDLORD AND TENANT.
13.3 LIMITATION OF WARRANTIES. LANDLORD AND TENANT EXPRESSLY AGREE THAT
THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OR MERCHANTABILITY, HABITABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS
LEASE, AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET
FORTH IN THIS LEASE. LANDLORD AGREES TO PROVIDE TENANT A COPY OF THE
CERTIFICATE OF OCCUPANCY UPON THE COMPLETION OF THE IMPROVEMENTS.
ARTICLE 14. MISCELLANEOUS
14.1 SUCCESSORS AND ASSIGNS. This Lease shall be binding upon and inure to
the benefit of Landlord and Tenant and their respective heirs, personal
representatives, successors and assigns. It is hereby covenanted and agreed
that should Landlord's interest in the Premises cease to exist for
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<PAGE> 15
any reason during this Lease, then notwithstanding the happening of such event
this Lease nevertheless shall remain unimpaired and in full force and effect,
and Tenant hereunder agrees to attorn to the then owner of the Premises.
14.2 USE OR RENT TAX. If applicable in the jurisdiction where the Premises
are issued, Tenant shall pay and be liable for all rental, sales and use taxes
or other similar taxes, if any, levied or imposed by any city, state, county or
other governmental body having authority, such payments to be in addition to
all other payments required to be paid to Landlord under the terms of this
Lease. Any such payment shall be paid concurrently with the payment of the
rent, additional rent, operating expenses or other charge upon which the tax is
based as set forth above.
14.3 ACT OF GOD. Landlord shall not be required to perform any covenant or
obligation in this Lease, or be liable in damages to Tenant, so long as the
performance or non-performance of the covenant or obligation is delayed, caused
or prevented by an act of God, force majeure or by Tenant.
14.4 HEADINGS. The section headings appearing in this Lease are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any Section.
14.5 NOTICE. All rent and other payments required to be made by Tenant
shall be payable to landlord at the address set forth in Section 1.8. All
payments required to be made by Landlord to Tenant shall be payable at the
address set forth in Section 1.8, or at any other address within the United
States as Tenant may specify from time to time by written notice. Any notice
or document required or permitted to be delivered by the terms of this Lease
shall be deemed to be delivered (whether or not actually received) when
deposited in the United States Mail, postage prepaid, certified mail, return
receipt requested, addressed to the parties at the respective addresses set
forth in Section 1.8.
14.6 TENANT'S AUTHORITY. If Tenant executes this Lease as a corporation,
each of the persons executing this Lease on behalf of Tenant does hereby
personally represent and warrant that Tenant is a duty authorized and existing
corporation, that Tenant is qualified to do business in the state in which the
Premises are located, that the corporation has full right and authority to
enter into this Lease, and that each person signing on behalf of the
corporation is authorized to do so. In the event any representation or
warranty is false, all persons who execute this tease shall be liable,
individually, as Tenant.
14.7 HAZARDOUS SUBSTANCES. Tenant, its agents or employees, shall not
bring or permit to remain on the Premises or Building any asbestos, petroleum or
petroleum products, explosives, toxic materials, or substances defined as
hazardous wastes, hazardous materials, or hazardous substances under any
federal, state, or local law or regulation ("Hazardous Materials"). Tenant's
violation of the foregoing prohibition shall constitute a material breach and
default hereunder and Tenant shall indemnify, hold harmless and defend Landlord
from and against any claims, damages, penalties, liabilities, and costs
(including reasonable attorney fees and court costs) caused by or arising out
of (I) a violation of the foregoing prohibition by Tenant or (ii) the presence
of any
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<PAGE> 16
Hazardous Materials on, under, or about the Premises or the Building during the
term of the Lease caused by or arising, in whole or in part, out of the actions
of Tenant, its agents or employees. Tenant shall clean up, remove, remediate
and repair any soil or ground water contamination and damage caused by the
presence and any release of any Hazardous Materials in, on, under or about the
Premises or the Building during the term of the Lease caused by or arising, in
whole or in part, out of the actions of Tenant, its agents or employees, in
conformance with the requirements of applicable law. Tenant shall immediately
give Landlord written notice of any suspected breach of this paragraph; upon
learning of the presence of any release of any Hazardous Materials, and upon
receiving any notices from governmental agencies pertaining to Hazardous
Materials which may affect the Premises or the Building. The obligations of
Tenant hereunder shall survive the expiration of earlier termination, for any
reason, of this Lease. Notwithstanding the above, Landlord agrees to hold
Tenant harmless for Hazardous Materials in, on or about the Building prior to
or during Tenant's occupancy, which were not caused or contributed by the
Tenant, its employees, customers or representatives.
14.8 SEVERABILITY. If any provision of this Lease or the application
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Lease and the application of such provisions to
other persona or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
14.9 LANDLORD'S LIABILITY. If Landlord shall be in default under this Lease
and, if as a consequence of such default, Tenant shall recover a money judgment
against Landlord, such judgment shall be satisfied only out of the right, title
and interest of Landlord in the Building as the same may then be encumbered and
neither Landlord nor any person or entity comprising Landlord shall be liable
for any deficiency. In no event shall Tenant have the right to levy execution
against any property of Landlord nor any person or entity comprising Landlord
other than its interest in the Building as herein expressly provided. Landlord
agrees to maintain an equity interest of $200,000.00 in the Building at all
times during the term of this Lease.
14.10 BROKERAGE. Landlord and Tenant each represents and warrants to the
other that there is no obligation to pay any brokerage fee, commission,
finder's fee or other similar charge in connection with this Lease, other than
fees due to Gary Lally of Hoyt Properties, which are the responsibility of
Landlord. Each party covenants that it will defend, indemnify and hold
harmless the other party from and against any toss or liability by reason of
brokerage or similar services alleged to have been rendered to, at the instance
of, or agreed upon by said indemnifying party. Notwithstanding anything herein
to the contrary, Landlord and Tenant agree that there shall be no brokerage fee
or commission due on expansions, options or renewals by Tenant.
14.11 MANAGEMENT AGENT. Landlord hereby notifies Tenant that the parson
authorized to execute this Lease and manage the Premises is CSM Corporation, a
Minnesota corporation, which has been appointed to act as the agent in teasing
management and operation of the Building for owner and is authorized to accept
service of process and receive or give receipts for notices and
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<PAGE> 17
demands on behalf of Landlord. Landlord reserves the right to change the
identity and status of its duty authorized agent upon written notice to Tenant.
14.12 SUBMISSION OF LEASE. Submission of this Lease to Tenant for signature
does not constitute a reservation of space or an option to Lease. This Lease
is not effective until execution by and delivery to both Landlord and Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease effective the
day and year first above written.
LANDLORD: TENANT:
CSM INVESTORS, INC. INRANET INTEGRATION GROUP, INC.
BY:/s/ Illegible Signature BY: /s/ Robert F. Olson
----------------------- ------------------------------------------
ITS: Vice President ITS: President and Chief Executive Officer
------------------- -------------------------------------
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<PAGE> 18
GUARANTEE OF LEASE
WHEREAS, INTRANET INTEGRATION GROUP, INC. D/B/A TECHNICAL PUBLISHING SOLUTIONS,
INC., a Minnesota corporation, hereinafter referred to as "Tenant" has
requested that a certain lease of even date herewith be executed by and between
Tenant and CSM INVESTORS, INC., a Minnesota corporation, hereinafter referred
to as "Landlord", covering certain premises located at 9625 West 76th Street,
Suite 150, in Eden Prairie, Minnesota.
WHEREAS, the Landlord requires as a condition to its execution of said Lease
that the undersigned ("Guarantor") guarantee the full performance of the
obligations of Tenant under said Lease; and
WHEREAS, the Guarantor is desirous that Landlord enter into said Lease with
Tenant.
NOW THEREFORE, to induce Landlord to enter into said Lease, and in
consideration of the execution of said Lease by Landlord, the Guarantor hereby
unconditionally guarantees the full performance of each and all of the terms,
covenants and conditions of said Lease to be kept and performed by said Tenant,
including the payment of all rentals and other charges to accrue thereunder, up
to the total value of Landlord's investment in tenant improvements to the
Premises, and the Guarantor agrees as follows:
1. That the covenants and agreement on its part shall continue in favor of
the Landlord notwithstanding any extension, modification, or alteration of
said Lease entered into by and between the parties thereto, or their
successors or assigns, or notwithstanding any assignment of said Lease,
with or without the consent of the Landlord and no extension,
modification, alteration or assignment of the above-referred to Lease
shall in any manner release or discharge the Guarantor, except as
contained herein, and it does hereby consent thereto.
2. That this Guarantee will continue unchanged by a (I) bankruptcy,
reorganization or insolvency of the Tenant or any successor or assignee
thereof or by any disaffirmance of abandonment by a trustee of Tenant,
(ii) disability or other defense of Tenant, or (iii) the cessation for any
cause from any cause whatsoever of the liability of Tenant.
3. That Tenant may not, without prior written approval of Landlord, assign
this Guarantee of Lease in whole or in part, and no assignment or transfer
of the Lease shall operate to extinguish or diminish the liability of the
Guarantor hereunder.
4. That the liability of the Guarantor under this Guarantee of Lease shall
be primary and that in any right of action which shall accrue to Landlord
under the Lease, the Landlord may at its option proceed against the
Guarantor without having commenced any action, or having obtained any
judgment against the Tenant.
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<PAGE> 19
5. That the Guarantor agrees to pay Landlord's reasonable attorneys' fees
and all costs and other expenses incurred in any collection or attempted
collection or in any negotiations relative to the obligations hereby
guaranteed or enforcing this Guarantee of Lease against the Guarantor,
individually and jointly.
6. That it does hereby waive notice of any demand by the Landlord as well as
notice of default in the payment of rent or any other amounts contained or
reserved in the Lease.
7. Notwithstanding the above, this Guarantee of Lease shall become null and
void upon the earlier of the finalization of the merger between Intranet
Integration Group, Inc. and MacGregor Sports & Fitness, Inc., or receipt
by Intranet Integration Group, Inc. or its assignees of a minimum of
$3,000,000.00 of equity financing.
The use of the singular herein shall include the plural. The obligation of two
or more parties shall be joint and several. The terms and provisions of this
Guarantee shall be binding upon and inure to the benefit of the respective
successors and assigns of the parties herein named.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be executed as
of the date set forth on Page 1 of the Lease (if Guarantor shall be a
corporation, the authorized officers must sign on behalf of the corporation.
This Guarantee must be executed by the president or vice president and the
secretary or assistant secretary).
By: /s/ Robert Olson
------------------------------
ROBERT OLSON
Home Address: 7073 Ticonderoga Trail
------------------------------
Eden Prairie, Minnesota 55346
------------------------------
Home Phone: (612) 934-3141
------------------------------
Social Security #: ###-##-####
------------------------------
Date: April 24, 1996
------------------------------
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<PAGE> 1
CREDIT AND SECURITY AGREEMENT
AGREEMENT made this 14 day of March, 1995, Technical Publishing
Solutions, Inc., a Minnesota corporation (herein called "Borrower"), for the
benefit of Diversified Business Credit, Inc., a Minnesota corporation (herein,
with its participants, successors and assigns, called "Lender").
RECITALS
Borrower has requested that Lender make loans to Borrower from time to
time at Lender's sole discretion and, in connection therewith, has executed and
delivered for Lender's benefit the following security documents (herein called
the "Security Documents"):
1. UCC Financing Statements
2. Various ancillary and supplemental agreements and documents executed
and delivered in connection with the foregoing.
This Agreement sets forth certain additional obligations undertaken by Borrower
to induce Lender to make such loans.
ACCORDINGLY, to induce Lender to make one or more loans to Borrower, and
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower hereby represents, warrants and agrees for the
benefit of Lender that:
1. THE LOANS. Lender shall not be obligated to make any loans to
Borrower. All loans which Lender may determine to make under this Agreement
shall be repayable on demand. Borrower will comply with the following
procedure in requesting loans from Lender:
(a) Borrower will request loans from Lender in such manner as Lender
may from time to time prescribe.
(b) Lender may make loans in any amount and in any manner requested
orally or in writing (i) by any officer of Borrower; or (ii) by any person
designated as Borrower's agent by any officer of Borrower in a writing
delivered to Lender; or (iii) by any person reasonably believed by Lender
to be an officer of Borrower or such a designated agent. Except as
otherwise instructed in writing by such officer, agent or person, Lender
may disburse loan proceeds by deposit with any bank to or for the account
of Borrower or to or for the account of any third party designated by such
officer, agent or person, or by an instrument payable to Borrower or to
any such third party, or in any other manner deemed appropriate by Lender.
All principal of and interest on loans made by Lender shall be repayable
at the offices of Lender in Minneapolis, Minnesota, unless Lender
designates a different place of payment by written notice to Borrower.
(c) Lender may make loans on the basis of Collateral available
hereunder and under the Security Documents or any other basis deemed
appropriate by Lender from time to time. Lender may change from time to
time, at its sole discretion and without notice to Borrower, the
standards, criteria and formulae used by Lender in determining the type
and amount of Collateral eligible for advance. In any event, subject to
change at Lender's discretion, Borrower shall not request loans on the
basis of the following Collateral:
(1) Accounts receivable which are (i) disputed or subject to
claims or setoffs; or (ii) progress billings; or (iii) owed by an
account debtor not located in the United States or Canada and not
secured by a bank letter of credit satisfactory to
<PAGE> 2
Lender in its sole discretion; or (iv) owed by an account debtor
which is the subject of any bankruptcy or insolvency proceeding or
is insolvent or has made an assignment for the benefit of creditors
or has failed or suspended or gone out of business.
(2) Collateral which is not as warranted herein or in the
Security Documents.
(3) Collateral which Lender, in its discretion, has declared
ineligible collateral by written notice to Borrower.
(4) Accounts receivable not paid within 90 days after invoice
or, if Lender in its discretion has determined that a particular
dated receivable is eligible for advance, within 30 days after the
due date stated.
(5) Accounts receivable owed to Borrower by any shareholder,
subsidiary or affiliate of Borrower or by any person or company
obligated to pay any receivable deemed ineligible under clauses (1)
through (4), if such ineligible receivable is 10% or more of the
total amount due from such person or company.
Notwithstanding any apportionment, exclusion or segregation of collateral
made by Lender for purposes of determining the amount or maximum amount of
loans made to Borrower, all rights and interests of Lender hereunder and
under the Security Documents, and all other collateral rights, interests
and properties available to Lender, shall secure and may be applied to pay
any or all indebtedness of Borrower secured thereby, in any manner or
order of application and without regard to any such apportionment,
exclusion or segregation.
(d) Borrower will pay interest on all outstanding loans under this
Agreement (except for the loans referred to in the Term Loan Supplement to
Credit Agreement dated March ___, 1995) at an annual rate (computed on the
basis of actual days elapsed in a 360-day year) which shall at all times
be equal to the greater of (i) eight percent (8.0%) per annum, or (ii) two
and one half percent (2.5%) above the rate of interest publicly announced
by National City Bank of Minneapolis from time to time as its base rate
(or any similar successor rate), each change in the interest rate to take
effect simultaneously with the corresponding change in the designated
bank's base rate or any similar successor rate; provided that in no event
shall the Borrower pay interest at a rate greater than the highest rate
permitted by law. Borrower will pay interest on the loans referred to in
the Term Loan Supplement to Credit Agreement dated March __, 1995 at an
annual rate (computed on the basis of actual days elapsed in a 360-day
year) which shall at all times be equal to the greater of (i) seven and
one half percent (7.5%) per annum, or (ii) two percent (2.0%) above the
rate of interest publicly announced by National City Bank of Minneapolis
from time to time as its base rate (or any similar successor rate), each
change in the interest rate to take effect simultaneously with the
corresponding change in the designated bank's base rate or any similar
successor rate; provided that in no event shall the Borrower pay interest
at a rate greater than the highest rate permitted by law. All interest
shall accrue on the principal balance outstanding from time to time and
shall be payable on the first day of the next month in which accrued and
in any event on demand. Borrower agrees that Lender may at any time or
from time to time, without further request by Borrower, make a loan to
Borrower, or apply the proceeds of any loans, for the purpose of paying
all such interest promptly when due. In the computation of interest,
Lender may allow three (3) banking days for the collection of uncollected
funds.
(e) In addition to any other amounts payable by Borrower to Lender,
Borrower agrees to pay to the Lender on the date of this Agreement and on
each anniversary date, so
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<PAGE> 3
long as Lender, in its sole discretion, is willing to make loans to
Borrower for ordinary working capital purposes subject to the availability
of Collateral deemed eligible by Lender an annual fee equal to $5,000,
provided, however, payment of such fee does not obligate Lender to make
any loans to Borrower, and Lender, in its sole discretion, shall determine
if it will make loans and the amounts of any such loans pursuant to the
terms of Paragraphs 1(a) through 1(h). In addition to the annual fee and
other amounts set forth herein, on each anniversary date of this
Agreement, Borrower shall pay to Lender an additional annual fee equal to
the difference between (a) one percent (1.0%) of the highest loan balance
outstanding owed by Borrower and DocuPro Services, Inc. in the aggregate
at any time during the preceding twelve (12) months and (b) $5,000. Such
additional annual fee will be due notwithstanding termination of this
Agreement on or before such anniversary date; and such additional annual
fee will be based on outstanding loan balances during the period beginning
with last anniversary date and ending on the date of termination of this
Agreement and shall be due and payable on such date of termination. The
hereinabove described annual fee and additional annual fee are the
joint and several obligations of Borrower and DocuPro Services, Inc. To
the extent the annual fee or additional annual fee or a portion thereof is
paid by DocuPro Services, Inc., Borrower shall be obligated to pay only
the remaining amount of the unpaid annual and additional annual fees.
(f) Lender may maintain from time to time, at its discretion,
liability records as to any and all loans made or repaid and interest
accrued or paid under this Agreement. All entries made on any such record
shall be presumed correct until Borrower establishes the contrary. On
demand by Lender, Borrower will admit and certify in writing the exact
principal balance which Borrower then asserts to be outstanding to Lender
for loans under this Agreement. Any billing statement or accounting
rendered by Lender shall be conclusive and fully binding on Borrower
unless specific written notice of exception is given to Lender by Borrower
within 30 days after its receipt by Borrower.
(g) Borrower's obligations with respect to all loans shall be fully
binding and enforceable without any note or other evidence of
indebtedness. Nevertheless, if Lender so requests, Borrower will duly
execute and deliver to Lender a promissory note negotiable in form payable
on demand to the order of Lender in a principal amount equal to the
principal balance then outstanding to Lender for loans under this
Agreement, together with interest as set forth in Paragraph 1(d).
(h) In requesting any loans under this Agreement, Borrower shall be
deemed to represent and warrant to Lender that, as of the date of the
proposed loans, (i) all of the representations and warranties made in
Paragraphs 3 and 4 will be true and correct except for changes caused by
transactions permitted under this Agreement, and (ii) no breach or default
under, and no Event of Default defined or described in, this Agreement or
any of the Security Documents will exist.
2. AFFILIATE. For the purposes of this Agreement, "Affiliate" refers to
DocuPro Services, Inc., Technical Publishing Solutions of Colorado, Inc. and
any other corporation, partnership, individual or other entity which now or
hereafter controls, is controlled by, or is under common control with Borrower.
Borrower agrees that any breach, default or event of default by or
attributable to any Affiliate under any agreement between such Affiliate and
Lender shall constitute a breach of this Agreement and an Event of Default
hereunder and under the Security Documents.
3. SECURITY INTEREST
(a) GRANT OF SECURITY INTEREST. Borrower hereby assigns to Lender
and grants Lender a security interest (collectively referred to as the
"Security Interests") in the property
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<PAGE> 4
described below, as security for the payment and performance of each
and every debt, liability and obligation of every type and description
which Borrower may now or at any time hereafter owe to Lender (whether
such debt, liability or obligation now exists or is hereafter created or
incurred, whether it arises in a transaction involving Lender alone or in
a transaction involving other creditors of Borrower, and whether it is
direct or indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, or sole, joint, several or joint
and several, and including specifically, but not limited to all
indebtedness or Borrower arising under this or any other present or future
loan or credit agreement, promissory note, guaranty or other undertaking
of Borrower enforceable by Lender; all such debts, liabilities and
obligations are herein collectively referred to as the "Obligations").
The Security Interests shall attach to the following property of Borrower
(the "Collateral"), including all proceeds and products thereof:
INVENTORY: All inventory of every type and description, now owned
or hereafter acquired by Borrower, including inventory consisting of
whole goods, spare parts or components, supplies or materials and
inventory acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, or any other
purpose, and wherever located.
DOCUMENTS OF TITLE; All warehouse receipts, bills of lading and
other documents of title of every type and description now owned or
hereafter acquired by Borrower.
RECEIVABLES: Each and every right of Borrower to the payment of
money, whether such right to payment now exists or hereafter arises,
whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of
services, out of a loan, out of the overpayment of taxes or other
liabilities, or any other transaction or event, whether such right
to payment is created, generated or earned by Borrower or by some
other person whose interest is subsequently transferred to Borrower,
whether such right to payment is or is not already earned by
performance, and howsoever such right to payment may be evidenced,
together with all other rights and interests (including all liens,
security interests and guaranties) which Borrower may at any time
have by law or agreement against any account debtor or other person
obligated to make any such payment or against any property of such
account debtor or other person; all contract rights, chattel papers,
bonds, notes and other debt instruments, and all loans and
obligations receivable, tax refunds and other rights to payment in
the nature of general intangibles; all checking accounts, savings
accounts and other depository accounts and all savings certificates
and certificates of deposit maintained with or issued by Lender or
any other bank or other financial institution.
EQUIPMENT AND FIXTURES: All equipment and fixtures of every type
and description now owned or hereafter acquired by Borrower,
including (without limitation) all present and future machinery,
vehicles, furniture, fixtures, manufacturing equipment, shop
equipment, office and recordkeeping equipment, parts, tools,
supplies and all other goods (except inventory) used or bought for
use by Borrower for any business or enterprise; including (without
limitation) all goods that are or may be attached or affixed or
otherwise become fixtures upon any real property; and including
specifically (without limitation) the goods described in any
equipment schedule or list herewith or hereafter furnished to Lender
by Borrower, all accessions thereto, all substitutions and
replacements thereof, and all like or similar property now owned or
hereafter acquired by Borrower. (No such schedule or list need be
furnished in order for the security interest granted herein to be
valid as to all of Borrower's equipment.)
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<PAGE> 5
EQUITY SECURITIES: All stocks and other instruments, now owned or
hereafter acquired by Borrower, evidencing an ownership interest in
any partnership, corporation, entity or enterprise.
GENERAL INTANGIBLES: All general intangibles of every type and
description now owned or hereafter acquired by Borrower, including
(without limitation) all present and future foreign and domestic
patents, patent applications, trademarks, trademark applications,
copyrights, trade names, trade secrets, shop drawings, engineering
drawings, blueprints, specifications, parts lists, manuals,
operating instructions, customer or supplier lists and contracts,
licenses, permits, franchises, the right to use Borrower's corporate
name, and the goodwill of Borrower's business.
(b) REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrower
represents, warrants and covenants as follows:
(1) Borrower has (or will have at the time it acquires rights
in Collateral hereafter arising) and will maintain so long as the
Security Interests may remain outstanding, absolute title to each
item of Collateral and all proceeds thereof, free and clear of all
interests, liens, attachments, encumbrances and security interests
except the Security Interests and as provided herein and except as
Lender may otherwise agree in writing. Borrower will defend the
Collateral against all claims or demands of all persons (other than
Lender) claiming the Collateral or any interest therein. Borrower
will not sell or otherwise dispose of the Collateral or any interest
therein, except the sale of inventory in the ordinary course of
Borrower's business, without Lender's prior written consent.
Borrower's interest in the Collateral is freely transferable to any
person, without condition, limitation, jurisdiction or restriction
of governmental authority, or any other qualification whatsoever.
(2) Borrower does business solely under its own name and trade
names (if any) set forth below. The place(s) of business and chief
executive office of Borrower are located at the address(es) set
forth below, and all tangible Collateral is located at such
address(es). All of Borrower's records relating to its business or
the Collateral are kept at its chief executive office. Borrower
will not permit any tangible Collateral or any records pertaining to
Collateral to be located in any state or area in which, in the event
of such location, a financing statement covering such Collateral
would be required to be, but has not in fact been, filed in order to
perfect the Security interests. Borrower will not change its name,
identity or corporate structure or the location of its place of
business, without prior written notice to Lender.
(3) None of the Collateral is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect
thereto.
(4) Each account and other right to payment and each
instrument, document, chattel paper and other agreement constituting
or evidencing Collateral is (or, in the case of all future
Collateral, will be when arising or issued) the valid genuine and
legally enforceable obligation, subject to no defense, setoff or
counterclaim, of the account debtor or other obligor named therein
or in Borrower's records pertaining thereto as being obligated to
pay such obligation. Borrower will not modify, amend, subordinate,
cancel or terminate an obligation of more than $10,000 of any such
account debtor or other obligor, without Lender's prior written
consent.
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<PAGE> 6
(5) Borrower will keep all tangible Collateral in good
repair, working order and condition, normal depreciation excepted,
and will, from time to time, replace any worn, broken or defective
parts.
(6) Borrower will promptly pay all taxes and other
governmental charges levied or assessed upon or against any
Collateral or upon or against the creation, perfection or
continuance of the Security Interests.
(7) Borrower will keep all Collateral free and clear of all
security interests, liens and encumbrances except the Security
Interests and as provided herein and except other security interests
approved in writing by Lender.
(8) Borrower will at all reasonable times permit Lender or
its representatives to examine or inspect any Collateral, or any
evidence of Collateral, wherever located.
(9) Borrower will promptly notify Lender of any loss of or
material damage to any Collateral or of any substantial adverse
change, known to Borrower, in any Collateral or the prospect of
payment thereof.
(10) Upon request by Lender, whether such request is made
before or after the occurrence of any Event of Default, Borrower
will promptly deliver to Lender in pledge all instruments, documents
and chattel papers constituting Collateral, duly endorsed or
assigned by Borrower.
(11) Borrower will at all times keep all tangible Collateral
insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting of motor
vehicles) and such other risks and in such amounts as Lender may
reasonably request, with any loss payable to Lender to the extent of
its interest.
(12) Borrower will use and keep the Collateral, and will
require that others use and keep the Collateral, only for lawful
purposes, without violation of any federal, state or local law,
statute or ordinance.
(13) Borrower from time to time will execute and deliver or
endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other
agreements and writings which Lender may reasonably request in order
to secure, protect, perfect or enforce the Security Interests or the
rights of Lender under this Agreement (but any failure to request or
assure that Borrower executes, delivers or endorses any such item
shall not affect or impair the validity, sufficiency or
enforceability of this Agreement and the Security Interests,
regardless of whether any such item was or was not executed,
delivered or endorsed in a similar context or on a prior occasion).
(14) The proper places to file financing statements to perfect
the Security Interests are the Secretary of State, Minnesota and
County Recorder, Hennepin County, Minnesota. When the financing
statements heretofore signed by Borrower are filed there, Lender
will have valid and perfected security interests in the Collateral,
subject to no prior security interest, assignment, lien or
encumbrance (except interests, if any, specifically approved by
Lender in writing).
If Borrower at any time fails to perform or observe any of the foregoing
agreements, and if such failure shall continue for a period of ten
calendar days after Lender gives Borrower
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<PAGE> 7
written notice thereof (or in the case of the agreements contained in
subsections (7) and (11) above, immediately upon the occurrence of such
failure, without notice or lapse of time), Lender may, but need not,
perform or observe such agreement on behalf and in the name, place and
stead of Borrower (or, at Lender's option, in the name of Lender) and may,
but need not, take any and all other actions which Lender may reasonably
deem necessary to cure or correct such failure (including, without
limitation, the payment of taxes, the satisfaction of security interests,
liens or encumbrances, the performance of obligations owed to account
debtors or other obligors, the procurement and maintenance of insurance,
the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and Borrower shall
thereupon pay to Lender on demand the amount of all monies expended and
all costs and expenses (including reasonable attorneys' fees and legal
expenses) incurred by Lender in connection with or as a result of the
performance or observance of such agreements or the taking of such action
by Lender, together with interest thereon from the date expended or
incurred at the highest lawful rate then applicable to any of the
Obligations. To facilitate the performance or observance by Lender of
such agreements of Borrower, Borrower hereby irrevocably appoints Lender,
or the delegate of Lender, acting alone, as the attorney in fact of
Borrower with the right (but not the duty) from time to time to create,
prepare, complete, execute, deliver, endorse or file in the name and on
behalf of Borrower any and all instruments, documents, assignments,
security agreements, financing statements, applications for insurance and
other agreements and writings required to be obtained, executed, delivered
or endorsed by Borrower under this subparagraph (b).
(c) Proceeds; Collateral Account. Borrower agrees to deliver to
Lender, or, at Lender's option, to deposit in one or more special
collateral accounts maintained for Lender by any bank reasonably
satisfactory to Lender, all proceeds of cash sales of inventory, all
collections on accounts, contract rights, chattel paper and other rights
to payment constituting Collateral, and all other cash proceeds of
Collateral, immediately upon receipt thereof, in the form received, except
for Borrower's endorsement when deemed necessary. Amounts deposited in a
collateral account shall not bear interest and shall not be subject to
withdrawal by Borrower, except after full payment and discharge of all
Obligations. All such collections shall constitute proceeds of Collateral
and shall not constitute payment of any Obligation. Until delivered to
Lender or deposited in a collateral account, all proceeds or collections
of Collateral shall be held in trust by Borrower for and as the property
of Lender and shall not be commingled with any funds or property of
Borrower. Lender may deposit any and all collections received by it from
Borrower or out of any collateral account in Lender's general account and
may commingle such collections with other property of Lender or any other
person. All items shall be delivered to Lender or deposited in any
collateral account subject to final payment. If any such item is returned
uncollected, Borrower will immediately pay Lender, or, for items deposited
in a collateral account, the bank maintaining such account, the amount of
that item, or such bank in its discretion may charge any uncollected item
to Borrower's commercial account or other account. Borrower shall be
liable as an endorser on all items deposited in any collateral account,
whether or not in fact endorsed by Borrower. Lender from time to time at
its discretion may apply funds on deposit in a collateral account to the
payment of any or all Obligations, in any order or manner of application
satisfactory to Lender.
(d) Collection Rights of Lender. In addition to the rights of
Lender under subparagraph (c), with respect to any and all rights to
payment constituting Collateral Lender may at any time after the
occurrence of an Event of Default under Paragraph 7 notify any account
debtor or other person obligated to pay the amount due that such right to
payment has been assigned or transferred to Lender for security and shall
be paid directly to Lender. Borrower will join in giving such notice, if
Lender so requests. At any time after Borrower or Lender gives such
notice to an account debtor or other obligor, Lender may, but need not, in
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<PAGE> 8
Lender's name or in Borrower's name (i) demand, sue for, collect or
receive any money or property at any time payable or receivable on account
of, or securing, any such right to payment, or grant any extension to,
make any compromise or settlement with or otherwise agree to waive,
modify, amend or change the obligations (including collateral obligations)
of any such account debtor or other obligor; and (ii) as agent and
attorney in fact of Borrower, notify the United States Postal Service to
change the address for delivery of Borrower's mail to any address
designated by Lender and otherwise intercept, receive, open and dispose of
Borrower's mail, applying all Collateral as permitted under this Agreement
and holding all other mail for Borrower's account or forwarding such mail
to Borrower's last known address.
(e) Assignment of Insurance. As additional security for the
payment and performance of the Obligations, Borrower hereby assigns to
Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under,
and all other rights of Borrower with respect to, any and all policies of
insurance now or at any time hereafter covering the Collateral or any
evidence thereof or any business records or valuable papers pertaining
thereto, and Borrower hereby directs the issuer of any such policy to pay
all such monies directly to Lender. At any time, whether before or after
the occurrence of any Event of Default, Lender may (but need not), in
Lender's name or in Borrower's name, execute and deliver proofs of claim,
receive all such monies, endorse checks and other instruments representing
payment of such monies, and adjust, litigate, compromise or release any
claim against the issuer of any such policy.
(f) Reproductions. A carbon, photographic or other reproduction of
this Agreement or of any financing statement signed by Borrower shall be
sufficient as a financing statement.
(g) Verification. At any time or from time to time, under its own
name or under a trade name, Lender may (but shall not be obligated to)
send to and discuss with Borrower's account debtors requests for
verification of amounts owed to Borrower. If Lender so requests at any
time, Borrower will send requests for verification to its account debtors
or join in any requests for verification sent by Lender.
(h) Surplus and Deficiency; Care of Collateral. This Agreement
does not contemplate a sale of accounts, contract rights or chattel
paper, and, as provided by law, Borrower is entitled to any surplus and
shall remain liable for any deficiency. Lender's duty of care with
respect to Collateral in its possession (as imposed by law) shall be
deemed fulfilled if it exercises reasonable care in physically keeping
such Collateral or, in the case of Collateral in the custody or possession
of a bailee or other third person, exercises reasonable care in the
selection of the bailee or other third person, and Lender need not
otherwise preserve, protect, insure or care for any Collateral. Lender
shall not be obligated to preserve any rights Borrower may have against
prior parties, to realize on the Collateral at all or in any particular
manner or order or to apply any cash proceeds of the Collateral in any
particular order of application.
4. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Lender that:
(a) Borrower is a corporation duly organized and existing in good
standing under the laws of the State of Minnesota. It has the corporate
power to own its property and to carry on its business as now conducted
and is duly qualified to do business in all states in which such
qualification is required. During its corporate existence, Borrower has
done business solely under the name Technical Publishing Solutions, Inc.
Borrower does not own any capital stock of any corporation, except DocuPro
Services, Inc.
- 8 -
<PAGE> 9
(b) Borrower is duly authorized and empowered to execute, deliver
and perform this Agreement and the Security Documents and to borrow money
from Lender.
(c) The execution and delivery of this Agreement and the Security
Documents, and the performance by Borrower of its obligations thereunder,
do not and will not violate or conflict with any provision of law or the
Articles of Incorporation or By-Laws of Borrower and do not and will not
violate or conflict with, or cause any default or event of default to
occur under, any agreement binding upon Borrower.
(d) The execution and delivery of this Agreement and the Security
Documents have been duly approved by all necessary action of the directors
and shareholders of Borrower; and this Agreement and the Security
Documents have in fact been duly executed and delivered by Borrower and
constitute its lawful and binding obligations, legally enforceable against
it in accordance with their respective terms (subject to laws generally
affecting the enforcement of creditors' rights).
(e) No litigation, tax claims or governmental proceedings are
pending or are threatened against Borrower or any Affiliate and no
judgment or order of any court or administrative agency is outstanding
against Borrower or any Affiliate.
(f) The transaction evidenced by this Agreement does not violate
any law pertaining to usury or the payment of interest on loans.
(g) The authorization, execution, delivery and performance of this
Agreement and the Security Documents are not and will not be subject to
the jurisdiction, approval or consent of, or to any requirement of
registration with or notification to, any federal, state or local
regulatory body or administrative agency.
(h) Payment of the Obligations to Lender has been guaranteed by
Robert F. Olson and John D. Huddock, pursuant to one or more instruments
of guaranty duly executed and delivered and legally enforceable by Lender,
without further act and without condition, in accordance with the stated
terms (subject to laws generally affecting the enforcement of creditors'
rights).
(i) The conduct of its business by Borrower is not subject to
registration with, notification to, or regulation, licensing, franchising,
consent or approval by any state or federal governmental authority or
administrative agency, except general laws and regulations which are not
related or applicable particularly or uniquely to the type of business
conducted by Borrower, which do not materially restrict or limit the
business of Borrower, and with which Borrower is in full compliance. All
registrations and notifications required to be made, and all licenses,
franchises, permits, operating certificates, approvals and consents
required to be issued, to enter into or conduct such business have been
duly and lawfully made or obtained and issued, and all terms and
conditions set forth therein or imposed thereby have been duly met and
complied with.
(j) To the best knowledge of Borrower based upon reasonable
inquiry, no director, shareholder, officer, employee or agent of, or
consultant to, Borrower is prohibited by law, by regulation, by contract,
or by the terms of any license, franchise, permit, certificate, approval
or consent from participating in the business of Borrower as director,
shareholder, officer, employee or agent of, or as consultant to, Borrower,
or is the subject of any pending or, to Borrower's best knowledge,
threatened proceeding which, if determined adversely, would or could
result in such a prohibition.
- 9 -
<PAGE> 10
(k) All assets of Borrower and any Affiliates are free and clear of
liens, security interests and encumbrances, except those permitted under
Paragraph 6(b).
(l) Borrower and all Affiliates have filed all federal and state
tax returns which are required to be filed, and all taxes shown as due
thereon have been paid. Borrower and all Affiliates have paid or caused
to be paid to the proper authorities when due all federal, state and local
taxes required to be withheld by them.
(m) Borrower has furnished to Lender the financial statements
described below for the periods described below:
12 months ended 3/31/93
-----------------------------
12 months ended 3/31/94
-----------------------------
8 months ended 11/30/94
-----------------------------
These statements were prepared in accordance with generally accepted
accounting principles consistently maintained, present fairly the
financial condition of Borrower as at the dates thereof, and disclose
fully all liabilities of Borrower, whether or not contingent, with respect
to any pension plan. Since the date of the most recent financial
statement, there has been no material adverse change in the financial
condition of Borrower.
(n) Each qualified retirement plan of Borrower presently conforms to
and is administered in a manner consistent with the Employee Retirement
Income Security Act of 1974.
(o) Borrower will not request or maintain any credit for the purpose
of purchasing or carrying any security, within the meaning of Regulations
G or U of the Board of Governors of the Federal Reserve System.
5. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that it will:
(a) Use the proceeds of any and all loans made by Lender solely for
lawful and proper corporate purposes of the Borrower.
(b) Pay all taxes, assessments and governmental charges prior to the
time when any penalties or interest accrue, unless contested in good faith
with an adequate reserve for payment; and pay to the proper authorities
when due all federal, state and local taxes required to be withheld by it.
(c) Continue the conduct of its business; maintain its corporate
existence; maintain all rights, licenses and franchises; and comply with
all applicable laws and regulations.
(d) Maintain its property in good working order and condition and
make all needful and proper repairs, replacements, additions and
improvements thereto.
(e) Deliver to Lender:
(1) Within 120 days after the end of each fiscal year, a
statement of Borrower's financial condition as at the end of such
fiscal year and a statement of
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<PAGE> 11
earnings and retained earnings of Borrower for such fiscal year,
with comparative figures for the preceding fiscal year, prepared, if
Lender so requests, on a consolidating and consolidated basis to
include any Affiliated Corporation, reviewed without qualification
by independent certified public accountants acceptable to Lender.
(2) Within 25 days after the end of each fiscal month, a
statement of Borrower's financial condition and an operating
statement and statement of earnings and retained earnings of
Borrower for such month, in each case with comparative figures for
the same month in the preceding fiscal year, prepared on the same
basis as the most recent annual statement provided pursuant to
clause (1) above, certified by an officer of Borrower.
(3) Within 15 days after the end of each month, an aging of
Borrower's accounts receivable as at the end of such month.
(4) Within 15 days after the end of each month, an inventory
certification report as at the end of such month.
(5) Within 15 days after the end of each month, an aging of
Borrower's accounts payable as at the end of such month.
(6) From time to time, any and all receivables, schedules,
collection reports, equipment schedules, copies of invoices to
account debtors and shipment documents and delivery receipts for
goods sold, and other material, reports, records or information
required by Lender.
(f) Permit any officer, employee, attorney or accountant for Lender
to audit, review, make extracts from, or copy any and all corporate and
financial books, records and properties of Borrower at all times during
ordinary business hours, to send and discuss with account debtors and
other obligors' requests for verification of amounts owed to Borrower, and
to discuss the affairs of Borrower with any of its directors, officers,
employees, agents.
(g) Maintain property, liability, business interruption, workman's
compensation and other forms of insurance in reasonable amounts designated
at any time or from time to time by Lender.
(h) On a consolidated basis with DocuPro Services, Inc., at all
times maintain the book net worth of Borrower at amounts in excess of
$350,000 and maintain Borrower's tangible net worth (excluding all
intangible assets designated by Lender) at amounts in excess of $285,000.
(i) Notify Lender promptly of (i) any disputes or claims by
customers of Borrower; (ii) any goods returned to or recovered by
Borrower; (iii) any change in the persons constituting the officers and
directors of Borrower; and (iv) the occurrence of any breach, default or
event of default by or attributable to Borrower under this Agreement or
any of the Security Documents.
(j) Maintain insurance on the lives of Robert F. Olson and John D.
Huddock in the amount of $500,000 each with companies and terms reasonable
acceptable to Lender and assign such life insurance policies to Lender on
forms of assignment acceptable to Lender.
- 11 -
<PAGE> 12
6. NEGATIVE COVENANTS. Borrower covenants and agrees that it will not,
except with the prior written approval of Lender:
(a) Become or remain liable in any manner in respect of any
indebtedness or contractual liability (including, without limitation,
notes, bonds, debentures, loans, guaranties, obligations of partnerships,
and pension liabilities, in each case whether or not contingent and
whether or not subordinated), except:
(1) Indebtedness arising under this Agreement;
(2) Unsecured indebtedness, other than for money borrowed or
for the purchase of a capital asset, incurred in the ordinary course
of its business, which becomes due and must be fully satisfied
within twelve months after the date on which it is incurred;
(3) On a consolidated basis with DocuPro Services, Inc.,
unsecured indebtedness, in an amount not exceeding $55,000 at any
one time outstanding, which is fully subordinated in right of
payment to all indebtedness owed to Lender pursuant to a
subordination agreement accepted or approved in writing by the
Lender.
(4) Indebtedness arising out of the lease or purchase of goods
constituting equipment and either unsecured or secured only by a
purchase money security interest securing purchase money
indebtedness, but in any event only if such equipment is acquired in
compliance with Paragraph 6(c).
(5) Presently outstanding unsecured borrowings, if any,
disclosed in the financial statements referred to in Paragraph 4(m),
but not including any extensions or renewals thereof.
(b) Create, incur or cause to exist any mortgage, security interest,
encumbrance, lien or other charge of any kind upon any of its property or
assets, whether now owned or hereafter acquired, except:
(1) The interests created by this Agreement and the Security
Documents;
(2) Liens for taxes or assessments not yet due or contested in
good faith by appropriate proceedings;
(3) A purchase money security interest or lessor's interest
securing indebtedness permitted to be outstanding or incurred under
Paragraph 6(a)(4);
(4) Security interests approved by Lender in writing; and
(5) Other liens, charges and encumbrances incidental to the
conduct of its business or the ownership of its property which were
not incurred in connection with the borrowing of money or the
purchase of property on credit and which do not in the aggregate
materially detract from the value of its property or materially
impair the use thereof in its business.
(c) On a consolidated basis with DocuPro Services, Inc., expend or
contract to expend, in any one calendar year, more than $250,000
- 12 -
<PAGE> 13
in the aggregate or more than $250,000 in any one transaction for the
lease, purchase or other acquisition of any capital asset, or for the
lease of any other asset, whether payable currently or in the future.
(d) Sell, lease, or otherwise dispose of all or any substantial part
of its property, except as expressly permitted hereunder or under the
Security Documents.
(e) Consolidate or merge with any other corporation; or acquire any
business; or acquire stock of any corporation; or enter into any
partnership or joint venture.
(f) Substantially alter the nature of the business in which it is
engaged.
(g) Declare or pay any dividends (except dividends payable solely in
its capital stock), or purchase or redeem any of its capital stock, or
otherwise distribute any property on account of its capital stock; or
enter into any agreement therefor; provided, however, Borrower may declare
and pay dividends in an amount equal to income tax assessed against the
shareholders of Borrower as a result of the income of Borrower being
directly charged to such shareholders upon Lender's receipt of evidence of
such assessment satisfactory to Lender.
(h) Purchase stock or securities of, extend credit to or make
investments in, become liable as surety for, or guarantee or endorse any
obligation of, any person, firm or corporation, except investments in
direct obligations of the United States and commercial bank deposits and
extensions of credit reflected by trade accounts receivable arising for
goods sold by Borrower in the ordinary course of its business.
(i) After notice from Lender, grant any discount, credit or
allowance to any customer of Borrower or accept any return of goods sold.
(j) In any manner transfer any property without prior or present
receipt of full and adequate consideration.
(k) On a consolidated basis with DocuPro Services, Inc., permit more
than $10,000 in the aggregate to be owing to Borrower by the officers,
directors or shareholders of Borrower or any Affiliated Corporation, or
members of their families, on account of any loan, travel advance, credit
sale or other transaction or event.
(l) On a consolidated basis with DocuPro Services, Inc., pay
excessive or unreasonable salaries, bonuses, commissions, consultant fees,
or other compensation; or increase the salary, bonus, commissions,
consultant fees or other compensation of any director, officer, or
consultant, or any member of their families, by more than 10% in any one
year, either individually or for all such persons in the aggregate, or pay
any such increase from any source other than profits earned in the year of
payment.
(m) Permit any breach, default or event of default to occur under
any note, loan agreement, indenture, lease, mortgage, contract for deed,
security agreement or other contractual obligation binding upon Borrower.
(n) Permit more than $400,000 in the aggregate to be owing to
Borrower by, or invested by Borrower in, DocuPro Services, Inc.
7. EVENT OF DEFAULT. Any breach of any representation, warranty or
agreement of Borrower set forth herein or in the Security Documents or in any
other instrument or agreement
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<PAGE> 14
securing any of the Obligations shall constitute an Event of Default
hereunder and under the Security Documents.
8. REMEDIES UPON DEFAULT. Upon the occurrence of any Event of Default,
and at any time thereafter unless and until such Event of Default is waived in
writing by Lender, Lender may exercise one or several or all of the following
rights and remedies:
(a) Lender may terminate this Agreement with immediate effectiveness
and without notice or lapse of time. Notwithstanding such termination,
all claims, rights and security interests of Lender and all debts,
liabilities, obligations and duties of Borrower shall remain in full force
and effect.
(b) Lender may exercise and enforce any and all rights and remedies
available upon default to a secured party under the Uniform Commercial
Code, including, without limitation, the right to take possession of
Collateral, or any evidence thereof, proceeding without judicial process
(without a prior hearing or notice thereof, which Borrower hereby
expressly waives) and the right to sell, lease or otherwise dispose of any
or all of the Collateral, and in connection therewith Borrower will on
demand assemble the Collateral and make it available to Lender at a place
to be designated by Lender which is reasonably convenient to all parties.
If notice to Borrower of any intended disposition of Collateral or any
other intended action is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given (in the manner
specified in Paragraph 13(a) at least ten calendar days prior to the date
of intended disposition or other action. For the purpose of enabling
Lender to exercise such rights and remedies:
(1) Borrower hereby grants Lender (in addition to Lender's
security interest in general intangibles) a non-exclusive license to
use, sell or otherwise exploit in any manner any and all trade
names, trademarks, patents, copyrights, licenses and other
intangible properties necessary, appropriate or useful in the
enforcement of the Security Interests; and
(2) Borrower hereby grants Lender the right to possess and
hold all premises owned, leased or held by Borrower upon which any
Collateral is or may be located (the "Premises"), subject to the
following terms and conditions:
A. Lender may take possession of the Premises only upon
the occurrence of an Event of Default.
B. Lender may use the Premises only to hold, process,
manufacture and sell or otherwise dispose of goods which are
inventory, or to provide services under contracts for
receivables, or to use, operate, store, liquidate or realize
upon goods which are equipment or any other Collateral granted
under this Agreement and for other purposes which Lender may
in good faith deem to be related or incidental purposes.
C. The right of Lender to hold the Premises shall cease
and terminate upon the earlier of (i) payment in full and
discharge of all Obligations; (ii) final sale or disposition
of all goods constituting Collateral (including both inventory
and equipment) and delivery of all such goods to purchasers.
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<PAGE> 15
D. Lender shall not be obligated to pay or account for
any rent or other compensation for this grant or for the
possession, occupancy or use of any of the Premises.
E. Borrower acknowledges and agrees that the breach of
this grant is not fully compensable by money damages, and
that, accordingly, this grant may be enforced by an action for
specific performance.
(c) Lender may exercise or enforce any and all other rights or
remedies available by law or agreement against the Collateral, against
Borrower, or against any other person or property.
9. Acceleration Upon Bankruptcy. All of the Obligations shall be
immediately and automatically due and payable, without further act or
condition, if any case under the United States Bankruptcy Code is commenced
voluntarily by Borrower or involuntarily against Borrower.
10. Setoff. Borrower agrees that Lender may at any time or from time to
time, at its sole discretion and without demand and without notice to anyone,
set off any deposit or other liability owed to Borrower by Lender, whether or
not due, against any indebtedness owed to Lender by Borrower (for loans under
this Agreement or for any other transaction or event), whether or not due. In
addition, each person holding a participating interest in any loans made to
Borrower by Lender shall have the right to appropriate or set off any deposit
or other liability then owed by such person to Borrower, whether or not due,
and apply the same to the payment of said participating interest, as fully as
if such person had lent directly to Borrower the amount of such participating
interest.
11. Termination by Borrower. So long as Lender, in its sole discretion,
is willing to make loans to Borrower for ordinary working capital purposes
subject to the availability of Collateral deemed eligible by Lender, Borrower
may terminate this Agreement and (subject to payment and performance of all
outstanding secured obligations) may obtain any release or termination of the
Security Documents to which Borrower is otherwise entitled by law, provided
that (i) Lender receives at least 60 days' prior written notice of Borrower's
intent to terminate this Agreement and (ii) Borrower shall have paid to Lender
prior to such termination a termination fee in the amount of (A) $10,000 if
this Agreement is terminated before the second anniversary date of the
Agreement, or (B) $5,000 if this Agreement is terminated on or after the second
anniversary date of this Agreement but before the third anniversary date of
this Agreement. The hereinabove described fee is the joint and several
obligation of Borrower and DocuPro Services, Inc. To the extent the
termination fee or a portion thereof is paid by DocuPro Services, Inc.,
Borrower shall be obligated to pay only the remaining amount of the unpaid
termination fee. Upon any such termination, all obligations of Borrower under
this Agreement and the Security Documents shall remain in full force and effect
until all indebtedness arising under this Agreement and all other debts,
liabilities and obligations of Borrower secured hereby, or by the Security
Documents or any other collateral security have been fully paid and satisfied.
12. Reservation of Right to Make Demand and to Refuse to Lend.
Notwithstanding any other provisions contained herein, Borrower acknowledges
that Lender reserves the right to demand immediate payment of any or all loans
and the interest thereon and of all other obligations of Borrower payable on
demand, and the right to refuse to make any loans hereunder, whether or not (a)
an Event of Default has occurred hereunder, (b) Borrower has failed to comply
with the terms of this Agreement or the Security Documents, (c) Borrower's
financial or other condition has changed, (d) Lender has at that time or in
connection with any previous demand or refusal to lend given notice of its
intention to make demand or to refuse to lend or (e) such demand or refusal to
lend shall not cause any loss or damage to the Borrower.
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<PAGE> 16
13. Miscellaneous. Borrower agrees that:
(a) This Agreement can be waived, amended, terminated or discharged,
and the Security Interests can be released, only explicitly in a writing
signed by Lender. A waiver so signed shall be effective only in the
specific instance and for the specific purpose given. Mere delay or
failure to act shall not preclude the exercise or enforcement of any
rights and remedies available to Lender. All rights and remedies of
Lender shall be cumulative and may be exercised singularly in any order or
sequence, or concurrently, at Lender's option, and the exercise or
enforcement of any such right or remedy shall neither be a condition to
nor bar the exercise of enforcement of any other. All notices to be given
to Borrower shall be deemed sufficiently given if actually received by any
officer of Borrower or if delivered or mailed by registered, certified or
ordinary mail, postage prepaid, to Borrower at its address set forth below
or at its most recent address shown on Lender's records.
(b) Borrower will furnish to Lender, prior to the first advance
hereunder, (i) a certified copy of resolutions of the directors and, if
required, the shareholders of Borrower, authorizing the execution,
delivery and performance of this Agreement and the Security Documents;
(ii) a certificate of an officer of Borrower confirming, in his personal
capacity, the representations and warranties set forth in Paragraphs 3 and
4; (iii) a written opinion of Borrower's independent legal counsel,
addressed to Lender, confirming to the satisfaction of Lender the
representations and warranties set forth in clause (b)(14) of Paragraph 3
and clauses (a) through (h) of Paragraph 4; and (iv) currently certified
copies of the Articles of Incorporation and Bylaws of Borrower and a
Certificate of Good Standing issued as to Borrower by the Secretary of
State of the state of its incorporation; and (v) all certificates of
insurance and insurance endorsements required hereunder and under the
Security Documents; and (vi) all collateral schedules, security interest
subordination agreements, searches, abstracts, releases and termination
statements which Lender may request adequately to assure and confirm the
creation, perfection and priority of the security interests created
hereunder or under the Security Documents.
(c) On demand, Borrower will pay or reimburse Lender for all
expenses, including all reasonable fees and disbursements of legal
counsel, incurred by Lender in connection with the preparation,
negotiation, execution, performance or enforcement of this Agreement or
the Security Documents, or any document contemplated thereby, or the
perfection, protection, enforcement or foreclosure of the security
interests created hereby or by the Security Documents, or in connection
with the protection or enforcement of the interests and collateral
security of Lender in any litigation or bankruptcy or insolvency
proceeding or the prosecution or defense or any action or proceeding
relating in any way to the transactions contemplated by this Agreement.
(d) Lender and its participants, if any, are not partners or joint
venturers, and Lender shall have no liability or responsibility for any
obligation, act or omission of its participants under or as to this
Agreement.
(e) This Agreement shall be binding upon Borrower and its successors
and assigns and shall inure to the benefit of Lender and its participants,
successors and assigns. This Agreement shall be effective when executed
by Borrower and delivered to Lender, whether or not this Agreement is
executed by Lender. All rights and powers specifically conferred upon
Lender may be transferred or delegated by Lender to any of its
participants, successors or assigns. Except to the extent otherwise
required by law, this Agreement and the transactions evidenced hereby
shall be governed by the substantive laws of the State in which this
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<PAGE> 17
Agreement is accepted by Lender. If any provision or application of this
Agreement is held unlawful or unenforceable in any respect, such
illegality or unenforceability shall not affect other provisions or
applications which can be given effect, and this Agreement
shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement or in any other
agreement between Borrower and Lender shall survive the execution,
delivery and performance of this Agreement and the creation and payment of
any indebtedness to Lender. Borrower waives notice of the acceptance of
this Agreement by Lender.
14. Nothing herein contained nor any transaction related hereto shall be
construed or shall operate so as to require the Borrower or any person liable
for repayment of loans made hereunder to pay interest in an amount or at a rate
greater than the maximum allowed, from time to time, by applicable laws, if
any. Should any interest or other charges, including any property, tangible or
intangible, or other items of value received by the Lender, imposed against or
paid by the Borrower or any party liable for the payment of such loans, result
in a computation of earning of interest in excess of the maximum legal rate of
interest permitted under applicable law in effect while such interest is being
earned, then any and all of that excess shall be an is waived by the Lender,
and all of that excess shall be automatically credited against and in reduction
of the principal balance of such loans, without premium, with the same force
and effect as though the Borrower had specifically designated such extra sums
to be so applied to principal and the Lender to accept such extra payment(s) as
a premium-free prepayment, and any portion of the excess that exceeds the
principal balance of loans made hereunder shall be paid by the Lender to the
Borrower or to any party liable for the payment of such loans, applicable, it
being the intent of the parties hereto that under no circumstances shall the
Borrower or any party liable for the payment of the indebtedness evidenced
hereby be required to pay interest in excess of the maximum rate allowed by any
applicable laws. The provisions of this Agreement are hereby modified to the
extent necessary to conform with the limitations and provisions of this
paragraph, and this paragraph shall govern over all other provisions in any
document or agreement now or hereafter existing. This paragraph shall never be
superseded or waived unless there is a written document executed by the Lender
and the Borrower, expressly declaring the usury limitation of this Agreement to
be null and void, and no other method or language shall be effective to
supersede or waive this paragraph.
15. Environmental Laws. Borrower is and will continue to be throughout
the term of this Agreement in full and complete compliance with all federal,
state and local laws, rules and regulations governing hazardous and toxic
substances, waste or materials, any pollutants or contaminants or any other
similar substances, or pertaining to environmental regulations, contamination
or cleanup, including, without limitation, the Comprehensive Environmental
Response Compensation and Liability Act, as amended, the Minnesota Petroleum
Tank Release Cleanup Act, as amended, or any other state lien or state super
lien or environmental cleanup statute (all such laws, rules and regulations
being referred to collectively as "Environmental Laws").
Borrower indemnifies, defends and holds Lender and its officers,
directors, employees and agents, harmless from and against any liability, laws,
claims, damages or expense (including attorneys' fees and disbursements)
arising out of or based upon any violation or claim of violation of
Environmental Laws by any Borrower or with respect to any assets owned or used
by any Borrower or any properties leased or occupied by any properties of any
Borrower by Lender. This indemnity shall be continuing and remain in full
force and effect and shall survive this Agreement and the Security Documents or
any exercise of any remedy by Lender even if all indebtedness and other
obligations to Lender have been satisfied in full."
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<PAGE> 18
16. WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH HEREBY WAIVE ANY RIGHT
TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT, THE
SECURITY DOCUMENTS OR ANY OTHER AGREEMENTS OR TRANSACTIONS BETWEEN THE BORROWER
AND LENDER.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the proper officers thereunto duly authorized on the day and year first above
written.
Technical Publishing Solutions, Inc.
By /s/ Robert F. Olson
------------------------------
Chief Executive Officer
By /s/ John D. Huddock
------------------------------
Secretary
<TABLE>
<S> <C>
TRADE NAMES OF BORROWER: ADDRESS OF CHIEF EXECUTIVE OFFICES:
DocuPro Services, Inc. 5500 Lincoln Drive, Suite 110
Technical Publishing Solutions of Colorado, Inc. Minneapolis, Minnesota 55436
COLLATERAL LOCATIONS: OTHER LOCATIONS:
5500 Lincoln Drive, Suite 110 Classified Building
Minneapolis, Minnesota 55436 W226/N555
Eastmound Road
Pewaukee, Wisconsin 53072
6000 East Evans Avenue, Suite 3-012
Denver, Colorado 80222
7177 Hickman Road, Suite 10
Des Moines, Iowa 50322
Accepted at Minneapolis, Minnesota
on March 14, 1995
DIVERSIFIED BUSINESS CREDIT, INC.
By /s/ Illegible Signature
-----------------------
Vice President
</TABLE>
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<PAGE> 19
SUPPLEMENT TO CREDIT AGREEMENT
(MULTIPLE BORROWERS)
This Supplement is made this 14 day of March, 1995, by Technical
Publishing Solutions, Inc., a Minnesota corporation and by DocuPro Services,
Inc., a Minnesota corporation, (each herein called a "Borrower" and together
referred to as the "Borrowers"), for the benefit of Diversified Business
Credit, Inc., a Minnesota corporation herein, with its participants, successors
and assigns, called "Lender").
RECITALS
Each Borrower has requested that Lender make loans to it from time to
time at the sole discretion of Lender, pursuant to a credit and security
agreement dated March 14, 1995 between such Borrower and Lender (each herein
called a "Credit Agreement" and together referred to as the "Credit
Agreements") and has granted Lender collateral security in various properties
of such Borrower pursuant to the Credit Agreement and the following security
documents executed by such Borrower (the "Security Documents"):
1. Credit and Security Agreements to be dated March 14, 1995,
entered into by these corporations for the benefit of the
Lender.
2. UCC Financing Statements
3. Various ancillary and supplemental agreements and documents
executed and delivered in connection with the Credit and
Security Agreements.
By this Supplement to the Credit Agreements, each Borrower acknowledges its
joint and several liability for, and guarantees payment of, all indebtedness of
any or all of the Borrowers to Lender.
ACCORDINGLY, to induce Lender from time to time to make one or more
loans or extend other financial accommodations at the discretion of Lender to
any of the Borrowers, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each of the Borrowers hereby
acknowledges its joint and several liability for, and each of the Borrowers
hereby absolutely and unconditionally guarantees to Lender the full and prompt
payment when due (whether on demand or at a stated maturity or earlier by
reason of acceleration or otherwise) of, all indebtedness owed to Lender by a
Borrower or by several or all of the Borrowers under the Credit Agreements or
by reason of transactions contemplated thereby and all other present and future
debts, liabilities and obligations owed to Lender by a Borrower or by several
or all of the Borrowers; and the Borrowers acknowledge and agree with Lender
that:
1. The debts, liabilities and obligations guaranteed hereby
(collectively referred to herein as the "Indebtedness") shall include, but
shall not be limited to, debts, liabilities and obligations arising out of
loans, credit transactions, financial accommodations, discounts, purchases of
property or other transactions with or for account of one or more of the
Borrowers or out of any other transaction or event, owed to Lender or owed to
others by reason of participations granted to or interests acquired or
<PAGE> 20
created for or sold to them by Lender, in each case whether now existing or
hereafter arising, whether arising directly in a transaction or event involving
Lender or acquired by Lender from another by purchase or assignment or as
collateral security, whether owed by such Borrower or Borrower as drawer,
maker, endorser, accommodation party, guarantor, principal, surety or as a
member of any partnership, syndicate, association party, guarantor, principal,
surety or as a member of any partnership, syndicate, association or group or
in any other capacity, whether absolute or contingent, direct or indirect,
primary or secondary, sole, joint, several or joint and several, secured or
unsecured, due or not due, contractual, tortious, or statutory, liquidated or
unliguidated, arising by agreement or imposed by law or otherwise.
2. Each Borrower represents and warrants to Lender that (i) such
Borrower is a corporation duly organized and existing in good standing under
the laws of the respective state set forth above, and has full power and
authority to execute, deliver and perform this Supplement; (ii) the execution,
delivery and performance of this Supplement have been duly authorized by all
necessary action of its directors and shareholders and do not and will not
violate the provisions of, or constitute a default under, any law or its
articles of incorporation or by-laws or any agreement binding on it; (iii)
this Supplement has been duly executed and delivered by the authorized officers
of such Borrower and constitutes its lawful, valid and binding obligation,
legally enforceable against it in accordance with its terms (subject to laws
generally affecting the enforcement of creditors' rights): and (iv) the
authorization, execution, delivery and performance of this Supplement do not
require notification to, registration with, or consent or approval by any
federal, state or local regulatory body or administrative agency.
3. No act or thing need occur to establish the liability of any
Borrower hereunder, and no act or thing, except full payment and discharge of
all Indebtedness, shall in any way exonerate any Borrower or modify, reduce,
limit or release the liability of any Borrower hereunder. This is an absolute,
unconditional and continuing acknowledgment of liability for, and guaranty of
payment of, the Indebtedness and shall continue to be in force and be binding
upon each Borrower, whether or not all Indebtedness is paid in full, until this
Supplement is revoked prospectively as to future transactions, by written notice
actually received by Lender, and such revocation shall not be effective as to
Indebtedness existing or committed for at the time of actual receipt of such
notice by Lender or as to any renewals, extensions and refinancings thereof,
and such revocation shall be effective only as to the Borrower so revoking.
The dissolution, adjudication of bankruptcy or disability or incapacity of a
Borrower shall not revoke this Supplement, except upon actual receipt of
written notice thereof by Lender and then only as to such Borrower and only
prospectively, as to future transactions, as herein set forth.
4. Each Borrower represents and warrants to Lender that such Borrower
has a direct and substantial economic interest in each other Borrower and has
received and expects to continue receiving substantial benefits therefrom and
from any loans, credit transactions, financial accommodations, discounts,
purchases of property and other transactions and events resulting in the
creation of Indebtedness, and that this Supplement is made and delivered for a
corporate purpose. Each Borrower agrees promptly to notify Lender and revoke
this Supplement prospectively (as to future indebtedness not outstanding or
committed for) in accordance with paragraph 3, if at any time, in the opinion
of the directors or officers of such Borrower, the corporate benefits then
being received by such Borrower in connection with this Supplement are not
sufficient to warrant the continuance of this Supplement as to future
Indebtedness of Borrowers. Accordingly, so long as this Supplement is not
revoked prospectively in accordance with paragraph 3, Lender may rely
conclusively on a continuing warranty, hereby made, that each Borrower
continues to be benefited by this Supplement and Lender shall have no duty to
inquire into or confirm the receipt of any such benefits, and this Supplement
shall be effective and enforceable by Lender without regard to the receipt,
nature or value of any such benefits.
-3-
<PAGE> 21
5. If any Borrower shall be dissolved, shall be or become insolvent, or
shall initiate or have initiated against such Borrower any act, process or
proceeding under the United States Bankruptcy Code or any other bankruptcy,
insolvency or reorganization law or otherwise for the modification or adjustment
of the rights of creditors, then such Borrower will forthwith pay to Lender the
full amount of all Indebtedness then outstanding, whether or not any
Indebtedness is then due and payable.
6. Notwithstanding the aggregate amount of Indebtedness which may from
time to time be outstanding, the Borrowers shall be liable for all Indebtedness,
without limitation as to amount, plus accrued interest thereon and all
attorney's fees, collection costs and enforcement expenses referable thereto.
Indebtedness may be created and continued in any amount in accordance with the
terms of the Credit Agreements or otherwise, whether or not in excess of such
principal amount, and the Borrower incurring such Indebtedness shall be liable
therefor without any limitation as to amount, as fully as if this Supplement had
not been executed. If Indebtedness is created in an amount in excess of any
principal amount set forth in this paragraph, the liability of the Borrowers
hereunder shall not be affected or impaired, and Lender may pay (or allow for
the payment of) the excess out of any sums received by or available to Lender on
account of the Indebtedness from the Borrower incurring such excess Indebtedness
or any other person, from their properties, out of any collateral security or
from any other source, and such payment (or allowance) shall not reduce, affect
or impair the liability of any other Borrower hereunder. If the liability of the
Borrower's is limited to a stated amount pursuant to this paragraph, any payment
made by a Borrower under this Supplement applied to Indebtedness not incurred by
that Borrower shall be effective to rescue or discharge such liability only if
accompanied by a written transmittal document, received by Lender, advising
Lender that such payment is made under this Supplement for such purpose. In no
event shall Lender be obligated to return, account for or incur any liability as
a result of any monies collected or other assets of Borrower received by Lender
under this Supplement.
7. No Borrower will exercise or enforce any right of contribution,
reimbursement, recourse or subrogation available to it as to any Indebtedness,
or against any person liable therefor, or as to any collateral security
therefor, unless and until all Indebtedness shall have been fully paid and
discharged.
8. The Borrowers will pay or reimburse Lender for all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by Lender in
connection with the collection of any Indebtedness or the enforcement of this
Supplement.
9. Lender shall not be obligated by reason of its acceptance of this
Supplement to engage in any transactions with or for any Borrower. Whether or
not any existing relationship between or among the Borrowers has been changed or
ended and whether or not this Supplement has been revoked in accordance with
paragraph 3, Lender may enter into transactions resulting in the creation or
continuance of Indebtedness and may otherwise agree, consent to, or suffer the
creation or continuance of any Indebtedness, without any consent or approval by
any Borrower and without any prior or subsequent notice to any Borrower. The
liability of the Borrowers shall not be affected or impaired by any of the
following acts or things (which Lender is expressly authorized to do, omit or
suffer from time to time, both before and after revocation of this Supplement,
without consent or approval by or notice to any Borrower): (i) any acceptance of
collateral security, guarantors, accommodation parties or sureties for any or
all Indebtedness; (ii) one or more extensions or renewals of Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities or other contractual terms applicable to any
Indebtedness; (iii) any waiver or indulgence granted to a Borrower, any delay or
lack of diligence in the enforcement of Indebtedness, or any failure to
institute proceedings, file a
-4-
<PAGE> 22
claim, give any required notices or otherwise protect any Indebtedness; (iv)
any full or partial release of, compromise or settlement with, or agreement not
to sue a Borrower or any guarantor or other person liable in respect of any
Indebtedness; (v) any release, surrender, cancellation or other discharge of
any evidence of Indebtedness or the acceptance of any instrument in renewal or
substitution therefor; (vi) any failure to obtain collateral security
(including rights of setoff) for Indebtedness, or to see to the proper or
sufficient creation and perfection thereof, or to establish the priority
thereof, or to preserve, protect, insure, care for, exercise or enforce any
collateral security; or any modification, alteration, substitution, exchange,
surrender, cancellation, termination, release or other change, impairment,
limitation, loss or discharge of any collateral security; (vii) any collection,
sale, lease or other disposition of, or any other foreclosure or enforcement of
or realization on, any collateral security; (viii) any assignment, pledge or
other transfer of any Indebtedness or any evidence thereof; (ix) any manner,
order or method of application of any payments or credits upon Indebtedness.
Each Borrower waives any and all defenses and discharges available to a surety,
guarantor, or accommodation co-obligor, dependent on its character as such.
10. Each Borrower waives any and all defenses, claims, setoffs, and discharges
available against Lender to any other Borrower, or any other obligor,
pertaining to Indebtedness, except the defense of discharge by payment in full.
Without limiting the generality of the foregoing, no Borrower will assert
against Lender any defense of waiver, release, discharge in bankruptcy, statute
of limitations, res judicata, statue of frauds, antideficiency statute, fraud,
incapacity, minority, usury, illegality or unenforceability which may be
available to any other Borrower or any other person liable in respect of any
Indebtedness, or any setoff available against Lender to any other Borrower or
any such other person, whether or not on account of a related transaction, and
each Borrower expressly agrees that it shall be and remain liable for any
deficiency remaining after foreclosure of any mortgage or security interest
securing Indebtedness whether or not the liability of any other Borrower or any
other obligor for such deficiency is discharged pursuant to statute or
judicial decision. The liability of a Borrower shall not be affected or
impaired by any voluntary or involuntary liquidation, dissolution, sale or
other disposition of all or substantially all the assets, marshaling of assets
and liabilities, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or readjustment
of, or other similar event or proceeding affecting, any other Borrower or any
of its assets. No Borrower will assert against Lender any claim, defense or
setoff available to such Borrower against any other Borrower.
11. Each Borrower waives presentment, demand for payment, notice of
dishonor or nonpayment, and protest of any instrument evidencing Indebtedness.
Lender shall not be required first to resort for payment of the Indebtedness to
a particular Borrower or other persons, or their properties, or first to
enforce, realize upon or exhaust any collateral security for Indebtedness,
before enforcing this Supplement.
12. If any payment applied by Lender to Indebtedness is thereafter set
aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
a Borrower or any other obligor), the Indebtedness to which such payment was
applied shall for the purposes of this Supplement be deemed to have continued
in existence, notwithstanding such application and this Supplement shall be
enforceable as to such Indebtedness as fully as if such application had never
been made.
13. The liability of the Borrowers under this Supplement is in
addition to and shall be cumulative with all other liabilities of each Borrower
to Lender under the Credit Agreement signed by such borrower or in respect of
any indebtedness or obligation of any
-5-
<PAGE> 23
other Borrower, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides
to the contrary.
14. All obligations of a Borrower under this Supplement are and shall
be secured pursuant to the Security Documents and, except as otherwise agreed
in writing by Lender, by any and all other liens and security interests
heretofore or hereafter granted or available to Lender with respect to any
property of any or all of the Borrowers.
15. This Supplement shall be enforceable against each Borrower, and all
agreements and promises herein shall be construed to be, and are hereby
declared to be, joint and several in each and every particular and shall be
fully binding upon and enforceable against each and all of the Borrowers. This
Supplement shall be effective upon delivery to Lender, without further act,
condition or acceptance by Lender, shall be binding upon the Borrowers and the
successors and assigns of the Borrowers and shall inure to the benefit of
Lender and its participants, successors and assigns. Any invalidity or
unenforceability of any provision or application of this Supplement shall not
affect other lawful provisions and applications hereof, and to this end the
provisions of this Supplement are declared to be severable. This Supplement
may not be waived, modified, amended, terminated, released or otherwise changed
except by a writing signed by Borrowers and Lender. This Supplement shall be
governed by the substantive laws of the State of Minnesota. The Borrowers
waive notice of the acceptance of this Supplement by Lender.
-6-
<PAGE> 24
IN WITNESS WHEREOF, this Supplement has been duly executed and
delivered by the proper officers thereunto duly authorized on the day and year
first above written.
Technical Publishing Solutions, Inc.
By /s/ Robert F. Olson
----------------------------------
Chief Executive Officer
By /s/ John D. Huddock
----------------------------------
Secretary
DocuPro Services, Inc.
By /s/ Robert F. Olson
----------------------------------
Chief Executive Officer
By /s/ John D. Huddock
----------------------------------
Secretary
Accepted at Minneapolis, Minnesota
on March 14, 1995.
Diversified Business Credit, Inc.
By /s/ Illegible Signature
---------------------------------
Vice President
- 7 -
<PAGE> 25
AMENDMENT TO CREDIT AND SECURITY AGREEMENT
THIS AMENDMENT made and entered into as of this 17 day of September,
1995, by Technical Publishing Solutions, Inc., a Minnesota corporation (herein
called "Borrower") for the benefit of Diversified Business Credit, Inc., a
Minnesota corporation (herein called "Lender").
W I T N E S S E T H
WHEREAS, Borrower and Lender executed a Credit and Security Agreement
dated as of March 14, 1995 (the "Credit Agreement");
WHEREAS, Borrower and Lender desire to alter, amend and modify the
Credit Agreement as hereinafter set forth.
NOW THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. Paragraph 5(h) of the Credit Agreement is hereby deleted
therefrom in its entirety and the following is hereby inserted in lieu thereof:
5(h) On a consolidated basis with DocuPro Services, Inc., at all
times maintain the book net worth of Borrower at amounts in excess
$150,000 for the year ending 3/31/96 and $250,000 for the year ending
3/31/97.
2. Paragraph 5(j) of the Credit Agreement is hereby deleted
therefrom in its entirety and the following is hereby inserted in lieu thereof:
5(j) Maintain insurance on the life of Robert F. Olson in the amount
of $1,000,000 with companies and terms reasonably acceptable to Lender
and assign such life insurance policies to Lender on forms of
assignment acceptable to Lender.
3. Paragraph 6(a)(3) of the Credit Agreement is hereby deleted
therefrom in its entirety and the following is hereby inserted in lieu thereof:
9(a)(3) On a consolidated basis with DocuPro Services, Inc., unsecured
indebtedness, in an amount not exceeding $27,500.00 at any one time
outstanding, which is full subordinated in right of payment to all
indebtedness owed to Lender pursuant to a subordination agreement
accepted or approved in writing by Lender.
<PAGE> 26
4. Except as herein specifically set forth, the terms and
provisions of the Credit Agreement shall remain in full force and effect without
modification, amendment or alteration.
IN WITNESS WHEREOF, this Amendment to the Credit Agreement has been duly
executed and delivered by the proper officers thereunto duly authorized on the
day and year first above written.
Technical Publishing Solutions, Inc.
By /s/ Robert F. Olson
------------------------------
Its President
-------------------------
ADDRESS:
5500 Lincoln Drive, Suite 110
Minneapolis, Minnesota 55436
Accepted at Minneapolis, MN
on September 18, 1995
DIVERSIFIED BUSINESS CREDIT, INC.
By /s/ Illegible Signature
--------------------------
Its Vice President
-2-
<PAGE> 1
TERM LOAN SUPPLEMENT
TO
CREDIT AGREEMENT
This Agreement is made this 14 day of March, 1995, by Technical
Publishing Solutions, Inc., a Minnesota corporation (herein called
"Borrower"), for the benefit of Diversified Business Credit, Inc., a Minnesota
corporation (herein referred to as the "Lender").
RECITALS
Borrower has executed and delivered to Lender a credit and security
agreement dated March __, 1995 (herein called the "Credit Agreement") pursuant
to which Lender, at its sole discretion, has made or may make certain loans to
Borrower, repayable on demand. These loans and all other debts, liabilities
and obligations of Borrower to Lender are secured pursuant to the Credit
Agreement and other security documents (all herein called the "Security
Documents") referred to in the Credit Agreement.
Borrower has requested that Lender, at its sole discretion, make one or
more loans (herein collectively called the "Term Loan") under the Credit
Agreement, repayable in installments, rather than on demand. This Agreement
supplements the Credit Agreement to set forth the terms on which any such Term
Loan shall be repaid.
ACCORDINGLY, to induce Lender to make one or more advances on the Term
Loan under this Supplement, and in consideration of the mutual agreements
herein contained, Borrower and Lender hereby agree that:
1. THE TERM LOAN. Lender shall not be obligated to make, renew or
readvance any advance on the Term Loan to Borrower under this Supplement, and
Lender may at any time, at its sole and absolute discretion, decline to make
any advance requested by Borrower. If Borrower desires to borrow under this
Supplement, Borrower will submit borrowing requests in the manner set forth in
the Credit Agreement and will notify Lender that the advance is requested on
the Term Loan under this Supplement. The Term Loan shall bear interest at the
rate specified in the Credit Agreement, shall be secured by the Credit
Agreement, Security Documents and all other collateral security (without
apportionment, exclusion or segregation) as provided in the Credit Agreement.
- Each month, on the first day of the month, Borrower shall pay all
interest accrued on the Term Loan in the preceding month.
- Each month, on the 15th day of the month, Borrower shall pay
$8,333.00 on account of the Term Loan.
- On March __, 1998, the entire unpaid principal balance of the Term
Loan, and all unpaid interest accrued thereon, shall in any event be due
and payable.
2. MAXIMUM AMOUNT OF THE TERM LOAN. Borrower shall not request advances
on the Term Loan in an amount which, when added to the principal balance then
outstanding on the Term Loan, would cause the Term Loan to exceed $300,000
reduced by $8,333.00 effective May 1, 1995 and reduced by the same amount on
the same day in each month thereafter.
<PAGE> 2
3. PREPAYMENT OF THE TERM LOAN. Borrower shall prepay the Term Loan
whenever required to assure that the maximum amount of the Term Loan does not
exceed the amount prescribed in paragraph 2. In the event Borrower shall sell,
collect insurance proceeds on, or otherwise dispose of or realize on any
collateral security, other than inventory and trade accounts receivable,
granted to Lender, Borrower shall immediately prepay the Term Loan by the full
amount of the proceeds so realized (it being understood and agreed that no such
collateral security may be sold or otherwise disposed of or realized on except
with the written consent of Lender and that Borrower shall pay over and account
for all proceeds of inventory and trade accounts receivable as provided in the
Credit Agreement). No prepayment under this paragraph 3 shall reduce any
monthly installment due on the Term Loan pursuant to paragraph 1.
4. ACCELERATION OF THE TERM LOAN. Upon or at any time after the
occurrence of any one or more of the Events of Default hereinafter set forth,
Lender shall have the right at its option to declare the entire principal
balance of the Term Loan owed to it, and all unpaid interest accrued thereon,
to be immediately due and payable; and upon such declaration such principal
balance and unpaid interest shall be immediately due and payable, without
notice or demand. Each of the following occurrences shall constitute such an
Event of Default:
(a) Borrower shall fail duly and punctually to make any payment
to be made by Borrower to Lender under the Credit Agreement or this
or any other Supplement to the Credit Agreement or the Security
Documents or any other security agreement, instrument, indenture,
agreement or obligation binding on Borrower and enforceable by
Lender; or shall fail duly and punctually to perform or observe any
covenant, agreement or obligation binding upon Borrower under the
Credit Agreement or any such Supplement or the Security Documents
or any such other security agreement, instrument, indenture,
agreement or obligation.
(b) Any representation or warranty contained in the Credit
Agreement or this or any other Supplement to the Credit Agreement
or the Security Documents or any other security agreement or
mortgage given to Lender by Borrower or any other person as
security for indebtedness of Borrower shall prove to have been
materially false or misleading when made or as of this date or
(except to the extent of changes caused by transactions permitted
or consented to in writing under the Credit Agreement) as of any
date on which a loan is made to Borrower by Lender; or any other
representation or warranty made by or on behalf of Borrower to
Lender (whether made in any financial statement, report,
certificate or writing furnished to Lender by or on behalf of
Borrower, or otherwise in any manner) shall prove to have been
false or materially misleading as of the time as of which such
representation or warranty was made.
(c) Borrower shall fail to pay when due any substantial
liability or liabilities other than its indebtedness under the
Credit Agreement; or the maturity of any such liability or
liabilities shall be accelerated; or any breach, default or event
of default shall occur under any indenture, loan agreement, note or
agreement pertaining to any such liability, entitling a creditor or
representative of creditors of Borrower, acting with or without the
consent or concurrence of other creditors and with or without
notice or a period of grace, to accelerate the maturity of or
demand payment of any such liability, unless such breach,
- 2 -
<PAGE> 3
default or event of default is waived in writing by the creditor so
entitled. "Substantial", for these purposes, means in excess of
$25,000.
(d) Any breach, default or event of default shall occur under
the Credit Agreement or this or any other Supplement thereto or any
of the Security Documents or any other security agreement or
mortgage or other agreement, conveyance or instrument now in effect
or hereafter made for the benefit of Lender by Borrower or by any
other person in connection with or as security for indebtedness
arising under the Credit Agreement.
(e) Any guaranty of any indebtedness of Borrower to Lender shall
be repudiated or purported to be revoked; or any grant of
collateral by a third person as security for Borrower's
indebtedness to Lender shall be repudiated or purported to be
revoked.
(f) Borrower or any corporation or person controlling,
controlled by, or under common control with, or otherwise
affiliated with, Borrower (i) shall suspend or go out of business;
or (ii) shall be or become insolvent; or (iii) shall file or have
filed against it, voluntarily or involuntarily, a petition under
the United States Bankruptcy Code or any other bankruptcy or
insolvency law; or (iv) shall procure, permit or suffer,
voluntarily or involuntarily, the imposition of any security
interest or lien not permitted in the Credit Agreement or the
appointment of a receiver for any or all of its property or the
sequestration of any or all of its property; or (v) shall make an
assignment for the benefit of creditors; or (vi) shall initiate or
have initiated against it, voluntarily or involuntarily, any act,
process or proceeding for liquidation, dissolution, arrangement,
composition or reorganization or under any insolvency law or other
statute or law providing for a modification or adjustment of the
rights of creditors.
Lender's right to accelerate the Term Loan shall continue after the occurrence
of any such Event of Default notwithstanding any indulgence or failure to
act and despite any cure or attempted cure of the Event of Default, until the
Event of Default is waived by Lender in writing.
The Term Loan shall be immediately and automatically due and payable, without
notice or demand, if any case under the United States Bankruptcy Code is
filed by or against the Borrower.
(Left Blank Intentionally)
-3-
<PAGE> 4
5. MISCELLANEOUS PROVISIONS. This Supplement is part of the Credit
Agreement and, as supplemented and modified hereby, the Credit Agreement
remains in full force and effect. No waiver or modifications of any of the
provisions hereof shall be binding on Lender unless agreed to in a writing
signed by Lender.
This Supplement has been duly executed and delivered as of the date hereof.
BORROWER: Technical Publishing Solutions, Inc.
By /s/ Robert F. Olson
-----------------------
Chief Executive Office
By /s/ John Huddock
-----------------------
Secretary
LENDER: Diversified Business Credit, Inc.
By /s/ Illegible Signature
-----------------------
Vice President
- 4 -
<PAGE> 1
INTRANET SOLUTIONS, INC.
1994-1997 STOCK OPTION AND
COMPENSATION PLAN
1. Purpose. The purpose of this 1994-1997 Stock Option and Compensation
Plan (the "Plan") of IntraNet Solutions, Inc. (the "Company") is to increase
stockholder value and to advance the interests of the Company by furnishing a
variety of economic incentives ("Incentives") designed to attract, retain and
motivate employees and certain key consultants. Incentives may consist of
opportunities to purchase or receive shares of Common Stock, $.01 par value, of
the Company ("Common Stock"), monetary payments, or both on terms determined
under this Plan.
2. Administration. The Plan shall he administered by the Stock Option
Committee (the "Committee") of the Board of Directors of the Company, or the
entire Board of Directors, until such time as a stock option committee is
formed. The Committee shall consist of not less than two directors of the
Company and shall be appointed from time to time by the Board of Directors of
the Company. Each member of the Committee shall be a "disinterested person"
within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, and
the regulations promulgated thereunder the "1934 Act"). The Board of Directors
of the Company may from time to time appoint members of the Committee in
substitution for, or in addition to, members previously appointed, and may fill
vacancies, however caused, in the Committee. The Committee shall select one of
its members as its chairman and shall hold its meetings at such times and
places as it shall deem advisable. A majority of the Committee's members shall
constitute a quorum. All action of the Committee shall be taken by the majority
of its members. Any action may be taken by a written instrument signed by
majority of the members and any action so taken shall be fully effective as if
it had been made by a majority vote at a meeting duly called and held. The
Committee may appoint a secretary, shall keep minutes of its meetings and shall
make such rules and regulations for the conduct of its business as it shall
deem advisable. The Committee shall have complete authority to award Incentives
under the Plan, to interpret the Plan, and to make any other determination
which it believes necessary and advisable for the proper administration of the
Plan. The Committee's decisions and matters relating to the Plan shall be final
and conclusive on the Company and its participants.
3. Eligible Participants. Employees of or consultants to the Company or
its subsidiaries or affiliates (including officers and directors, but excluding
directors who are not also employees of or consultants to the Company or its
subsidiaries or affiliates), shall become eligible to receive Incentives under
the Plan when designated by the Committee. Participants may be designated
individually or by groups or categories (for example, by pay grade) as the
Committee deems appropriate. Participation of officers of the Company or its
subsidiaries or affiliates and any performance objectives relating to such
officers' participation must be approved by the Committee. Participation by
others and any performance objectives relating to others may
<PAGE> 2
be approved by groups or categories (for example, by pay grade) and authority
to designate participants who are not officers and to set or modify such
targets may be delegated.
4. Types of Incentives. Incentives under the Plan may be granted in any
one or a combination of the following forms: (a) incentive stock options and
non-statutory stock options (section 6); (b) stock appreciation rights ("SARs")
(section 7); (c) stock awards (section 8); (d) restricted stock (section 8);
(e) performance shares (section 9); and (f) cash awards (section 10).
5. Shares Subject to the Plan.
5.1. Number of Shares. Subject to adjustment as provided in Section
11.6, the number of shares of Common Stock which may be issued under the
Plan shall not exceed 10,000,000 shares of $.0l par value Common Stock.
5.2. Cancellation. To the extent that cash in lieu of shares of
Common Stock is delivered upon the exercise of a SAR pursuant to Section
7.4, the Company shall be deemed, for purposes of applying the limitation
on the number of shares, to have issued the greater of the number of
shares of Common Stock which it was entitled to issue upon such exercise
or on the exercise of any related option. In the event that a stock
option or SAR granted hereunder expires or is terminated or canceled
unexercised as to any shares of Common Stock, such shares may again be
issued under the Plan either pursuant to stock options, SARs or
otherwise. In the event that shares of Common Stock are issued as
restricted stock or pursuant to a stock award and thereafter are
forfeited or reacquired by the Company pursuant to rights reserved upon
issuance thereof; such forfeited and reacquired shares may again be
issued under the Plan, either as restricted stock, pursuant to stock
awards or otherwise. The Committee may also determine to cancel, and
agree to the cancellation of; stock options in order to make a
participant eligible for the grant of a stock option at a lower price
than the option to be canceled.
5.3. Type of Common Stock. Common Stock issued under the Plan in
connection with stock options, SARS, performance shares, restricted stock
or stock awards may be in the form of authorized and unissued shares.
6. Stock Options. A stock option is a right to purchase shares of Common
Stock from the Company. Each stock option granted by the Committee under this
Plan shall be subject to the following terms and conditions:
6.1. Price. The option price per share shall be determined by fl~e
Committee subject to adjustment under Section 11.6.
6.2. Number. The number of shares of Common Stock subject to the
option shall be determined by the Committee, subject to adjustment as
provided in Section 11.6. The number of shares of Common Stock subject to
a stock option shall be reduced in the
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<PAGE> 3
same proportion that the holder thereof exercises a SAR if any SAR is
granted in conjunction with or related to the stock option.
6.3. Duration and Time for Exercise. Subject to earlier termination
as provided in Section 11.4. the term of each stock option shall be
determined by the Committee but shall not exceed ten years and one day
from the date of grant. Each stock option shall become exercisable at
such time or times during its term as shall be determined by the
Committee at the time of grant. The Committee may accelerate the
exercisability of any stock option. Subject to the foregoing and with the
approval of the Committee, all or any part of the shares of Common Stock
with respect to which the right to purchase has accrued may be purchased
by the Company at the time of such accrual or at any time or times
thereafter during the term of the option.
6.4. Manner of Exercise. A stock option may be exercised, in whole
or in part, by giving written notice to the Company, specifying the
number of shares of Common Stock to be purchased and accompanied by the
full purchase price for such shares. The option price shall be payable in
United States dollars upon exercise of the option and may be paid by
cash; uncertified or certified check; bank draft; by delivery of shares
of Common Stock in payment of all or any part of the option price, which
shares shall be valued for this purpose at the Fair Market Value on the
date such option is exercised; by instructing the Company to withhold
from the shares of Common Stock issuable upon exercise of the stock
option shares of Common Stock in payment of all or any part of the option
price, which shares shall be valued for this purpose at the Fair Market
Value or in such other manner as may be authorized from time to time by
the Committee. Prior to the issuance of shares of Common Stock upon the
exercise of a stock option, a participant shall have no rights as a
stockholder.
6.5. Incentive Stock Options. Notwithstanding anything in the Plan
to the contrary, the following additional provisions shall apply to the
grant of stock options which are intended to qualify as Incentive Stock
Options (as such term is defined in Section 422A of the Internal Revenue
Code of 1986, as amended):
(a) The aggregate Fair Market Value (determined as of the
time the option is granted) of the shares of Common Stock with
respect to which Incentive Stock Options are exercisable for the
first time by any participant during any calendar year (under all
of the Company's plans) shall not exceed $100,000;
(b) Any Incentive Stock Option certificate authorized under
the Plan shall contain such other provisions as the Committee shall
deem advisable, but shall in all events be consistent with and
contain all provisions required in order to qualify the options as
Incentive Stock Options.
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<PAGE> 4
(c) All Incentive Stock Options must be granted within ten
years from the earlier of the date on which this Plan was adopted
by the Board of Directors or the date this Plan was approved by the
stockholders.
(d) Unless sooner exercised all Incentive Stock Options
shall expire no later than 10 years after the date of grant.
(e) The option price for Incentive Stock Options shall be
not less than the Fair Market Value of the Common Stock subject to
the option on the date of grant.
(f) No Incentive Stock Options shall be granted to any
participant who, at the time such option is granted, would own
(within the meaning of Section 422A of the Code) stock possessing
more than 10% of the total combined voting power of all classes of
stock of the employer corporation or of its parent or subsidiary
corporation.
7. Stock Appreciation. A SAR is a right to receive, without payment to
the Company, a number of shares of Common Stock, cash or any combination
thereof; the amount of which is determined pursuant to the formula set forth in
Section 7.4. A SAR may be granted (a) with respect to any stock option granted
under this Plan, either concurrently with the grant of such stock option or at
such later time as determined by the Committee (as to all or any portion of the
shares of Common Stock subject to the stock Option), or (b) alone, without
reference to any related stock option. Each SAR granted by the Committee under
this Plan shall be subject to the following terms and conditions:
7.1. Number. Each SAR granted to any participant shall relate to
such number of shares of Common Stock as shall be determined by the
Committee, subject to adjustment as provided in Section 11.6. in the case
of a SAR granted with respect to a stock option, the number of shares of
Common Stock to which the SAR pertains shall be reduced in the same
proportion that the holder of the option exercises the related stock
option.
7.2. Duration. Subject to earlier termination as provided in
Section 11.4, the term of each SAR shall be determined by the Committee
but shall not exceed ten years and one day from the date of grant. Unless
otherwise provided by the Committee, each SAR shall become exercisable at
such time or times, to such extent and upon such conditions as the stock
option, if any, to which it relates is exercisable. The Committee may in
its discretion accelerate the exercisability of any SAR.
7.3. Exercise. A SAR may be exercised, in whole or in part, by
giving written notice to the Company, specifying the number of SARs which
the holder wishes to exercise. Upon receipt of such written notice, the
Company shall, within 90 days
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<PAGE> 5
thereafter, deliver to the exercising holder certificates for the shares
of Common Stock or cash or both, as determined by the Committee, to which
the holder is entitled pursuant to Section 7.4.
7.4. Payment. Subject to the right of the Committee to deliver
cash in lieu of shares of Common Stock (which, as it pertains to officers
and directors of the Company, shall comply with all requirements of the
1934 Act), the number of shares of Common Stock which shall be issuable
upon the exercise of a SAR shall be determined by dividing:
(a) the number of shares of Common Stock as to which the SAR
is exercised multiplied by the amount of the appreciation in such
shares (for this purpose, the "appreciation" shall be the amount by
which the Fair Market Value of the shares of Common Stock subject
to the SAR on the exercise date exceeds (1) in the case of a SAR
related to a stock option, the purchase price of the shares of
Common Stock under the stock option or (2) in the case of a SAR
granted alone, without reference to a related stock option, an
amount which shall be determined by the Committee at the time of
grant, subject to adjustment under Section 11.6); by
(b) the Fair Market Value of a share of Common Stock on the
exercise date.
In lieu of issuing shares of Common Stock upon the exercise of a
SAR, the Committee may elect to pay the holder of the SAR cash equal to
the Fair Market Value on the exercise date of any or all of the shares
which would otherwise be issuable. No fractional shares of Common Stock
shall be issued upon the exercise of a SAR; instead, the holder of the
SAR shall be entitled to receive a cash adjustment equal to the same
fraction of the Fair Market Value of a share of Common Stock on the
exercise date or to purchase the portion necessary to make a whole share
at its Fair Market Value on the date of exercise.
8. Stock Awards and Restricted Stock. A stock award consists of the
transfer by the Company to a participant of shares of Common Stock, without
other payment therefor, as additional compensation for services to the Company.
A share of restricted stock consists of shares of Common stock which are sold
or transferred by the Company to a participant at a price determined by the
Committee (which price shall be at least equal to the minimum price required by
applicable law for the issuance of a share of Common stock) and subject to
restrictions on their sale or other transfer by the participant. The transfer
of Common stock pursuant to stock awards and the transfer and sale of
restricted stock shall be subject to the following terms and conditions:
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<PAGE> 6
8.1. Number of Shares. The number of shares to be transferred or
sold by the Company to a participant pursuant to a stock award or as
restricted stock shall be determined by the Committee.
8.2. Sale Price. The Committee shall determine the price, if any,
at which shares of restricted shall be sold to a participant, which may
vary from time to time and among participants and which may be below the
Fair Market Value of such shares of Common stock at the date of sale.
8.3. Restrictions. All shares of restricted stock transferred or
sold hereunder shall be subject to such restrictions as the Committee may
determine, including, without limitation any or all of the following:
(a) a prohibition against the sale, transfer, pledge or
other encumbrance of the shares of restricted stock, such
prohibition to lapse at such time or times as the Committee shall
determine (whether in annual or more frequent installments, at the
time of the death, disability or retirement of the holder of such
shares, or otherwise);
(b) a requirement that the holder of shares of restricted
stock forfeit, or (in the case of shares sold to a participant)
resell back to the Company at his or her cost, all or a part of
such shares in the event of termination of his or her employment or
consulting engagement during any period in which such shares are
subject to restrictions;
(c) such other conditions or restrictions as the Committee
may deem advisable.
8.4. Escrow. In order to enforce the restrictions imposed by the
Committee pursuant to section 8.3, the participant receiving restricted
stock shall enter into an agreement with the Company setting forth the
conditions of the grant. shares of restricted stock shall be registered
in the name of the participant and deposited, together with a stock power
endorsed in blank, with the Company. Each such certificate shall bear a
legend in substantially the following form:
"The transferability of this certificate and the shares of Common
stock represented by it are subject to the terms and conditions
(including conditions of forfeiture) contained in the 1994-1997 stock
Option and Compensation Plan of IntraNet Solutions, Inc. (the "Company"),
and an agreement entered into between the registered owner and the
Company. A copy of Plan and the agreement is on file in the office of the
secretary of the Company."
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<PAGE> 7
8.5. End of Restrictions. Subject to Section 11.5, at the end
of any time period during which the shares of restricted stock are
subject to forfeiture and restrictions on transfer, such shares will be
delivered free of all restrictions to the participant or to the
participant's legal representative, beneficiary or heir.
8.6. Stockholder. Subject to the terms and conditions of the Plan,
each participant receiving restricted stock shall have all the rights of
a stockholder with respect to shares of stock during any period in which
such shares are subject to forfeiture and restrictions on transfer,
including without limitation, the right to vote such shares. Dividends
paid in cash or property other than Common Stock with respect to shares
of restricted stock shall be paid to the participant currently.
9. Performance Shares. A performance share consists of an award which
shall be paid in shares of Common Stock, as described below. The grant of
performance share shall be subject to such terms and conditions as the
Committee deems appropriate, including the following:
9.1. Performance Objectives. Each performance share will be
subject to performance objectives for the Company or one of its
operating units to be achieved by the end of a specified period. The
number of performance shares granted shall be determined by the Committee
and may be subject to such terms and conditions as the Committee shall
determine. If the performance objectives are achieved, each participant
will be paid in shares of Common Stock or cash. If such objectives are
not met, each grant of performance shares may provide for lesser payments
in accordance with formulae established in the award.
9.2. Not Stockholder. The grant of performance shares to a
participant shall not create any rights in such participant as a
stockholder of the Company until the payment of shares of Common Stock
with respect to an award.
9.3. No Adjustments. No adjustment shall be made in performance
shares granted on account of cash dividends which may be paid or other
rights which may be issued to the holders of Common Stock prior to the
end of any period for which performance objectives were established.
9.4. Expiration of Performance Share. If any participant's
employment or consulting engagement with the Company is terminated for
any reason other than normal retirement, death or disability prior to the
achievement of the participant's stated performance objectives, all the
participant's rights on the performance shares shall expire and terminate
unless otherwise determined by the Committee. In the event of termination
by reason of death, disability, or normal retirement, the Committee, in
its own discretion, may determine what portions, if any, of the
performance shares should be paid to the participant.
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<PAGE> 8
10. Cash Awards. A cash award consists of a monetary payment made
by the Company to a participant as additional compensation for his or her
services to the Company. Payment of a cash award will normally depend on
achievement of performance objectives by the Company or by individuals. The
amount of any monetary payment constituting a cash award shall be determined by
the Committee in its sole discretion. Cash awards may be subject to other terms
and conditions, which may vary from time to time and among participants, as the
Committee deems appropriate.
11. General.
11.1. Effective Date. The Plan will become effective upon its
approval by a majority of the outstanding shares of Common Stock of the
Company at a meeting of stockholders duly called and held. Unless
approved within one year after the date of the Plan's adoption by the
Committee or by the Board of Directors, the Plan shall not be effective
for any purpose.
11.2. Duration. The Plan shall remain in effect until all
Incentives granted under the Plan have either been satisfied by the
issuance of shares of Common Stock or the payment of cash or been
terminated under the terms of the Plan and all restrictions imposed on
shares of Common Stock in connection with their issuance under the Plan
have lapsed. No Incentives may be granted under the Plan after the tenth
anniversary of the date the Plan is approved by the stockholders of the
Company.
11.3. Non-transferability of Incentives. No stock option, SAR,
restricted stock or performance award may be transferred, pledged or
assigned by the holder thereof except, in the event of the holder's
death, by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Internal Revenue
Code of 1986, as amended, or Title I of the Employee Retirement Income
Security Act, or the rules thereunder, and the Company shall not be
required to recognize any attempted assignment of such rights by any
participant. During a participant's lifetime, an Incentive may be
exercised only by him or her or by his or her guardian or legal
representative.
11.4. Effect of Termination or Death. In the event that a
participant ceases to be an employee of or consultant to the Company for
any reason, including death, any Incentives may be exercised or shall
expire at such times as may be determined by the Committee.
11.5. Additional Condition. Notwithstanding anything in this Plan
to the contrary:
(a) the Company may, if it shall determine it necessary or
desirable for any reason, at the time of award of any Incentive or
the issuance of any shares of Common Stock pursuant to any
Incentive, require the recipient of the Incentive, as
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<PAGE> 9
a condition to the receipt thereof or to the receipt of shares of
Common Stock issued pursuant thereto, to deliver to the Company a
written representation of present intention to acquire the
Incentive or the shares of Common Stock issued pursuant thereto for
his or her own account for investment and not for distribution; and
(b) if at any time the Company further determines, in its sole
discretion, that the listing, registration or qualification (or any
updating of any such document) of any Incentive or the shares of
Common Stock issuable pursuant thereto is necessary on any
securities exchange or under any federal or state securities or
blue sky law, or that the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of; or in
connection with the award of any Incentive, the issuance of shares
of Common Stock pursuant thereto, or the removal of any
restrictions imposed on such shares, such Incentive shall not be
awarded or such shares of Common Stock shall not be issued or such
restrictions shall not be removed, as the case may be, in whole or
in part, unless such listing, registration, qualification, consent
or approval shall have been effected or obtained free of any
conditions not acceptable to the Company.
11.6. Adjustment. In the event of any merger, consolidation or
reorganization of the Company with any other corporation or corporations,
there shall be substituted for each of the shares of Common Stock then
subject to the Plan, including shares subject to restrictions, options,
or achievement of performance share objectives. the number and kind of
shares of stock or other securities to which the holders of the shares of
Common Stock will be entitled pursuant to the transaction. In the event
of any recapitalization, stock dividend, stock split, combination of
shares or other change in the Common Stock, the number of shares of
Common Stock then subject to the Plan, including shares subject to
restrictions, options or achievements of performance shares, shall be
adjusted in proportion to the change in outstanding shares of Common
Stock. In the event of any such adjustments, the purchase price of any
option, the performance objectives of any Incentive, and the shares of
Common Stock issuable pursuant to any Incentive shall be adjusted as and
to the extent appropriate, in the discretion of the Committee, to provide
participants with the same relative rights before and after such
adjustment.
11.7. Incentive Plans and Agreements. Except in the case of stock
awards or cash awards, the terms of each Incentive shall be stated in a
plan or agreement approved by the Committee. The Committee may also
determine to enter into agreements with holders of options to reclassify
or convert certain outstanding options, within the terms of the Plan, as
Incentive Stock Options or as non-statutory stock options and in order to
eliminate SARs with respect to all or part of such options and any other
previously issued options.
11.8. Withholding.
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<PAGE> 10
(a) The Company shall have the right to withhold from any
payments made under the Plan or to collect as a condition of
payment, any taxes required by law to be withheld. At any time when
a participant is required to pay to the Company an amount required
to be withheld under applicable income tax laws in connection with
a distribution of Common Stock or upon exercise of an option or
SAR, the participant may satisfy this obligation in whole or in
part by electing (the "Election") to have the Company withhold from
the distribution shares of Common Stock having a value up to the
amount required to be withheld. The value of the shares to be
withheld shall be based on the Fair Market Value of the Common
Stock on the date that the amount of tax to be withheld shall be
determined ("Tax Date").
(b) Each Election must be made prior to the Tax Date. The
Committee may disapprove of any Election, may suspend or terminate
the right to make Elections, or may provide with respect to any
Incentive that the right to make Elections shall not apply to such
Incentive. An Election is irrevocable.
(c) If a participant is an officer or director of the
Company within the meaning of Section 16 of the 1934 Act, then an
Election must comply with all of the requirements of the 1934 Act.
11.9. No Continued Employment, Engagement or Right to Corporate
Assets. No participant under the Plan shall have any right, because of
his or her participation, to continue in the employ of; or to continue
his or her consulting engagement for, the Company for any period of time
or any right to continue his or her present or any other rate of
compensation. Nothing contained in the Plan shall be construed as giving
an employee, a consultant, such persons' beneficiaries or any other
person any equity or interests of any kind in the assets of the Company
or creating a trust of any kind or a fiduciary relationship of any kind
between the Company and any such person.
11.10. Deferral Permitted. Payment of cash or distribution of any
shares of Common Stock to which a participant is entitled under any
Incentive shall be made as provided in the Incentive. Payment may be
deferred at the option of the participant if provided in the Incentive.
11.11. Amendment of the Plan. The Committee or the Board of
Directors may amend or discontinue the Plan at any time. However, no such
amendment or discontinuance shall, subject to adjustment under Section
11.6: (a) change or impair, without the consent of the recipient, an
Incentive previously granted; (b) materially increase the maximum number
of shares of Common Stock which may be issued to all participants under
the Plan; (c) materially increase the benefits which may be granted under
the Plan; (d) materially modify the requirements as to eligibility for
participation in the Plan; or (e) materially increase the benefits
accruing to participants under the Plan.
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<PAGE> 11
11.12. Immediate Acceleration of Incentives. Notwithstanding any
provision in this Plan or in any Incentive to the contrary: (i) the
restrictions on all shares of restricted stock shall lapse immediately;
(2) all outstanding options and SARs will become exercisable immediately;
and (3) all performance shares shall be deemed to be met and payment made
immediately, if subsequent to the date that the Plan is approved by the
Committee or the Board of Directors of the Company, any of the following
events occur unless otherwise determined by the Board of Directors and a
majority of the Continuing Directors (as defined below):
(1) any person or group of persons becomes the beneficial
owner of 30% or more of any equity security of the Company entitled
to vote for the election of directors;
(2) a majority of the members of the Board of Directors of
the company is replaced within the period of less than two years by
directors not nominated and approved by the Board of Directors: or
(3) the stockholders of the Company approve an agreement to
merge or consolidate with or into another corporation or an
agreement to sell or otherwise dispose of all or substantially all
of the Company's assets (including a plan of liquidation).
For purposes of this Section 11.12, beneficial ownership by a person
or group of persons shall be determined in accordance with Regulation l3D
(or any similar successor regulation) promulgated by the Securities and
Exchange Commission pursuant to the 1934 Act. Beneficial ownership of
more than 30% of an equity security may be established by any reasonable
method, but shall be presumed conclusively as to any person who files a
Schedule 13D report with the Securities and Exchange Commission reporting
such ownership. If the restrictions and forfeitability periods are
eliminated by reason of the provision in (1) above, the limitations of
this Plan shall not become applicable again should the person cease to
own 30% or more of any equity security of the Company.
For purposes of this Section 11.12, "Continuing Directors" are
directors: (a) who were in office prior to the time that any of the
provisions in (1), (2) or (3) above occurred or any person who has
publicly announced an intention to acquire 20% or more of any equity
security of the Company; (b) directors in office for a period of more
than two years; and (c) directors nominated and approved by the existing
Continuing Directors.
11.13. Definition of Fair Market Value. Whenever "Fair Market
Value" of Common Stock shall be determined for purposes of this Plan, it
shall be determined by reference to the last sale price of a share of
Common Stock on the principal United States Securities Exchange
registered under the 1934 Act on which the Common Stock is listed
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<PAGE> 12
(the "Exchange"), or, on the National Association of Securities Dealers,
Inc. Automatic Quotation System (including the National Market system)
("NASDAQ") on the applicable date, or if the Company's Common Stock has
not yet been listed on the Exchange, the Board of Directors may determine
an alternate methodology to determine "Fair Market Value." If the
Exchange or NASDAQ is closed for trading on such date, or if the Common
Stock does not trade on such date, then the last sale price used shall be
the one on the date the Common Stock last traded on the Exchange or
NASDAQ.
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<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into this 30th day of July, 1996, to be
effective as of August 1, 1996, by and between IntraNet Solutions, Inc., a
Minnesota corporation (hereinafter referred to as "Company") and Robert F.
Olson, residing at 7073 Ticonderoga Trail, Eden Prairie, Minnesota (hereinafter
referred to as "Employee")
WITNESSETH:
WHEREAS, the Company desires to assure itself of the services of Employee;
and
WHEREAS, Employee desires to be employed by the Company.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Employee and Employee agrees to
accept such employment upon the terms and conditions hereinafter set forth.
2. Duties. Employee shall serve in an executive capacity as the President and
Chief Executive Officer of the Company, performing such services as the Bylaws
provide, and as the Board of Directors of the Company may, from time to time,
determine.
3. Term. This Agreement shall be for a three (3) year period commencing on
the effective date first above written and terminating on July 30, 1999,
subject, however, to prior termination as provided as Section 7 herein.
4. Base Salary. In consideration for the Employee's services under this
Agreement, the Company agrees to pay the Employee an initial base salary at a
rate of one hundred fifty-five thousand Dollars ($155,000) for the first twelve
(12) months hereunder, with annual increases of 6% for each of the following
two twelve (12) month periods hereunder (the "Base Salary"). The Base Salary
shall be subject to any withholding required by law and shall be payable in
bi-weekly installments.
5. Fiscal Year End Bonus. Employee shall be eligible to receive an annual
fiscal year end bonus up to twenty-five percent (25%) of Employee's Base
Salary, as described above. Employees receiving such bonus shall be
discretionary based upon an evaluation conducted by and between Employee and
the Compensation Committee of the Board of Directors. Said annual review and
evaluation shall be conducted no later than April 30 of each fiscal year
hereunder. Any such discretionary bonus, if any, shall be payable in cash to
Employee and shall be due and payable, in full, no later than June 30 of each
fiscal year hereunder.
<PAGE> 2
6. Additional Benefits and Working Facilities.
(a) The Company shall furnish Employee with the equipment, office space,
secretarial support and such other items related to his employment that
Employee determines are necessary, useful, and appropriate to him for the
duties required by his employment.
(b) The Company shall provide Employee health and dental insurance, 401K,
and any other benefits included in its corporate benefit program. In
addition, Employee shall have the benefit of such other employee benefit
plans that the Company may, from time to time, establish and in which
employee would be entitled to participate pursuant the terms thereof.
COMPANY AT ITS SOLE DISCRETION SHALL HAVE THE RIGHT TO CHANGE OR
DISCONTINUE SUCH PLANS.
(c) Employee shall be entitled to four (4) weeks of annual paid vacation
during the term of this Agreement.
(d) The Company shall reimburse Employee for all reasonable expenses
incurred by Employee in connection with the Company's business, upon
presentation of itemized statements therefor.
(e) The Company shall provide a mutually acceptable Company automobile
for Employee's business use.
7. Events of Termination. This Agreement may be terminated as follows:
(a) On the expiration of the term set forth at Section 3 above;
(b) By mutual written agreement of the parties;
(c) Upon Employee's death;
(d) Without notice, by the Company, for cause. "Cause" for purposes
hereof shall mean a determination by the Company's Board of Directors
that Employee has: (i) committed an illegal or dishonest act that
directly reflects upon his fitness to act as President or Chief Executive
Officer of the Company; (ii) breached his fiduciary obligations to the
Company; or (iii) refused or is unable to perform his duties hereunder,
other than as a result of illness or disability, for a period of one
hundred twenty (120) days; or
(e) At the Company's option, without cause: (i) upon 120 days written
notice to Employee; or (ii) with notice in the event of a change in
control during the term of this Agreement, provided that, in such event,
the Company shall then be obligated to pay to Employee, as mutually
agreed upon severance compensation the greater of: six months base
salary, as then in effect; or the balance of the compensation due and
owing to Employee for the remainder of the term of this contract.
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<PAGE> 3
8. Inventions.
(a) "Inventions," as used in this Section 8, means any discoveries,
improvements, and ideas (whether or not they are in writing or reduced to
practice) or works of authorship (whether or not they can be patented or
copyrighted) that the Employee makes, authors, or conceives (either alone
or with others) and that:
(i) concern directly the Company's business or the Company's
present or demonstratably anticipated future research or
development;
(ii) result from any work that Employee performs for the Company;
(iii) use the Company's equipment, supplies, facilities, or trade
secret information; or
(iv) the Employee develops during the time the Employee is
performing employment duties for the Company.
(b) Employee agrees that all inventions made by the Employee during the
term of this Agreement and for a period of twenty-four (24) months
thereafter will be the Company's sole and exclusive property. That
Employee will, with respect to any invention:
(i) keep current, accurate, and complete records, which will belong
to the Company and be kept and stored on the Company's premises
while the Employee is employed by the Company;
(ii) promptly and fully disclose the existence and describe the
nature of the Invention to the Company in writing (and without
request);
(iii) assign (and the Employee does hereby assign) to the Company
all of his rights to the Invention, any applications he makes for
patents or copyrights in any country, and any patents or copyrights
granted to him in any country; and
(iv) acknowledge and deliver promptly to the Company any written
instruments, and perform any other acts necessary in the Company's
opinion to preserve property rights in the Invention against
forfeiture, abandonment, or loss and to obtain and maintain letters
patent and/or copyrights on the invention and to vest the entire
right to title the Invention in the Company.
The requirements of this subsection 8(b) do not apply to any Invention for
which no equipment, supplies, facility, or trade secret information of the
Company was used and which was developed entirely on the Employee's own time
and: (1) which does not relate directly to the Company's business or to the
Company's actual or demonstrably anticipated research or development; or (2)
which does not result in any way from any work the Employee performed for the
Company. Except as previously disclosed to the Company in writing, prior to
the commencement of employment hereunder, the Employee does not have and will
not assert, any claims to or rights under any discoveries, improvements, ideas
or works of authorship which are
3
<PAGE> 4
within the scope of the Company's business. With respect to obligations
performed by the Employee under this subsection 8(b) following termination of
employment, the Company will pay the Employee reasonable hourly compensation
(consistent with the last Base Salary) and will pay or reimburse all reasonable
out-of-pocket expenses.
9. Confidential Information.
(a) "Confidential Information," as used in this Section 9, means
information that is not generally known and that is proprietary. Any
information, that the Employee reasonably should consider Confidential
Information, or the Company designates as Confidential Information, will
be presumed to be Confidential Information (whether the Employee or
others originated it and regardless of how the Employee obtained it).
(b) Except as specifically permitted by the Company's Board of Directors
or by written Company policies, the Employee will never, either during or
after his employment by the Company, use Confidential Information for any
purpose other than the business of the Company or disclose it to any
person who is not also an employee of the Company. When the Employee's
employment with the Company ends, the Employee will promptly deliver to
the Company all records and any compositions, articles, devices,
apparatus and other items that disclose, describe, or embody Confidential
Information, including all copies, reproductions and specimens of the
Confidential Information in the Employee's possession, regardless of who
prepared them and will promptly deliver any other property of the Company
in the Employee's possession, whether or not Confidential Information.
10. Conflicts of Interest. The Employee agrees that he will not, directly or
indirectly, transact business with the Company personally, or as agent, owner,
partner or shareholder of any other entity; provided, however, that any such
transaction may be entered into if knowingly approved by the disinterested
members of the Company's Board of Directors.
11. Non-Competition Agreement. During the full term hereof, and on the
termination of Employee's employment, for any reason, Employee shall not, for a
period of twenty-four (24) months from the date of such termination:
(a) directly or indirectly, anywhere in the United States, own, manage,
operate or control, or participate in the ownership, management,
operation or control of, or be connected with, or have any interest in,
as a stockholder, director, officer, employee, agent, advisor,
consultant, partner, or otherwise: (a) any business which manufactures,
produces, sells or distributes any products or services which have been
manufactured, produced, offered, sold or distributed by Company; or (b)
any other business which is competitive with any business currently or
hereafter conducted by Company; provided, however, that nothing contained
herein shall prohibit Employee from owning less than 3% of any class of
securities listed on a national securities exchange or traded publicly in
the over-the-counter market. Employee acknowledges and agrees that the
provisions of this Section are both reasonable and valid in geographical
and temporal scope and in all other respects. If any of the provisions
of this Section are held to be unenforceable because of the scope,
duration or area of its applicability, the court making such
determination shall
4
<PAGE> 5
have the power to modify such scope, duration or area or all of them,
and such provision shall then be applicable in such modified form.
(b) Employee will not, during the full term hereof, either directly or
indirectly, alone or with others, solicit or assist anyone else in the
solicitation of, any of the employees employed by Company. at the time of
Employee's termination of employment with Company, to terminate their
employment with Company and to become employed by any business enterprise
with which the Employee may then be associated, affiliated or connected.
Employee will, prior to accepting employment, consulting or similar
contract or agreement with any third party, inform that party of this Agreement
and provide that party with a copy of this Agreement.
12. No Adequate Remedy. Employee understands that if the Employee fails to
fulfill the Employee's obligations under Section 8, 9, 10 or 11 of this
Agreement, the damages to the Company would be very difficult to determine.
Therefore, in addition to any other rights or remedies available to the Company
at law, in equity, or by statute, the Employee hereby consents to the specific
enforcement of the provisions of those Sections by the Company through an
injunction or restraining order issued by an appropriate court.
13. Additional Documents. The parties shall each, without further
consideration, execute such additional documents as may be reasonably required
in order to carry out the purpose and intent of this Agreement and to fulfill
the obligation of the respective parties hereunder.
14. Waiver. Any waiver of any term or condition of this Agreement shall not
operate as a waiver of any other breach of such term or condition, or of any
other term or condition, nor shall any failure to enforce a provision hereof
operate as a waiver of such provision or of any other provision hereof.
15. Notices. All Communications with respect to this Agreement shall be
considered given if delivered or sent as follows:
(a) If to Employee, by first class certified mail, postage prepaid,
return receipt requested, addressed as follows:
Robert F. Olson
7073 Ticonderoga Trail
Eden Prairie, MN 55346
(b) If to the Company, by first class mail, postage prepaid, return
receipt requested, addressed as follows:
Mr. Jeffrey J. Sjobeck, Chief Financial Officer
IntraNet Solutions, Inc.
9625 W. 76th Street, Suite 150
Eden Prairie, MN 55344
5
<PAGE> 6
with a copy to:
Bill Mower
Maslon, Edelman, Borman & Brand
3300 Norwest Center
90 S. 7th Street
Minneapolis, MN 55402-4140
or mailed to such other address as the parties hereto may designate by notice
given in like manner. Notice shall be effective three (3) days after mailing
or upon personal delivery.
16. Entire Agreement. This Agreement, together with all exhibits and writings
required or contemplated hereby, constitutes the entire Agreement between the
parties hereto with respect to the transaction contemplated hereby and no party
shall be liable or bound to another in any manner by and warranties,
representations, or guarantees, except as specifically set forth herein.
17. Modification, Amendments and Waivers. The parties hereto at any time may,
by written Agreement: (i) extend the time for the performance of any of the
obligations or other acts of the parties hereto; (ii) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
exhibit, schedule, letter, certificate, or other instrument delivered pursuant
hereto; (iii) waive compliance with any of the covenants or agreements contained
in this Agreement; or (iv) make any other modifications of this Agreement. This
Agreement shall not be altered or otherwise amended except pursuant to an
instrument in writing executed by both parties hereto.
18. Severability. No finding or adjudication that any provision of this
Agreement is invalid or unenforceable shall affect the validity or
enforceability of the remaining provision herein, and this Agreement shall be
construed as though such invalid or unenforceable provisions were omitted.
19. Miscellaneous.
(a) The terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the parties hereto and the respective legal
representatives, successors, and assigns of both of the parties hereto.
(b) This Agreement is made pursuant to and shall be construed under the
laws of the State of Minnesota.
(c) This Agreement shall be executed in two (2) counterparts, but each of
these counterparts shall, for all purposes, be deemed to be an original,
but both counterparts shall together constitute one and the same
instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement effective the
date set forth above.
EMPLOYER: EMPLOYEE:
INTRANET SOLUTIONS, INC.
By /s/ Jeffrey Sjobeck /s/ Robert F. Olson
------------------------- --------------------
Robert F. Olson
Its Chief Financial Officer
-------------------------
7
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into this 30th day of July, 1996, to be
effective as of August 1, 1996, by and between IntraNet Solutions, Inc., a
Minnesota corporation (hereinafter referred to as "Company") and Jeffrey J.
Sjobeck, residing at 1175 Benton Way, Arden Hills, Minnesota (hereinafter
referred to as "Employee")
WITNESSETH:
WHEREAS, the Company desires to assure itself of the services of Employee;
and
WHEREAS, Employee desires to be employed by the Company.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Employee and Employee agrees to
accept such employment upon the terms and conditions hereinafter set forth.
2. Duties. Employee shall serve in an executive capacity as the Chief
Financial Officer of the Company, performing such services as the Bylaws
provide, and as the Board of Directors of the Company may, from time to time,
determine.
3. Term. This Agreement shall be for a three (3) year period commencing on
the effective date first above written and terminating on July 31, 1999,
subject, however, to prior termination as provided as Section 7 herein.
4. Base Salary. In consideration for the Employee's services under this
Agreement, the Company agrees to pay Employee an initial base salary at a rate
of Seventy-Five Thousand Dollars ($75,000) with any annual increases to occur
on Employee's subsequent yearly anniversary dates, in the sole discretion of
the Chief Executive Officer. The Base Salary shall be subject to any
withholding required by law and shall be payable in monthly installments.
5. Management By Objective Program. Employee shall be eligible to participate
in the Company's existing Management By Objective Program, in the discretion of
the Company's Chief Executive Officer and in accordance with existing Company
policies.
6. Additional Benefits and Working Facilities.
(a) The Company shall furnish Employee with the equipment, office space,
secretarial support and such other items related to his employment that
Employee determines are necessary, useful, and appropriate to him for the
duties required by his employment.
(b) The Company shall provide Employee health and dental insurance,
401K, and any other benefits included in its corporate benefit program.
In addition, Employee shall have the benefit of such other employee
benefit plans that the Company may, from time to time,
<PAGE> 2
establish and in which employee would be entitled to participate
pursuant the terms thereof. COMPANY AT ITS SOLE DISCRETION SHALL HAVE
THE RIGHT TO CHANGE OR DISCONTINUE SUCH PLANS.
(c) Employee shall be entitled to annual paid vacation consistent with
the Company's existing vacation policy, and as amended from time to time.
(d) The Company shall reimburse Employee for all reasonable expenses
incurred by Employee in connection with the Company's business, upon
presentation of itemized statements therefor.
(e) The Company shall provide to Employee either a Company automobile or
a $450 monthly automobile allowance, subject to applicable business use
and tax laws.
7. Events of Termination. This Agreement may be terminated as follows:
(a) On the expiration of the term set forth at Section 3 above;
(b) By mutual written agreement of the parties;
(c) Upon Employee's death;
(d) Without notice, by the Company, for cause. "Cause" for purposes
hereof shall mean a determination by the Company's Board of Directors
that Employee has: (i) committed an illegal or dishonest act that
directly reflects upon his fitness to act as Chief Financial Officer of
the Company; (ii) breached his fiduciary obligations to the Company; or
(iii) refused or is unable to perform his duties hereunder, other than as
a result of illness or disability, for a period of one hundred twenty
(120) days; or
(e) At the Company's option, without cause: (i) upon 120 days written
notice to Employee provided the Employee receives 120 days' severance
pay; or (ii) with notice in the event of a change in control within the
Company during the term of this Agreement, provided that Employee
immediately receives 120 days' severance pay.
8. Inventions.
(a) "Inventions," as used in this Section 8, means any discoveries,
improvements, and ideas (whether or not they are in writing or reduced to
practice) or works of authorship (whether or not they can be patented or
copyrighted) that the Employee makes, authors, or conceives (either alone
or with others) and that:
(i) concern directly the Company's business or the Company's
present or demonstratably anticipated future research or
development;
(ii) result from any work that Employee performs for the Company;
2
<PAGE> 3
(iii) use the Company's equipment, supplies, facilities, or trade
secret information; or
(iv) the Employee develops during the time the Employee is
performing employment duties for the Company.
(b) Employee agrees that all inventions made by the Employee during the
term of this Agreement and for a period of twenty-four (24) months
thereafter will be the Company's sole and exclusive property. That
Employee will, with respect to any invention:
(i) keep current, accurate, and complete records, which will
belong to the Company and be kept and stored on the Company's
premises while the Employee is employed by the Company;
(ii) promptly and fully disclose the existence and describe the
nature of the Invention to the Company in writing (and without
request);
(iii) assign (and the Employee does hereby assign) to the Company
all of his rights to the Invention, any applications he makes for
patents or copyrights in any country, and any patents or copyrights
granted to him in any country; and
(iv) acknowledge and deliver promptly to the Company any written
instruments, and perform any other acts necessary in the Company's
opinion to preserve property rights in the Invention against
forfeiture, abandonment, or loss and to obtain and maintain letters
patent and/or copyrights on the invention and to vest the entire
right to title the Invention in the Company.
The requirements of this subsection 8(b) do not apply to any Invention for
which no equipment, on the Employee's own time and: (1) which does not relate
directly to the Company's business or to the Company's actual or demonstrably
anticipated research or development; or (2) which does not result in any way
from any work the Employee performed for the Company. Except as previously
disclosed to the Company in writing, prior to the commencement of employment
hereunder, the Employee does not have and will not assert, any claims to or
rights under any discoveries, improvements, ideas or works of authorship which
are within the scope of the Company's business. With respect to obligations
performed by the Employee under this subsection 8(b) following termination of
employment, the Company will pay the Employee reasonable hourly compensation
(consistent with the last Base Salary) and will pay or reimburse all reasonable
out-of-pocket expenses.
3
<PAGE> 4
9. Confidential Information.
(a) "Confidential Information," as used in this Section 9, means
information that is not generally known and that is proprietary. Any
information, that the Employee reasonably should consider Confidential
Information, or the Company designates as Confidential Information, will
be presumed to be Confidential Information (whether the Employee or
others originated it and regardless of how the Employee obtained it).
(b) Except as specifically permitted by the Company's Board of Directors
or by written Company policies, the Employee will never, either during or
after his employment by the Company, use Confidential Information for any
purpose other than the business of the Company or disclose it to any
person who is not also an employee of the Company. When the Employee's
employment with the Company ends, the Employee will promptly deliver to
the Company all records and any compositions, articles, devices,
apparatus and other items that disclose, describe, or embody Confidential
Information, including all copies, reproductions and specimens of the
Confidential Information in the Employee's possession, regardless of who
prepared them and will promptly deliver any other property of the Company
in the Employee's possession, whether or not Confidential Information.
10. Conflicts of Interest. The Employee agrees that he will not, directly or
indirectly, transact business with the Company personally, or as agent, owner,
partner or shareholder of any other entity; provided, however, that any such
transaction may be entered into if knowingly approved by all of the
disinterested members of the Company's Board of Directors.
11. Non-Competition Agreement. During the full term hereof, and on the
termination of Employee's employment for any reason, Employee shall not, for a
period of twenty-four (24) months from the date of such termination:
(a) directly or indirectly, anywhere in the United States, own, manage,
operate or control, or participate in the ownership, management,
operation or control of, or be connected with, or have any interest in,
as a stockholder, director, officer, employee, agent, advisor,
consultant, partner, or otherwise: (a) any "business" which manufactures,
produces, sells, markets or distributes any products or services that
have been manufactured, produced, marketed, sold or distributed by
Company; or (b) any other business which is competitive with any business
currently or hereafter conducted by Company; provided, however, that
nothing contained herein shall prohibit Employee from owning less than 3%
of any class of securities listed on a national securities exchange or
traded publicly in the over-the-counter market. Employee acknowledges
and agrees that the provisions of this Section are both reasonable and
valid in geographical and temporal scope and in all other respects. If
any of the provisions of this Section are held to be unenforceable
because of the scope, duration or area of its applicability, the court
making such determination shall have the power to modify such scope,
duration or area or all of them, and such provision shall then be
applicable in such modified form.
4
<PAGE> 5
(b) Employee will not, during the full term hereof, either directly or
indirectly, alone or with others, solicit or assist anyone else in the
solicitation of, any of the employees employed by Company at the time of
Employee's termination of employment with Company, to terminate their
employment with Company and to become employed by any business enterprise
with which the Employee may then be associated, affiliated or connected.
Employee will, prior to accepting employment, consulting or similar
contract or agreement with any third party, inform that party of this Agreement
and provide that party with a copy of this Agreement.
12. No Adequate Remedy. Employee understands that if the Employee fails to
fulfill the Employee's obligations under Section 8, 9, 10 or 11 of this
Agreement, the damages to the Company would be very difficult to determine.
Therefore, in addition to any other rights or remedies available to the Company
at law, in equity, or by statute, the Employee hereby consents to the specific
enforcement of the provisions of those Sections by the Company through an
injunction or restraining order issued by an appropriate court.
13. Additional Documents. The parties shall each, without further
consideration, execute such additional documents as may be reasonably required
in order to carry out the purpose and intent of this Agreement and to fulfill
the obligation of the respective parties hereunder.
14. Waiver. Any waiver of any term or condition of this Agreement shall not
operate as a waiver of any other breach of such term or condition, or of any
other term or condition, nor shall any failure to enforce a provision hereof
operate as a waiver of such provision or of any other provision hereof.
15. Notices. All Communications with respect to this Agreement shall be
considered given if delivered or sent as follows:
(a) If to Employee, by first class certified mail, postage prepaid,
return receipt requested, addressed as follows:
Mr. Jeffrey J. Sjobeck
1175 Benton Way
Arden Hills, Minnesota 55112
(b) If to the Company, by first class mail, postage prepaid, return
receipt requested, addressed as follows:
Mr. Robert F. Olson, Chief Executive Officer
IntraNet Solutions, Inc.
9625 W. 76th Street, Suite 150
Eden Prairie, MN 55344
5
<PAGE> 6
with a copy to:
Bill Mower
Maslon, Edelman, Borman & Brand
3300 Norwest Center
90 S. 7th Street
Minneapolis, MN 55402-4140
or mailed to such other address as the parties hereto may designate by notice
given in like manner. Notice shall be effective three (3) calendar days after
mailing or upon personal delivery.
16. Entire Agreement. This Agreement, together with all exhibits and writings
required or contemplated hereby, constitutes the entire Agreement between the
parties hereto with respect to the transaction contemplated hereby and no party
shall be liable or bound to another in any manner by and warranties,
representations, or guarantees, except as specifically set forth herein.
17. Modification, Amendments and Waivers. The parties hereto at any time
may, by written Agreement: (i) extend the time for the performance of any of the
obligations or other acts of the parties hereto; (ii) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
exhibit, schedule, letter, certificate, or other instrument delivered pursuant
hereto; (iii) waive compliance with any of the covenants or agreements
contained in this Agreement; or (iv) make any other modifications of this
Agreement. This Agreement shall not be altered or otherwise amended except
pursuant to an instrument in writing executed by both parties hereto.
18. Severability. No finding or adjudication that any provision of this
Agreement is invalid or unenforceable shall affect the validity or
enforceability of the remaining provision herein, and this Agreement shall be
construed as though such invalid or unenforceable provisions were omitted.
19. Miscellaneous.
(a) The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and the respective legal
representatives, successors, and assigns of both of the parties hereto.
(b) This Agreement is made pursuant to and shall be construed under the
laws of the State of Minnesota.
(c) This Agreement shall be executed in two (2) counterparts, but each
of these counterparts shall, for all purposes, be deemed to be an
original, but both counterparts shall together constitute one and the same
instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement effective the
date set forth above.
EMPLOYER: EMPLOYEE:
INTRANET SOLUTIONS, INC.
By Robert Olsen /s/ Jeffrey J. Sjobeck
------------------------------- -------------------------
Its Chief Executive Officer Jeffrey J. Sjobeck
------------------------------
7
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made part of this
Registration Statement.
LUND KOEHLER COX & COMPANY, PLLP
Minneapolis, Minnesota
October 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 146,407
<SECURITIES> 0
<RECEIVABLES> 2,933,557
<ALLOWANCES> 0
<INVENTORY> 510,079
<CURRENT-ASSETS> 4,244,417
<PP&E> 1,683,876
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,201,318
<CURRENT-LIABILITIES> 5,790,849
<BONDS> 0
0
0
<COMMON> 10,000
<OTHER-SE> (287,070)
<TOTAL-LIABILITY-AND-EQUITY> 6,201,318
<SALES> 4,180,934
<TOTAL-REVENUES> 4,180,934
<CGS> 3,264,005
<TOTAL-COSTS> 3,264,005
<OTHER-EXPENSES> 1,304,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,173
<INCOME-PRETAX> (435,848)
<INCOME-TAX> (150,000)
<INCOME-CONTINUING> (285,848)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (285,848)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
