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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended March 31, 1997.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from to .
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Commission file number 0-19817
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INTRANET SOLUTIONS, INC.
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(Exact Name of Registrant as Specified in Its Chapter)
Minnesota 41-1652566
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
9625 West 76th Street, Suite 150, Eden Prairie, Minnesota 55344
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(Address of Principal Executive Offices)
(612) 903-2000
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.
X
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The issuer had total revenues of $20,010,006 for its fiscal year ended
March 31, 1997.
As of June 24, 1997, assuming as market value the price of $4.50 per share
(the last sales price of the Company's Common Stock on the Nasdaq SmallCap
Market), the aggregate market value of shares held by non-affiliates was
$11,937,816.
As of June 24, 1997 the Company had outstanding 7,535,003 shares of Common
Stock, $.01 par value.
Documents Incorporated by Reference: Portions of the Company's Proxy
Statement for its Annual Meeting of Shareholders to be conducted on August
21, 1997 (the "1997 Proxy Statement") are incorporated by reference into Part
III of this Form 10-KSB, to the extent described in Part III. The 1997 Proxy
Statement will be filed within 120 days after the end of the fiscal year
ended March 31, 1997.
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TABLE OF CONTENTS
PART I PAGE
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Item 1. Description of Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 10
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 7. Financial Statements 15/F-1
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 15
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons:
Compliance with Section 16(a) of the Exchange Act 16
Item 10. Executive Compensation 16
Item 11. Security Ownership of Certain Beneficial Owners
and Management 16
Item 12. Certain Relationships and Related Transactions 16
Item 13. Exhibits and Reports on Form 8-K 16
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
IntraNet Solutions, Inc. ("IntraNet" or the "Company") provides
integrated solutions for the creation, management and distribution of
critical business information through the Internet, intranets and extranets.
IntraNet offers its customers a variety of products, including proprietary
intranet document management software, customized off-the-shelf software
applications, hardware and software implementation, and electronic
distribution and on-demand publishing services. The evolution of Web
technology as a tool for storing, managing and distributing information,
coupled with the Company's experience in designing systems and creating
custom software applications, has created an opportunity for the Company to
develop a line of document management software products utilizing Web
technology.
The Company's business strategy utilizes its proprietary Web-based
technology to target the electronic document management market in addition
to the on-demand publishing applications market. The Company's strategy is
comprised of the following objectives: (i) offer its customers a complete,
single source solution for their document management needs using direct and
alternative marketing channels to sell its products; (ii) leverage Web
technology in the development of additional intranet products; (iii) expand
its line of proprietary software products; and (iv) cultivate strategic
partnerships with leading industry participants.
IntraNet recently released the Intra.DOC!-Registered Trademark- document
management system, an intranet/Internet software application that utilizes
Web technology to provide users with access to any document on their network,
regardless of the document location or the original software application used
to create it. Because Intra.DOC!-Registered Trademark- places document
management in a Web environment, system users have Web browser access to
documents created on a multitude of computing platforms thereby offering the
Company's customers a means of overcoming the data sharing compatibility
problems inherent in systems operating without Web technology.
INDUSTRY
HISTORICAL DEVELOPMENT OF COMPUTER SYSTEMS. For more than two decades,
the U.S. computer industry has directed much of its innovation towards the
evolution of data processing tasks from centralized computer systems
(typically mainframe computers and minicomputers) to decentralized network
systems, which are generally smaller and more cost-effective. In a
centralized computer system, users are connected to a large central computer
which handles both data processing and storage functions. Traditionally, the
primary appeal of centralized computer systems has been their ability to
provide large numbers of users with shared, centrally managed data. Users of
centralized computer systems, however, grew increasingly dissatisfied with
the high cost of these systems and, as a result of advances in microprocessor
performance and networking technology, network computing emerged as a
promising alternative to the centralized computer system. Network computing
allows users to obtain both connectivity to shared data and the price and
performance advantages of distributed processing.
LOCAL AND WIDE AREA NETWORKS. During the 1980's, local area networks
("LANs") and wide area networks ("WANs") proliferated as enterprise-wide
computing solutions to take the place of centralized systems. Advances in
microprocessor performance also resulted in the development of multiple
formats, including a range of different word processing, spreadsheet, CAD and
other graphics applications which run on a variety of computing platforms
with little data sharing compatibility. The absence of compatibility
between computing platforms and applications has greatly reduced the utility
of LANs and WANs as mechanisms for sharing information among users of an
enterprise computing system. Without an effective means of creating,
storing, and searching for information, workers have been forced to re-create
documents from scratch, duplicating effort and increasing the margin for
error. Certain collaborative computing solutions, such as Lotus
Notes-Registered Trademark-, were developed to alleviate the absence of
widespread connectivity. However, these products use proprietary database
structures which fail to provide ready access to remote databases. In
addition, any new or upgraded software applications must be custom-integrated
into the proprietary platform, involving significant outside expertise and
expense.
THE INTERNET AND WORLD WIDE WEB. The Internet is a global collection of
computer networks that links thousands of public and private computer
networks and millions of public and private computers around the world.
Developed in 1969, the Internet acts as a "network of networks," allowing
computers connected to the Internet to communicate with each other using the
Internet protocol ("TCP/IP"). The Internet has historically been used
primarily by academic institutions and government agencies to exchange
information via electronic mail. Recently, the Internet has experienced
rapid growth in
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use and increased internationalization as a result of, among other things,
the growth in the number of commercial hosts, the expanded breadth of
information content, an increase in the installed base of personal computers,
improvements in telecommunications infrastructure supporting Internet use and
technological advances such as improved graphical interfaces, all of which
make the Internet more useful and easier to use.
The World Wide Web (the "Web"), a client/server network of hyperlinked
multimedia databases, was introduced in 1992. The Web enables users to find,
retrieve and link information on the Internet in a consistent way that makes
the underlying complexities transparent to the user. Electronic documents
are published on Web servers in a common format described by the Hypertext
Markup Language ("HTML"). The Web can be easily accessed using client
software known as Web browsers that use a standard protocol called Hypertext
Transfer Protocol ("HTTP"). The Web allows users to offer and retrieve
textual, graphical and other information.
BUSINESS APPLICATIONS OF WEB TECHNOLOGY. Initial business applications
of Web technology focused on its utility as a new channel for direct selling.
Although a few businesses are realizing revenues directly from Web sales, the
majority of commercial users currently employ the Web for external
communications about their products and services to potential customers.
Only recently have enterprises commenced using Web technology as a means of
internal communication and information management. This technology offers
these organizations a means of overcoming the same distributed and
heterogeneous information problems the Internet and World Wide Web were
designed to solve on a global basis. Since many organizations already have
an Internet system in operation, the application of Web technology to serve
internal data sharing needs is both operationally intuitive and
cost-effective.
Private internets, or "intranets," are rapidly gaining acceptance among
the corporate community. Corporate intranets use the infrastructure and
standards of the Internet and World Wide Web, but are secured from access by
general users of the public Internet through software programs commonly known
as "firewalls." Through Web browsers, the same electronic information can be
viewed by any person in the organization, regardless of the system he is
using. More importantly, the uniform presentation of information enables
intranets to consolidate all computers, software and databases existing
within the host organization into a single system, enabling users to find
information wherever it resides.
A more recent trend in corporate intranets is the development of the
external intranet, or "extranet." An extranet exists when businesses allow
customers, suppliers, or multiple global locations access to their internal
systems via Internet connections. Using Web technology for this type of
collaborative system offers a great cost advantage over wide area networks,
which use long distance and leased phone lines.
Web technology also has singular applicability to the on-demand
publishing market. Many organizations that rely on documents to communicate
with their customers, vendors and other third parties are seeking solutions
that offer timely, highly customized documents. These documents often need
to be produced in large quantity over limited runs, which traditional high
speed electronic printing systems are not designed to handle. Web technology
offers businesses extensive flexibility in creating, storing, revising and
publishing documents, particularly those that require continuous
modification. Combined with electronic storage, this technology permits
publishing on-demand in response to orders placed from various locations.
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BUSINESS STRATEGY
The Company's objective is to expand the array of products and services
surrounding the Intra.DOC!-Registered Trademark- Management System as a means
of increasing its share of the document management market. To achieve this
objective, the Company has developed a strategy, which includes:
- - Offering its customers a single source solution for their document
management needs using internal and alternative marketing channels to sell
its products.
- - Leveraging Web technology in the development of intranet products.
- - Expanding its line of proprietary software products.
- - Cultivating strategic partnerships with leading industry participants
SINGLE SOURCE SOLUTION. The Company believes that its revenue growth is
largely attributable to its ability to address any aspect of a customer's
document management needs. Customers are provided with the convenience and
security of a "one stop solution" to their document creation, management and
distribution requirements. Moreover, the availability of products and
services touching on each aspect of document management provides IntraNet
with numerous vertical integration opportunities.
LEVERAGING WEB TECHNOLOGY. Because Web technology has proven to be an
efficient and cost effective way to manage and distribute information, the
Company has focused on this technology as a core means of controlling and
distributing this information, as well as providing a common interface to
easily and inexpensively access external services. The Company's products
are designed specifically for Web technology, while the majority of
LAN-designed document Management Systems have been retroactively ported to
support the intranet.
PROPRIETARY SOFTWARE PRODUCTS. The Company is directing the majority of
its research and development resources to the development of proprietary
intranet software for the document management market. Sales of the Company's
proprietary software products have historically been at a relatively higher
margin when compared to sales of nonproprietary software products and
Print-on-Demand sales. The core product of the Company's proprietary line is
the Intra.DOC!-Registered Trademark- Management System.
STRATEGIC PARTNERSHIPS. The Company seeks to enter into strategic
partnerships with leading industry participants. In connection with this
strategy, IntraNet is developing an alternate channels marketing program for
its software products, allowing third-party organizations to sell the
Company's products in strategic market niches and geographic areas otherwise
inaccessible to the Company. For example, the Company has established a
strategic relationship with Interleaf, Inc., a leading provider of
enterprise-wide document management solutions, to expand the North American
sales and marketing channels for Intra.DOC!-Registered Trademark-. The
Company also hopes to enter into possible alliances with commercial printers
in an effort to increase the number of the Company's regional on-demand
publishing facilities as part of a general expansion of its electronic
document warehouse/distribution ("Print-on-Demand") business. Management
believes that expansion of the Company's Print-on-Demand business could
provide the Company with a continuous source of revenue from customers that
use these facilities on an ongoing basis. The Company hopes to accomplish
this by increasing its national presence with expansion into new cities
through affiliate printer relationships. The Company believes that an
increasing number of potential customers will discover the cost and
efficiency advantages inherent in its electronic warehouse/distribution
services. Moreover, a national presence should afford the Company an
"electronically ship then print" approach to document distribution to provide
customers with a faster time to market.
PRODUCTS AND SERVICES
The Company believes that its current and future competitive position in
the document management market is, and will be, largely dependent upon its
ability to offer solutions for a wide variety of its customers' document
management needs. Customers are provided with the convenience and security
of a single source solution to their document creation, management and
distribution requirements and also benefit from the synergy created when a
single vendor is responsible for each aspect of document management
applications. The following is a description of the products and services
offered by the Company to provide its customers with effective document
management solutions.
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THE Intra.DOC!-Registered Trademark- MANAGEMENT SYSTEM
The Company recently released Intra.DOC!-Registered Trademark-, an
intranet/Internet software application that utilizes Web technology to
provide users with access to any document on their systems, regardless of
location or the software application used to create it.
Intra.DOC!-Registered Trademark- offers the Company's customers a means of
overcoming the data sharing compatibility problems inherent in traditional
LAN/WAN systems. Intra.DOC!-Registered Trademark- automatically places
documents into a Web-ready format while preserving the formats in which the
documents were created. Additionally, the software automatically creates and
indexes the Web hyperlinks that make it possible to navigate through the
information and further categorizes data in such a manner that permits full
text searches by the user. Document-based data is not only viewable, but
authorized users may access the documents in their native formats.
Intra.DOC!-Registered Trademark- eliminates the need to generate manual 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 access to multiple
repositories (libraries) of information, allows users to search for and view
information from any location, and minimizes the cost of, and time required
for both installation and day to day management of business information on a
Web site. All an authorized user needs to access the site is a standard Web
browser and a Web document viewer.
The Company believes that Intra.DOC!-Registered Trademark- fills the 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 solutions are limited in their inability to use HTML menu
hierarchies. Thus CGI users can view documents in the repository but often
must do searches manually, depending on the limitations of the repository.
Intra.DOC!-Registered Trademark- overcomes both concerns by generating HTML
links automatically and providing Web access to the information repository.
Intra.DOC!-Registered Trademark- 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.
Intra.DOC!-Registered Trademark- contains several features calculated
both to expand access to, and increase the amount of information readily
available on any organization's document management system:
- - Authorized users have access to the information which they require for
decision-making, and general users of the public Internet are restricted
from accessing the system.
- - All system users are able to generate and publish information for
distribution throughout approved areas of the organization without having
to go through a mediator.
- - System administrators may use existing firewall technology to grant varying
levels of security access to different groups of users.
- - Barriers to entering the information-sharing system are extremely low.
Users require only a personal computer, a browser, and in some cases,
generic document viewing software.
- - Implicit barriers to usage are also very low. Web sites can be created
directly by end users who are able to view documents and author them
without specialized skills or software systems. Users can author documents
in whichever form is convenient to them.
- - System flexibility is high, which means the system can be adapted to the
changing needs of people in the organization.
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Intra.DOC!-Registered Trademark- is designed to move information through
a three-layer architecture that acts to store, structure and catalog the
data, format the data for Web site publishing, and maintain the Web site with
the most current version thereof.After a user has authored a document in any
software application, the document is submitted to Intra.DOC!-Registered
Trademark- through a Web interface. In some instances, the document may
require approval before publication and the approving parties are notified
through a Web-based list of the status of the various documents awaiting
publication. Once documents have been approved, the document information in
various formats is placed in repository called the IntraNet Web Library (the
"Library"), where it is structured and organized. Documents stored in the
Library remain continuously accessible in their native software applications.
Authors are required to submit certain "metadata" (profile information) for
each document, such as its title, subject, author and revision date. This
information is later used to organize the data and provide for ease in
document retrieval.
The refinement layer of Intra.DOC!-Registered Trademark- converts each
document to Web-readiness. The refinement layer contains three components:
the Intra.DOC! Document Refinery-Registered Trademark-, the Intra.DOC! Web
Refinery-Registered Trademark-, and the Intra.DOC! Full-Text
Refinery-Registered Trademark-. The Document Refinery-Registered Trademark-
converts documents to Adobe PDF or HTML formats, or preserves them in their
native format if conversion is not possible. The Full-Text
Refinery-Registered Trademark- uses Intra.DOC!-Registered Trademark-'s Verity
text search engine to index the document text and metadata to permit document
searching after publication. The Web Refinery-Registered Trademark- then
generates HTML links and menu hierarchies according to the Web site structure
and metadata information, and then continually maintains the site to ensure
that the most current information available is reflected there.
The third and final layer of the Intra.DOC!-Registered Trademark-
architecture allows users with Netscape-Registered Trademark-, Microsoft
Explorer-Registered Trademark- and other common Internet browsers to use easy
navigational menus to access necessary the information. Any user on the
system can view a document created in virtually any application without
having the origin software loaded on their desktop. Authorized users may
even "check out" documents in order to modify them. Full Web site search
capabilities are provided, and documents are hierarchically structured to
facilitate navigation.
When maintaining a Web site with Intra.DOC!-Registered Trademark-, 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 the system preserves the controls necessary
for data security.
The Company believes that its customers' total investment in
Intra.DOC!-Registered Trademark- document management software may be as
little as one half the cost of known competing systems. The Company estimates
that a substantial majority of most customers' investment in alternative
document management systems is attributable to consulting services arising
out of system installation. Moreover, additional consulting services are
frequently necessary to support advances in microprocessor technology or
software applications that require customization of the existing system.
Intra.DOC!-Registered Trademark- attempts to inverse the traditional
relationship between acquisition costs and associated consulting services. By
combining the ease of installing Intra.DOC!-Registered Trademark- with an
internal architecture that is specifically designed to provide for future
volume increases in information, and new and diverse document types along
with other advances in Web technology, Intra.DOC!-Registered Trademark-
should reduce a customer's need for future consulting services as the
business and the system grow in tandem.
Intra.DOC!-Registered Trademark- ORDER MANAGEMENT SYSTEM
In November of 1996, the Company introduced its proprietary
Intra.DOC!-Registered Trademark- Order Management System ("OMS"). This
product allows customers to remotely store, revise, secure access to, and
distribute documents, using the Internet or via traditional "dial-up"
systems. Users of the Intra.DOC!-Registered Trademark- OMS system can send
copies of documents, physically or electronically, to the Company for
electronic warehousing. Once the documents have been stored, customers may
access them via the Internet or "dial-up," retrieving documents for revisions
as needed. Customers of the Company's Distribution Group are able to order
the Company's on-demand printing and electronic distribution services from
various remote locations via modem or the Internet. The security and
integrity of the documents are ensured while warehoused: passwords are used
to restrict access to unauthorized users, and offsite storage of valuable
documents provides an added backup in case of a disaster.
Over the Internet, customers use a common browser for access to the
Intra.DOC!-Registered Trademark- OMS interface and to their documents.
Documents are formally checked out of the Company's data vault system and
retrieved to the user's desktop for revisions in their native applications.
Once the revisions are complete, documents are checked back in to the
Company's data vault system, where revision histories are controlled and
maintained. This feature permits customers to view and confirm documents
prior to their being printed by the Company's Distribution Group.
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The Intra.DOC!-Registered Trademark- OMS, coupled with the Company's
complete bindery and print support services, ensure that virtually every
aspect of a printing job can be ordered remotely. Printed documents can be
shipped directly from the Company and electronic documents can be sent via
the Internet. Using Intra.DOC!-Registered Trademark- OMS to access and revise
documents over the Internet is ideal for businesses with remote locations,
customer sites, or distribution channels. Many businesses need a constant
flow of training manuals, product brochures, operating manuals and similar
documents throughout their organizations. The use of traditional printing
services requires significant investments of time and labor to place printing
orders and deliver current versions of documents for reproduction. Moreover,
traditional printing services frequently impose minimum order requirements
for each printing job. Such requirements usually result in excess quantities
of documents that must be destroyed when revisions are made. When used with
the Company's Print-on-Demand service, Intra.DOC!-Registered Trademark- OMS
enables customers to store documents electronically in the Company's data
vault, access and revise them from remote locations, and order on-demand
printing and shipping jobs remotely on an as-needed basis.
Recent Intra.DOC!-Registered Trademark- OMS enhancements include an easy
to use interface between any remote Intra.DOC!-Registered Trademark- OMS
vault maintained by a customer and any Intra.DOC!-Registered Trademark- OMS
vault located at an IntraNet Distribution Center, an affiliate printer, or
the customer's own production facility. This allows customers operating from
any location to have quick and easy access to any intranet distribution
facility for automated ordering and transfer of the electronic file to be
on-demand printed and distributed to any location. This provides
Intra.DOC!-Registered Trademark- OMS users with the ability to produce and
ship on-demand paper copies, in volume, from any Intra.DOC!-Registered
Trademark- OMS facility , expanding the range of IntraNet services to all
Intra.DOC!-Registered Trademark- users.
SALES, MARKETING AND DISTRIBUTION
The Company believes that as the trend toward network-based computing
environments and multiple platforms continues, the demand for its products
and services, especially its proprietary intranet software products and
on-demand publishing services, will increase. Management believes that the
breadth of the Company's line of products and services enables it to
vertically integrate any one aspect of a customer's document management needs
with all others. The Company's marketing strategy also entails 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 its proprietary products in strategic niches and geographical areas.
These alternate channels include vertically-oriented resellers, large system
integrators, strategic industry relationships, and software distributors.
STRATEGIC PARTNERS AND 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"). The Company maintains its own
internal development staff to provide the customization required by a
significant number of implementations for Sun and Interleaf products.
The Company has established a strategic relationship with Interleaf to
expand the North American sales and marketing channels for
Intra.DOC!-Registered Trademark-. Interleaf, a leading provider of
enterprise-wide document management solutions, will add the new NT-based
Intra.DOC!-Registered Trademark- application to its current line of
web-enabled document Management Systems. IntraNet is currently the largest
reseller of Interleaf software.
Intra.DOC!-Registered Trademark- has already been configured for
Interleaf's RDM system, which provides customers a smooth path from a
departmental document management solution into a comprehensive enterprise
system with configuration management, work flow, integrated batch output
choices and hundreds of vertical application solutions.
Intra.DOC!-Registered Trademark- is also compatible with Interleaf's
authoring, electronic distribution, Web publishing and filter products.
Sun, one of the leading providers of intranet hardware and software, is
the industry's most popular platform for software development and other Unix
applications. The Company has been named Sun's exclusive sales representative
for all public and private educational institutions in Minnesota and
Wisconsin, and is one of only two vendors with access to the entire Sun
product line. IntraNet is the largest value added reseller of Sun products
within Minnesota, Iowa, Wisconsin, North Dakota and South Dakota. 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 advanced technologies.
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PRODUCT DEVELOPMENT
The Company has divided its software development personnel into two
departments: Custom Applications, which concentrates on providing billable
services, and Research and Development, which is concerned with proprietary
intranet applications for resale. Intra.DOC!-Registered Trademark- and
related document management software products currently consume most of the
Company's research and development resources.
The Company recently released Intra.DOC!-Registered Trademark- version
2.2, which enables users to publish documents to any Unix Web server, and
features improved full text search capabilities. Intra.DOC!-Registered
Trademark- version 2.3 is scheduled for release in April of 1997. It is
anticipated that version 2.3 will offer enhanced Web security, support
additional document formats, and provide for integration with external
repositories, such as Interleaf's RDM, SDRC's Metaphase and Workgroup
Technology's CMS. Intra.DOC!-Registered Trademark- version 3.0 scheduled for
release in late 1998, is expected to feature full Java GUI ease of use,
various performance and volume enhancements, additional security features, a
scanning module for hardcopy input, and the ability to integrate with
additional external repositories.
IntraNet also intends to release enhanced versions of the
Intra.DOC!-Registered Trademark- Order Management System. Each version is
expected to provide additional integration features, including job ticketing
and inventory modules, as well as full compatibility with the
Intra.DOC!-Registered Trademark- Management System.
INTELLECTUAL PROPERTY
The Company has applied for trademark registration for the following
marks: INTRANET SOLUTIONS, DOCUMENT REFINERY, WEB REFINERY, WEB VAULT, and
Intra.DOC!. There can be no assurance that any trademarks which have been
applied for will be issued. In the absence of trademark registration
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 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.
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).
COMPETITION
Documentum, Inc., Open Text Corporation and PC Docs Group International,
together with certain other competitors currently marketing products into the
document management market are more established than the Company and have the
benefit of pre-existing relationships with potential customers and greater
name recognition in the industry. Some of the Company's present and potential
future competitors have significantly greater technical, financial, and
marketing resources than the Company. Although IntraNet believes it competes
effectively notwithstanding these 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 Company considers its ability to service any aspect of a customer's
document creation, management and distribution requirements to be its primary
competitive advantage. Customers compelled to use multiple vendors to
install or maintain a document Management System face an ongoing risk that
various components of their systems do not fit together conceptually, or
simply will not work. IntraNet's vertical integration allows it to deliver a
solution, or set of solutions, covering the entire spectrum of the document
management life cycle.
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Within the document management market, the majority of products currently
available were designed for specialized, high-volume line-of-business
applications and require a substantial investment. The Company believes that
certain lower cost solutions offered by other document management vendors
offer little more than file storage and viewing solutions. IntraNet's
proprietary software occupies a relatively unaddressed area of the market,
offering substantial features at a low cost. The Company's products are
well-suited to businesses that do not have specialized or extraordinary
document processing needs (e.g., line-of-business documents), but do require
certain sophisticated features, such as checking in and out, security, and
version control. Also, the Company's commitment to Web standards stand out
in contrast to its competition and enables it to offer its customers the most
cost effective solutions available with current and developing technologies.
EMPLOYEES
At June 1, 1997, the Company had approximately 112 employees. Ten
employees working at the Company's Phoenix facilities are members of a
collective bargaining unit. The labor contract covering such employees will
expire unless earlier renewed on June 25, 2000. No other employees of the
Company are currently represented by a labor union. Management considers its
employee relations to be good.
CERTAIN FACTORS
In addition to the matters discussed elsewhere in this Annual Report on
Form 10-KSB, the following are important factors that could cause actual
results of events to differ materially from those contained in any
forward-looking statement made on or behalf of the Company
SIGNIFICANT CAPITAL REQUIREMENTS; NEED FOR ADDITIONAL FINANCING. The
Company's capital requirements in connection with its research and
development and marketing activities have been and will continue to be
significant. The Company has been dependent upon the proceeds from sales of
its securities, as well as various private loans, to fund its development and
marketing activities. The Company is not generating sufficient revenues from
its operations to fund its activities and is, therefore, dependent on
proceeds from the sale of its debt or equity securities to continue at its
current level of operations. Any additional equity financings may be
dilutive to shareholders, and additional debt financing, if available, may
involve restrictive covenants. There can be no assurance that additional
financing will be available to the Company on commercially reasonable terms,
or at all. The Company is evaluating several financing alternatives,
including the sale of equity and debt securities.
UNCERTAINTY OF FUTURE OPERATING RESULTS; FLUCTUATIONS IN FUTURE OPERATING
RESULTS. Prior growth rates in the Company's revenue and operating results
are not necessarily indicative of future growth, if any, or of future
operating results. The Company's future operating results may vary
substantially from quarter to quarter and will depend on many factors,
including the level of sales of its proprietary software products, continued
profitable expansion of its print-on-demand business and continued expansion
of the market for corporate intranets. 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 timing of the Company's 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 ON NARROW PRODUCT LINE; TECHNOLOGY RISKS; RISK OF MARKET
ACCEPTANCE. To date, the Company has marketed a limited line of its
proprietary software products. 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 or
introduce and gain acceptance of its new products. The market for Internet
software products 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. 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,
8
<PAGE>
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 success
is dependent upon its continued introduction of new software products and its
ability to develop enhancements and upgrades to its existing product line.
The Company devotes significant resources to research and development and
believes it will have sufficient resources to support its research and
development efforts; however, the development of new, technologically
advanced products is a complex and uncertain process requiring high levels of
innovation, as well as the accurate anticipation of technological and market
trends. Delays in the introduction or shipment of new or enhanced products,
the inability of such products to gain market acceptance or problems
associated with new or enhanced products could adversely affect the Company's
operating results. The market for the Company's products is characterized by
rapidly changing technology, frequent new product introductions and product
enhancement and evolving industry standards. The introduction or enhancement
of products embodying new technology or the emergence of new industry
standards could render the Company's current products, or any other products
the Company may develop in the future, obsolete and unmarketable. The
Company's ability to anticipate changes in technology, products and industry
standards and to successfully develop and introduce new and enhanced products
on a timely basis will be a significant factor in the Company's ability to
grow and remain competitive. There can be no assurance that the Company will
be successful in introducing new products to respond to emerging industry
trends, and 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.
DEPENDENCE UPON KEY VENDOR RELATIONSHIPS. The Company 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.
Any disruption in the relationship between the Company and either of Sun
Microsystems, Inc. or Interleaf, Inc. would have an immediate and material
adverse impact on the Company. Although the Company believes that secondary
sources are currently available for similar hardware products, there can be
no assurance that suitable alternative vendor relationships could be
established in a timely manner, if at all. The Company purchased
approximately 54%, 68% and 67% of its total product resale requirements from
Sun Microsystems, Inc. in each of the fiscal years ended 1995,1996 and 1997,
respectively.
ITEM 2. 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 the following locations:
Approximate Square
Facility Location Footage of Space
----------------- ------------------
Milwaukee, Wisconsin 14,000
Denver, Colorado 6,000
Boston, Massachusetts 3,000
Phoenix Arizona 13,000
The Company has discontinued the use of its facilities in Milwaukee and Denver.
(See Management's Discussion and Analysis of Financial Condition and Results of
Operations - Special Charges) The Company believes that the remaining facilities
are adequate and suitable for its needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended March 31, 1997.
On June 19, 1997, the Company held a special meeting of shareholders to
consider and vote upon the following proposal. The tabulation of the votes
in favor, against and abstaining with regard to the proposal is set forth
below:
BROKER
PROPOSAL IN FAVOR AGAINST ABSTAIN NON-VOTES
-------- ---------- ------- ------- --------
To approve an amendment to the 5,117,736 13,525 11,167 0
Amended And Restated Articles of
Incorporation to increase the number
and nature of authorized shares from
12,500,000 shares of common Stock,
$.01 par value, to 25,000,000 shares of
undesignated capital stock
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
The Company's Common Stock and Redeemable Warrants trade separately in
the over-the counter market through NASDAQ under the symbols INRS and INSRW,
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 for the periods indicated, as reported by NASDAQ. The
quotes represent "Inter-Dealer" prices without adjustments or mark-ups,
mark-downs or commissions and may not necessarily present actual
transactions. On June 24, 1997, the last bid prices of the Common Stock and
Redeemable Warrants were $4.38 and $1.25 respectively. As of June 24, 1997,
the Company had approximately 118 record holders of Common Stock.
COMMON STOCK REDEEMABLE WARRANTS
HIGH LOW HIGH LOW
Fiscal 1996:
First Quarter ended 6/30/95 3.75 3.00 .38 .31
Second Quarter ended 9/30/95 6.00 3.00 .81 .25
Third Quarter ended 12/31/95 12.50 5.00 2.31 .63
Fourth Quarter ended 3/31/96 14.75 9.25 2.75 1.38
Fiscal 1997:
First Quarter ended 6/30/96 21.75 10.00 4.38 1.44
Second Quarter ended 9/30/96 19.00 8.00 3.69 .94
Third Quarter ended 12/31/96 9.50 5.50 3.25 .75
Fourth Quarter ended 3/31/97 8.25 4.38 3.75 1.25
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
IntraNet Solutions, Inc. ("IntraNet" or the "Company") provides
integrated solutions for the creation, management and distribution of
critical business information. IntraNet offers its customers a variety of
products, including proprietary intranet document management software,
customized off-the-shelf software applications, hardware and software
implementation, and electronic distribution and on-demand publishing
services. The evolution of Web technology as a tool for storing, managing
and distributing information, coupled with the Company's experience in
designing systems and creating custom software applications, has created an
opportunity for the Company to develop a complete line of document management
software products utilizing Web technology.
On July 31, 1996, the Company, then named MacGregor Sports and Fitness,
Inc. ("MSF") and IntraNet Integration Group, Inc.("IIGI," formerly known as
Technical Publishing Solutions, Inc. ("TPSI"), founded in 1990) completed a
reorganization (the "Merger"), pursuant to which IIGI became a wholly-owned
subsidiary of MSF.
The Company's revenues are derived from (i) the sale of proprietary and
non-proprietary software products, (ii) the sale of hardware products, (iii)
the sale of maintenance and support contracts, (iv) the sale of technical and
other services, and (v) the sale of on-demand publishing services. Revenue
from the sale of software is recognized in accordance with AICPA 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.
Revenue from maintenance and support contracts is generally recognized
ratable 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
contracts. Revenue from technical and other services are recognized as the
related services are performed. Revenue from the sale of all other products
and services is recognized at the time of delivery to the customer.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
consolidated statements of operations as a percent of total revenues for the
periods indicated.
Year Ended March 31,
--------------------
1995 1996 1997
---- ---- ----
Revenues:
Hardware integration 48.0% 57.6% 52.3%
Software, technical services and support 45.4 31.8 28.6
Distribution services 6.6 10.6 19.1
-----------------------------
Total revenues 100.0% 100.0% 100.0%
Cost of revenues:
Hardware integration 41.6 47.7 43.9
Software, technical services and support 27.6 19.7 16.7
Distribution services 3.6 7.8 15.0
----------------------------
Total cost of revenues 72.8 75.2 75.6
----------------------------
Gross profit 27.2 24.8 24.4
Operating expenses
Sales and marketing 11.9 12.8 15.1
General and administrative 9.8 9.5 18.5
Research and development 3.3 3.5 5.6
Special charges -- -- 2.3
----------------------------
Total operating expenses 25.0 25.8 41.5
----------------------------
Operating Income (loss) 2.2% (1.0)% (17.1)%
-----------------------------
-----------------------------
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YEAR ENDED MARCH 31, 1997 COMPARED TO THE YEAR ENDED MARCH 31, 1996
REVENUES
Total revenues increased to $20.0 million for the year ended March 31,
1997 from $14.2 million for the year ended March 31, 1996, or $5.8 million
(40.6%). This increase related to increases in all revenue product lines.
HARDWARE INTEGRATION. Hardware integration revenues increased a total of
$2.3 million or 27.8% for the year ended March 31, 1997 compared to the year
ended March 31, 1996 ($10.5 million in 1997 compared to $8.2 million in
1996). The increase in hardware integration revenue was principally due to
the expansion of the Company's customer base and increased sales to existing
customers.
SOFTWARE, TECHNICAL SERVICES AND SUPPORT. Software, technical services
and support revenues increased a total of $1.2 million or 26.4% for the year
ended March 31, 1997 compared to the year ended March 31, 1996 ($5.7 million
in 1997 compared to $4.5 million in 1996). Increases in software and
services revenue each accounted for $500,000 of the total increase and
support revenue accounted for $200,000 of the total increase. The growth in
software was primarily attributable to the introduction of the Company's
proprietary software products during the year ended March 31, 1997, which
accounted for $800,000 in software revenues. The growth in support revenue
was primarily attributable to growth in the installed base of hardware and
software, and renewals of support contracts.
DISTRIBUTION SERVICES. Distribution services revenues increased a total
of $2.3 million for the year ended March 31, 1997 compared to the year ended
March 31, 1996 ($3.8 million in 1997 compared to $1.5 million in 1996). The
increase in distribution services revenue was primarily attributable to the
expansion of the customer base through the additions to the direct sales
force and the opening of two new locations.
COST OF REVENUES AND GROSS PROFIT
Total cost of revenues increased to $15.1 million for the year ended March
31, 1997 from $10.7 million for the year ended March 31, 1996. Total cost of
revenues as a percent of total revenues was 75.7% in 1997 compared to 75.2%
in 1996. Gross profit increased to $4.9 million for the year ended March 31,
1997 compared to $3.5 million for the year ended March 31, 1996. Total gross
profit as a percent of total revenues was 24.3% in 1997 compared to 24.8% in
1996. The increase in gross profit was primarily attributable to incremental
revenue contributions in all product lines.
HARDWARE INTEGRATION. Cost of hardware integration revenues increased to
$8.8 million for the year ended March 31, 1997 from $6.8 million for the year
ended March 31, 1996. Cost of hardware integration revenues as a percent of
hardware integration revenues was 83.9% in 1997 compared to 82.9% in 1996.
Gross profit from hardware integration was 16.1% for the year ended March
31, 1997 compared to 17.1% for the year ended March 31, 1996. The reduction
in gross profit margin was primarily attributable to larger integration
projects with lower margins and increased competition.
SOFTWARE, TECHNICAL SERVICES AND SUPPORT. Cost of software, technical
services and support revenues increased to $3.3 million for the year ended
March 31, 1997 from $2.8 million for the year ended March 31, 1996. Cost of
software, technical services, and support revenues as a percent of software,
technical services, and support revenue was 58.6% in 1997 compared to 61.9%
in 1996. Gross profit on software, technical services and support was 41.4%
for the year ended March 31, 1997 compared to 38.1% for the year ended March
31, 1996. The increase in gross profit was primarily attributable to the
increase in sales of proprietary software. Margins on proprietary software
products were 71.6 percent.
DISTRIBUTION SERVICES. Cost of distribution services revenue increased to
$3.0 million for the year ended March 31, 1997 compared to $1.1 million for
the year ended March 31, 1996. Cost of distribution services revenues as a
percent of distribution services revenue was 78.8% in 1997 compared to 73.5%
in 1996. Gross profit on distribution services was 21.2% for the year ended
March 31, 1997 compared to 26.5% for the year ended March 31, 1996. Lower
margins on distribution services were primarily due to costs associated with
additional high speed laser printing equipment and other printing devices and
experiencing lower than optimal capacity utilization.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased to $3.0
million for the year ended March 31, 1997 compared to $1.8 million for the
year ended March 31, 1996. Sales and marketing expenses as a percent of
total revenues were 15.1% in 1997 compared to 12.8% in 1996. Sales and
marketing expenses increased as a percent of revenues primarily due to
increases in staffing and marketing programs.
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<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased to $3.7 million for the year ended March 31, 1997 compared to $1.3
million for the year ended March 31, 1996. General and administrative
expenses as a percent of total revenue were 18.5% in 1997 compared to 9.5% in
1996. General and administrative expenses increased primarily due to
increases in staffing, expenses related to the relocation of corporate
headquarters, and other related new facility and distribution services
related start-up costs.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$1.1 million for the year ended March 31,1997 compared to $500,000 for the
year ended March 31, 1996. Research and development expenses as a percent of
total revenue were 5.6% in 1997 compared to 3.5% in 1996. Total research and
development expenses increased $600,000 in 1997 compared to 1996 due to a
focus on development of proprietary software products and related expansion
of the research and development staffing.
SPECIAL CHARGES. During the quarter ended March 31, 1997, the Company
formalized details of a change in strategic focus designed to increase
emphasis on its higher margin proprietary software products, reduce future
capital investment requirements associated with expansion of its digital
distribution facilities, reduce operating costs, and improve operations. As a
result of this change in strategic focus the Company recorded a one-time
special charge against earnings in the fourth quarter totaling $456,000.
Included in this change in strategy was the discontinuation of certain
distribution group operations in Denver and Milwaukee, primarily facility and
equipment leases. The discontinuation of these operations reflects a change
in strategy toward leveraging its proprietary software development and
technological expertise, resulting in more centralized growth of the
Company's digital distribution services that incorporates strategic alliances
with partner printers to perform remote production services rather than
direct investment by the Company. These actions resulted in an accrual for
the remaining facility and equipment lease obligations (net of estimate for
related sublease income.) of $219,400, and the write-off of $86,700 of
goodwill related to the acquisition of these facilities. The accrual of
$130,000 related to these special charges are included in other liabilities,
net of $89,400 current portion, included in accrued expenses.
YEAR ENDED MARCH 31, 1996 COMPARED TO THE YEAR ENDED MARCH 31, 1995
REVENUES
Total revenues increased to $14.2 million in fiscal year 1996 from $10.4
million in fiscal year 1995, or $3.8 million (36.3%). The increase related
primarily to increases in hardware integration and distribution services
revenues.
HARDWARE INTEGRATION. Hardware integration revenues increased a total of
$3.2 million or 63.5% in the fiscal year 1996 compared to the fiscal year
1995 ($8.2 million in fiscal year 1996 compared to $5.0 million in fiscal
year 1995). The increase in hardware integration revenue was principally due
to the expansion of the Company's customer base and further penetration of
its existing customers through leveraging its vendor relationships.
SOFTWARE, TECHNICAL SERVICES AND SUPPORT. Software, technical services
and support revenue decreased $200,000 in the fiscal year 1996 compared to
the fiscal year 1995 ($4.5 million in fiscal year 1996 compared to $4.7 in
fiscal year 1995). Increases in software revenues of $100,000 were offset by
decreases in support revenues of $300,000.
DISTRIBUTION SERVICES. Distribution services revenue increased a total
of $800,000 or 118.8% in the fiscal year 1996 compared to the fiscal year
1995 ($1.5 million in fiscal year 1996 compared to $700,000 in fiscal year
1995). The increase in distribution services revenue was primarily attributed
to the Company's on-demand publishing subsidiary being in operation for a
complete year for fiscal year 1996 compared to eight months in fiscal year
1995 and to the expansion of its customer base through additions to the
direct sales face and the opening of a new location in fiscal year 1996.
COST OF REVENUES AND GROSS PROFIT
Total cost of revenues increased to $10.7 million in fiscal year 1996
from $7.6 million in fiscal year 1995. Total cost of revenues as a percent of
total revenues was 75.2% in 1996 compared to 72.8% in 1995. Gross profit
increased to $3.5 million in fiscal year 1996 compared to $2.8 million in
fiscal year 1995. Total gross profit as a percent of total revenues was 24.8%
in fiscal year 1996 compared to 27.2% in fiscal year 1995. The increase in
gross profit was primarily attributable to incremental revenue contributions
in hardware and distribution services. The decrease in total gross profit as
a percent of total revenues was primarily attributable to a decline in
margins achieved in distribution services.
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<PAGE>
HARDWARE INTEGRATION. Cost of hardware integration revenues increased to
$6.8 million in fiscal year 1996 from $4.4 million in fiscal year 1995. Cost
of hardware integration revenues as a percent of hardware integration
revenues was 82.9% in fiscal year 1996 compared to 86.7% in fiscal year
1995. Gross profit on hardware integration was 17.1% in fiscal year 1996
compared to 13.3% in fiscal year 1995. Higher margins on hardware
integration revenues were achieved primarily by taking advantage of larger
vendor discounts and other volume incentives.
SOFTWARE, TECHNICAL SERVICES AND SUPPORT. Cost of software, technical
services and support revenues decreased to $2.8 million in fiscal year 1996
from $2.9 million in fiscal year 1995. Cost of software, technical services,
and support revenues as a percent of software, technical services, and
support revenues was 61.9% in fiscal year 1996 compared to 60.8% in fiscal
year 1995. Gross profit on software, technical services, and support was
38.1% in fiscal year 1996 compared to 39.2% in fiscal year 1995. Lower
margins on software, technical services and support were primarily due to
competitive pricing on non-proprietary software products and lower technical
services billings.
DISTRIBUTION SERVICES. Cost of distribution services revenues increased
to $1.1 million in fiscal year 1996 from $400,000 in fiscal year 1995. Cost
of distribution services revenues as a percent of distribution services
revenues increased to 73.5% in fiscal year 1996 from 53.6% in fiscal year
1995. Gross profit on distribution services was 26.5% in fiscal year 1996
compared to 46.4% in fiscal year 1995. Lower margins on-demand printing
services were primarily due to larger fixed costs associated with a second
high speed laser printing device added in January, 1995.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased to $1.8
million in fiscal year 1996 from $1.2 million in fiscal year 1995. Sales and
marketing expenses as a percent of total revenues increased to 12.8% in
fiscal year 1996 compared to 11.9% in fiscal year 1995. Sales and marketing
expenses increased as a percent of revenues primarily due to increased in
staffing and marketing programs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $300,000, to $1.3 million in fiscal year 1996 from $1.0 million in
fiscal year 1995. General and administrative expenses as a percent of total
revenues declined to 9.5% in fiscal year 1996 from 9.8% in fiscal year 1995.
The increase in general and administrative expenses was primarily
attributable to growth in the business infrastructure including an overall
increase in staffing.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$500,000 in fiscal year 1996 from $300,000 in fiscal year 1995. Research and
development expenses as a percent of total revenues increased to 3.5% in
fiscal year 1996 from 3.3% in fiscal 1995. Total research and development
expenses increased $200,000 in fiscal year 1996 compared to fiscal year 1995,
due to a focus on development of proprietary software products and expansion
of the research and development staff.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception and prior to the Merger, the Company has funded its
operations primarily through revolving working capital and term loans from
banking institutions together with capital and operating equipment leases.
In December 1995, the Company issued $550,000 of unsecured convertible
promissory notes to a limited number of accredited investors. The unsecured
notes accrued interest at a rate of 10%, and were converted into Common Stock
immediately prior to the Merger at a rate of $3.47 per share. In December
1996, the Company issued $1.0 million 9% promissory notes. During the fourth
quarter of fiscal 1997 the Company issued an additional $500,000 9%
promissory notes. The 9% promissory notes mature on January 15,
1998 ($850,000) and April 15, 1998 ($650,000). In consideration of these
borrowings, the Company issued each lender a warrant to acquire an aggregate
of 300,000 shares of Common Stock at a variable exercise price ranging from
$4.00-$6.00 based upon the trading range of the Common Stock.
The Company's revolving working capital line of credit allows for
borrowings of up to $3.1 million based on available collateral at the bank's
base lending rate plus 2.5%. At March 31, 1997, the Company had advances of
$1.8 million, which are due on demand. On June 25, 1997, the Company has
$2.1 million in advances and $155,800 of availability on its working capital
line of credit. At March 31, 1997, the Company also had term loans and
promissory notes with financial institutions outstanding in the amount of $
1.1 million. The term loans require monthly principal payments of $38,400
plus interest at the bank's base lending rate plus 2.5%. The Company has
obtained a waiver from its primary lender with respect to a book net worth
covenant violation. The waiver expires August 31, 1997 if not otherwise cured
and, accordingly, term loans in place with the Company's primary lender
totalling $825,100 at March 31, 1997 have been classified as short term. The
notes issued in December 1996 are at a rate of 9% and mature on January 15,
1998. At March 31, 1997 the Company also had a demand note payable to its
principal stockholder in the amount of $27,500 which accrues interest at a
rate of 12%.
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<PAGE>
As of March 31, 1997 the Company had cash of $121,798. Capital
expenditures for the year ended March 31, 1996 and 1997, including
equipment financed with capital lease obligations, were $457,700 and $1.0
million respectively. During the year ended March 31, 1997 the Company acquired
substantially all the assets of a graphic communications and custom printing
business. The purchase price consisted of cash of $675,800, a promissory note
of $267,800, and shares of the Company's common stock valued at $350,000. The
promissory note bears interest at prime plus 1.5%. The balance of $133,300
remaining on this note is due March 1, 1998.
The Company acquired a portion of its distribution services production
equipment with capital lease obligations. These leases require total monthly
payments of $28,400 and carry interest rates between 10.1% and 16.6%. In
addition, the Company has also entered into certain operating leases for
facilities and equipment. These leases require total monthly payments of
$51,900 for facilities and $58,100 for production and office equipment.
During the year ended March 31, 1997, the Company acquired furniture and
equipment of $506,700, and vehicles of $34,900, and invested $154,400 into
leasehold improvements. A significant portion of the equipment purchased was
computers for research and development and sales and marketing. The Company
also has a long-term consulting agreement with a former stockholder that
requires monthly payments of $10,300 through July 2000.
The accompanying financial statements have been prepared on the basis
that the Company will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business. The Company has experienced losses from operations during the
fiscal years ended March 31, 1996 and 1997 and has generated an accumulated
deficit from inception through March 31, 1997 of $3,744,833 and has a working
capital deficit of $1,833,765 at March 31, 1997. These conditions give rise
to the question about the Company's ability to generate positive cash flows
and fund operations. The Company is not generating sufficient revenues from
its operations to fund its activities and is, therefore, dependent on future
financing activities to continue as a going concern. The Company is
evaluating several financing alteratives, including the sale of equity and
debt securities, however, there can be no assurance that the Conmpany will be
successful in completing a financing transaction. Any equity financing may be
dilutive to shareholders, and additional debt financings, if available, may
involve restrictive covenants and terms.
Because of uncertainties regarding the achievability of management's
plans, no assurance can be given as to the Company's ability to continue in
existence. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of
assets or the amount and classification of liabilities that may result from
the possible inability of the Company to continue as a going concern.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-KSB and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains statements that are forward-looking, such as statements relating to
plans for future expansion, product development, market acceptance of new
products, and other business development activities as well as other capital
spending, financing sources and the effects of regulation and competition.
Such forward-looking information involves important risks and uncertainties
that could significantly affect anticipated results in the future and,
accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of the Company. These risks
and uncertainties include, but are not limited to, those relating to product
development and market acceptance of new products, dependence on existing
management, leverage and debt service (including sensitivity to fluctuations
in interest rates), domestic or global economic conditions, changes in
federal or state tax laws or the administration of such laws.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements of the Company are included herein
following the signatures, beginning at page F-1
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On February 26, 1997, the Company, with the approval of its Board of
Directors, engaged Ernst & Young LLP as the independent accountants for the
Company and its subsidiaries. Prior to the engagement of Ernst & Young LLP,
Lund Koehler Cox & Company, PLLP had served as the principal independent
certified public accountants for the Company and it subsidiaries. Lund
Koehler Cox & Company, PLLP was replaced because of the Company's desire to
engage an international accounting firm. The reports on the Company's
Consolidated Financial Statements prepared by Lund Koehler Cox & Company,
PLLP for the years ended March 31, 1995 and 1996 contained no adverse opinion
or disclaimer of opinion and were not qualified or modified as to
uncertainty, auditing scope or accounting principles. In connection with the
audits for the years ended March 31, 1995 and 1996 and through February 26,
1997, there have been no disagreements, with Lund Koehler Cox & Company, PLLP
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of Lund Koehler Cox & Company, PLLP to make
reference to the subject matter of the disagreements in its reports. During
the years ended March 31, 1995 and 1996 and through February 26, 1997 the
Company has not consulted with Ernst & Young LLP on items which (1) were or
should have been subject to Statement of
15
<PAGE>
Auditing Standards 50, or (2) concerned the subject matter of a disagreement
or reportable event with the former independent public accountant.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AN CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Information in response to this Item is incorporated herein by
reference to the Company's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after the end of the fiscal year covered by
this form 10-KSB.
ITEM 10. EXECUTIVE COMPENSATION
Information in response to this Item is incorporated herein by
reference to the Company's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after the end of the fiscal year covered by
this form 10-KSB.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item is incorporated herein by
reference to the Company's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after the end of the fiscal year covered by
this form 10-KSB.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is incorporated herein by
reference to the Company's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after the end of the fiscal year covered by
this form 10-KSB.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
Number Description
- ------ -----------
3.1 Amended and Restated Articles of Incorporation, (incorporated by
reference to Exhibit 3.1 of the Registrants registration statement
on Form SB-2, File No. 333-14175)
3.2 By-laws (incorporated by reference to Exhibit 3.2 of the Registrant's
registration statement on Form SB-2, File No. 333-14175)
3.3 Articles of Amendment to Articles of Incorporation, dated June 20,
1997 (filed herewith)
10.1 Lease Agreement by and between CSM Investors, Inc. and the Company
dated April 24, 1996 (incorporated by reference to exhibit 10.1 of
the Registrant's registration statement on Form SB-2, File
No. 333-14175)
10.2 Credit and Security Agreement by and between Diversified Business
Credit, Inc. and the Company dated March 14, 1995 (incorporated by
reference to exhibit 10.2 of the Registrant's registration statement
on Form SB-2, File No. 333-14175)
10.3 Term Loan Supplement to Credit Agreement dated March 14, 1995 by and
between the Company and Diversified Business Credit, Inc.
(incorporated by reference to exhibit 10.3 of the Registrant's
registration statement on Form SB-2, File No. 333-14175)
10.4 Company's 1994-1997 Stock Option Plan (incorporated by reference to
exhibit 10.4 of the Registrant's registration statement on Form SB-2,
File No. 333-14175)
10.5 Employment Agreement dated July 30, 1996 by and between the Company
and Robert Olson (incorporated by reference to exhibit 10.5 of the
Registrant's registration statement on Form SB-2, File No. 333-14175)
10.6 Employment Agreement dated July 30, 1996 by and between the Company
an Jeffrey J. Sjobeck (incorporated by reference to exhibit 10.6 of
the Registrant's registration statement on Form SB-2, File
No. 333-14175)
16
<PAGE>
10.7 Promissory Note by and between the Company and Circle F Ventures,
LLC dated December 23,1996 (filed herewith)
10.8 Amendment dated March 4, 1997 to the Promissory Note by and between
the Company and Circle F Ventures, LLC dated December 23, 1996
(filed herewith)
10.9 Not used
10.10 Stock Purchase Warrant Agreement by and between the Company and
Circle F Ventures, LLC dated December 23, 1996 (filed herewith)
10.11 Security Agreement by and between the Company and Circle F
Ventures, LLC dated December 23, 1996 (filed herewith)
10.12 Subordination Agreement by and between the Company, Diversified
Business Credit, Inc. and Circle F Ventures, LLC dated December 23,
1996 (filed herewith)
10.13 Promissory Note by and between the Company and Circle F Ventures,
LLC dated March 18 1997 (filed herewith)
10.14 Not used
10.15 Stock Purchase Warrant Agreement by and between the Company and
Circle F Ventures, LLC dated March 18 1997 (filed herewith)
10.16 Schedule identifying certain material details of documents
substantially identical to those set forth in exhibits 10.17, 10.18,
10.19 and 10.20 (filed herewith)
10.17 Promissory Note by and between the Company and Rita M. Olson
dated December 20, 1996 (filed herewith)
10.18 Amendment dated March 4, 1997 to the Promissory Note by and between
the Company and Rita M. Olson dated December 20, 1996 (filed
herewith)
10.19 Amendment dated June 5, 1997 by and between the Company and Rita
M. Olson dated December 20, 1996 (filed herewith)
10.20 Stock Purchase Warrant Agreement by and between the Company and
Rita M. Olson dated December 20, 1996 (filed herewith)
10.21 Note Conversion and Subscription Agreement by and between the
Company and Rita M. Olson dated June 6, 1997 (filed herwith)
10.22 Note Conversion and Subscription Areement by and between the
Company and Wayne W. Mills dated June 6,1997 (filed herewith)
21 Subsidiaries of Company (incorporated by reference to exhibit 21 of
the Registrant's registration statement on Form SB-2, File
No. 333-14175)
23.1 Consent of Lund Koehler Cox & Company, PLLP (filed herewith)
23.2 Consent of Ernst & Young LLP (filed herewith)
25.1 Powers of Attorney (set forth on signature page)
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
On February 27, 1997, the Company filed a current report of Form
8-K, announcing that the Company changed its independent accounting firm
to Ernst & Young LLP.
17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IntraNet Solutions, Inc.
("Registrant")
Dated: June 30, 1997 BY /s/ Robert F. Olson
-----------------------
Robert F. Olson
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed on June 30, 1997 by the following persons on
behalf of the Registrant, in the capacities indicated.
Each person whose signature appears below constitutes and appoints
Jeffrey J. Sjobeck as his true and lawful attorney-in-fact and agent with the
full power of substitution and resubstitution, for him and his name place and
stead, in any all capacities, to sign any or all amendments to this Annual
Report on Form 10-KSB and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all said attorney-in-fact and agent, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
By: /s/ Robert F. Olson
-----------------------------
Robert F. Olson
Its: Chief Executive Officer
-----------------------------
(Principal Executive Officer)
By: /s/ Jeffrey J. Sjobeck
------------------------------
Jeffrey J. Sjobeck
Its: Chief Financial Officer
-----------------------------
(Principal Financial Officer)
By: /s/ James G. Sippl
-----------------------------
James G. Sippl
Its: Chief Operating Officer
-----------------------------
(Principal Operating Officer)
By: /s/ Ronald E. Eibensteiner
-----------------------------
Ronald E. Eibensteiner
Its: Director
-----------------------------
By: /s/ Henry Fong
-----------------------------
Henry Fong
Its: Director
-----------------------------
By: /s/ David D. Koentopf
-----------------------------
David D. Koentopf
Its: Director
-----------------------------
18
<PAGE>
INTRANET SOLUTIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants - Ernst & Young LLP .....................F-2
Report of Independent Accountants - Lund Koehler Cox & Company PLLP........F-3
Consolidated Balance Sheets as of March 31, 1996 and 1997..................F-4
Consolidated Statements of Operations for the years ended
March 31, 1995, 1996 and 1997............................................F-5
Consolidated Statements of Stockholders' Equity (Deficit) for
the years ended March 31, 1995, 1996 and 1997............................F-6
Consolidated Statements of Cash Flows for the years ended
March 31, 1995, 1996 and 1997............................................F-7
Notes to Consolidated Financial Statements.................................F-8
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
IntraNet Solutions, Inc.
We have audited the accompanying consolidated balance sheet of IntraNet
Solutions, Inc. as of March 31, 1997 and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for the year
ended March 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the March 31, 1997 financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of IntraNet Solutions, Inc. at March 31, 1997 and the consolidated
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
IntraNet Solutions, Inc. will continue as a going concern. As more fully
described in Note 1, the Company has incurred recurring operating losses and
has net capital and working capital deficiencies. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
(Management's plan in regard to these matters are also described in Note 1).
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
ERNST & YOUNG LLP
Minneapolis, Minnesota
June 30, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
IntraNet Solutions, Inc.
We have audited the consolidated balance sheet of IntraNet Solutions,
Inc. as of March 31, 1996, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the two
years in the 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 have 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. at March 31, 1996, and the results of their operations and
their cash flows for each of the two years in the period ended March 31, 1996
in conformity with generally accepted accounting principles.
LUND KOEHLER COX & COMPANY, PLLP
Minneapolis, Minnesota
May 14, 1996
F-3
<PAGE>
INTRANET SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash........................................... $ 37,513 $ 121,798
Accounts receivable, net....................... 3,102,394 3,612,803
Note receivable................................ -- 801,993
Inventories.................................... 324,523 495,960
Prepaid expenses and other current assets...... 418,438 523,703
---------- ---------
Total current assets......................... 3,882,868 5,556,257
PROPERTY AND EQUIPMENT, NET........................ 1,539,318 2,615,224
INTANGIBLE ASSETS, NET............................. 290,680 841,511
---------- ---------
$5,712,866 $9,012,992
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Revolving credit facility...................... $1,108,098 $1,809,086
Convertible promissory notes................... 550,000 --
Current portion of promissory notes payable,
net of discount............................... -- 808,932
Current portion of long-term debt.............. 127,496 1,019,599
Current portion of capital lease obligations... 148,045 233,097
Accounts payable............................... 2,701,244 2,716,723
Accrued expenses............................... 324,752 802,585
---------- ----------
Total current liabilities.................... 4,959,635 7,390,022
LONG-TERM DEBT, NET OF CURRENT PORTION............. 108,341 812,930
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION.. 598,065 683,514
OTHER.............................................. 68,008 199,887
---------- ----------
Total liabilities............................ 5,734,049 9,086,353
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value, 12,500,000 shares
authorized, 4,318,583 and 7,523,603 issued
and outstanding, respectively................ 43,186 75,236
Additional paid-in capital..................... (51,793) 3,827,356
Retained earnings (deficit).................... 3,631 (3,744,833)
Unearned compensation.......................... (16,207) (231,120)
---------- ----------
Total stockholders' equity (deficit)......... (21,183) (73,361)
---------- ----------
$5,712,866 $9,012,992
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-4
<PAGE>
INTRANET SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Hardware integration...................... $ 5,015,758 $ 8,198,800 $10,476,702
Software, technical services and support.. 4,738,648 4,522,054 5,713,874
Distribution services..................... 692,255 1,514,888 3,819,430
----------- ----------- -----------
Total revenues.......................... 10,446,661 14,235,742 20,010,006
----------- ----------- -----------
COST OF REVENUES:
Hardware integration...................... 4,350,199 6,795,594 8,792,240
Software, technical services and support.. 2,879,454 2,799,650 3,345,764
Distribution services..................... 371,037 1,113,009 3,009,580
----------- ----------- -----------
Total cost of revenues.................. 7,600,690 10,708,253 15,147,584
----------- ----------- -----------
Gross profit............................ 2,845,971 3,527,489 4,862,422
----------- ----------- -----------
OPERATING EXPENSES:
Sales and marketing....................... 1,244,995 1,827,003 3,022,532
General and administrative................ 1,025,527 1,347,704 3,706,016
Research and development.................. 341,740 496,066 1,115,782
Special charges........................... -- -- 456,080
----------- ----------- -----------
Total operating expenses................ 2,612,262 3,670,773 8,300,410
----------- ----------- -----------
Income (loss) from operations........... 233,709 (143,284) (3,437,988)
INTEREST EXPENSE, NET........................... 97,033 230,293 310,476
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES............... 136,676 (373,577) (3,748,464)
Provision for (benefit of) income taxes... 64,553 (125,770) --
----------- ----------- -----------
NET INCOME (LOSS)............................... $ 72,123 $ (247,807) $(3,748,464)
----------- ----------- -----------
----------- ----------- -----------
NET INCOME (LOSS) PER COMMON SHARE.............. $ 0.01 $ (0.04) $ (0.58)
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING...... 8,637,166 5,762,055 6,418,111
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
INTRANET SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<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 8,637,166 $86,372 $ (86,372) $ 324,037 $ - $ 324,037
Grant of compensatory
stock options - - 29,343 - (29,343) -
Stock option compensation
earned - - - - 11,564 11,564
Net income - - - 72,123 - 72,123
--------- ------- ---------- ----------- --------- -----------
BALANCE - MARCH 31, 1995 8,637,166 86,372 (57,029) 396,160 (17,779) 407,724
Repurchase of common stock (4,318,583) (43,186) - (144,722) - (187,908)
Grant of compensatory
stock options - - 5,236 - (5,236) -
Stock option compensation
earned - - - - 6,808 6,808
Net loss - - - (247,807) - (247,807)
--------- ------- ---------- ----------- --------- -----------
BALANCE - MARCH 31, 1996 4,318,583 43,186 (51,793) 3,631 (16,207) (21,183)
Grant of compensatory
stock options - - 241,222 - (241,222) -
Exercise of stock options
and warrants 60,926 609 66,610 - - 67,219
Stock option compensation
earned - - - - 26,309 26,309
Conversion of
promissory notes 158,346 1,583 548,417 - - 550,000
Shares issued in
reverse acquisition 2,940,587 29,406 2,583,352 - - 2,612,758
Shares issued in conjunction
with acquisition 45,161 452 349,548 - - 350,000
Warrants issued in conjunction
with promissory notes - - 90,000 - - 90,000
Net loss - - - (3,748,464) - (3,748,464)
--------- ------- ---------- ----------- --------- -----------
BALANCE - MARCH 31, 1997 7,523,603 $75,236 $3,827,356 $(3,744,833) $(231,120) $ (73,361)
--------- ------- ---------- ----------- --------- -----------
--------- ------- ---------- ----------- --------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
INTRANET SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1995 1996 1997
---------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $72,123 $(247,807) $(3,748,464)
Adjustments to reconcile net income (loss)
to cash flows from operating activities -
Depreciation and amortization 158,160 327,221 613,704
Stock option compensation earned 11,564 6,808 26,309
Deferred income taxes 47,766 (66,000) -
Non-cash special charges - - 306,080
Changes in operating assets and liabilities (325,039) (304,831) (494,184)
---------- ------------ ------------
Cash flows from operating activities (35,426) (284,609) (3,296,555)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from note receivable - - 1,114,169
Proceeds from sale of fixed assets - 126,286 20,875
Purchases of fixed assets (363,512) (364,193) (696,002)
Purchase of businesses - (200,000) (675,778)
Acquisition of covenant-not-to-compete - (200,000) -
---------- ------------ ------------
Cash flows from investing activities (363,512) (637,907) (236,736)
---------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances from revolving credit facility 103,162 874,936 638,411
Proceeds from convertible promissory notes - 550,000 -
Proceeds from long-term debt 640,000 - 2,321,511
Payments on long-term debt (456,655) (119,163) (330,624)
Payments on capital leases (16,074) (204,983) (188,341)
Repurchase of treasury stock - (150,000) (8,800)
Proceeds from stock options and warrants - - 67,219
Proceeds from reverse merger - - 1,118,200
---------- ------------ ------------
Cash flows from financing activities 270,433 950,790 3,617,576
---------- ------------ ------------
NET INCREASE (DECREASE) IN CASH (128,505) 28,274 84,285
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 137,744 9,239 37,513
---------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $9,239 $37,513 $121,798
---------- ------------ ------------
---------- ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest $97,768 $226,533 $351,955
Cash paid for income taxes $22,387 $19,396 $600
NONCASH FINANCING AND INVESTING ACTIVITIES:
Equipment acquired with capital lease obligation $758,817 $93,530 $328,460
Common stock redeemed with note payable, net - $37,908 -
Common stock issued on purchase of business - - $350,000
DETAIL OF CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable $(748,428) $(1,002,824) $(280,350)
Inventories (199,530) (67,889) (20,853)
Prepaid expenses and other current assets (75,955) (306,831) (499,849)
Accounts payable 628,468 969,949 (41,048)
Accrued expenses 70,406 102,764 347,916
---------- ------------ ------------
Net changes in operating assets and liabilities $(325,039) $(304,831) $(494,184)
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
INTRANET SOLUTIONS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF THE BUSINESS
IntraNet Solutions, Inc. (the "Company") provides integrated solutions
for the creation, management and distribution of critical business
information, as a part of the document management business segment. The
Company offers its customers a variety of products, including proprietary
intranet document management software, customized off-the-shelf software
applications, hardware and software implementation, and electronic
distribution and on-demand publishing services. The evolution of Web
technology as a tool for storing, managing and distributing information,
coupled with the Company's experience in designing systems and creating
custom software applications, has created an opportunity for the Company to
develop a line of document management software products utilizing Web
technology.
On July 31, 1996, the Company's predecessor, MacGregor Sports and
Fitness, Inc. ("MSF") and IntraNet Integration Group, Inc., a Minnesota
corporation ("Integration", formerly known as Technical Publishing Solutions,
Inc.) closed on a tax-free reorganization pursuant to which Integration
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 Integration merged with and into a wholly
owned subsidiary of MSF, with the Company as the surviving corporation (the
"Merger"). The Company recorded this transaction and the total consideration
of approximately $2.6 million, including $1.1 million in cash and $1.9
million in a note receivable, net of $400,000 in transaction costs, as an
acquisition and recapitalization. Accordingly, historical financial
statements presented are those of the Company.
GOING CONCERN
The accompanying financial statements have been prepared on the basis
that the Company will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business. The Company has experienced losses from operations during the
fiscal years ended March 31, 1996 and 1997 and has generated an accumulated
deficit from inception through March 31, 1997 of $3,744,833 and has a working
capital deficit of $1,833,765 at March 31, 1997. These conditions give rise
to the question about the Company's ability to generate positive cash flows
and fund operations. The Company is not generating sufficient revenues from
its operations to fund its activities and is, therefore, dependent on future
financing activities to continue as a going concern. The Company is
evaluating several financing alternatives, including the sale of equity and
debt securities, however, there can be no assurance that the Company will be
successful in completing a financing transaction. Any equity financing may be
dilutive to shareholders, and additional debt financings, if available, may
involve restrictive covenants and terms.
Because of uncertainties regarding the achievability of management's
plans, no assurance can be given as to the Company's ability to continue in
existence. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of
assets or the amount and classification of liabilities that may result from
the possible inability of the Company to continue as a going concern.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
REVENUE RECOGNITION
The Company's revenues are derived from (i) the sale of proprietary and
non-proprietary software products, (ii) the sale of hardware products, (iii)
the sale of maintenance and support contracts, (iv) the sale of training,
consulting and development services, and (v) the sale of on-demand publishing
and other printing services. Revenue from the sale of software is recognized
in accordance with AICPA 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. Revenue from maintenance and support
contracts is generally recognized ratably over the term of the contract.
Revenue from contracts with original durations of one year or less is
recognized
F-8
<PAGE>
INTRANET SOLUTIONS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
at the time of sale if the Company does not expect to have material future
obligations to service the contract. Revenue from training, consulting and
developmental services are recognized as the related services are performed.
Revenue from the sale of all other products and services is recognized at the
time of delivery to the customer.
CASH AND CASH EQUIVALENTS
The Company considers all short-term, highly liquid investments that are
readily convertible into known amounts of cash and have maturities of three
months or less at the time of purchase to be cash equivalents.
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. The Company's policy is to perform quarterly evaluations of
inventory, based upon business trends, to specifically identify obsolete,
slow-moving and nonsalable inventory. Inventory reserves are evaluated
quarterly to ensure they continually reflect the current business environment
and trends.
PROPERTY AND EQUIPMENT
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, three to seven years, or the life of
the lease, whichever is shorter. Maintenance, repairs and minor renewals are
expensed when incurred. The carrying value of property and equipment is
assessed annually and/or when circumstances indicating that their carrying
value may be impaired or not recoverable. The Company determines such
impairment by measuring undiscounted future cash flows. If an impairment is
present, the assets are reported at the lower of carrying value or fair value.
INTANGIBLE ASSETS
Intangible assets, consisting of goodwill and agreements not to compete,
are recorded at cost and are presented net of accumulated amortization of
$34,300 and $122,300 at March 31, 1996 and 1997, respectively. Goodwill is
amortized on a straight-line basis over terms of eight to fifteen years.
Agreements not to compete are amortized on a straight-line over basis their
respective terms. Amortization expense was $0, $34,300 and $88,000 for the
years ended March 31, 1995, 1996 and 1997, respectively. The carrying value
of intangible assets is assessed periodically or when factors indicating an
impairment are present. The Company employs an undiscounted cash flow method
of assessment for these assets.
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.
ADVANCED ROYALTIES
The Company does not capitalize any nonrefundable advance royalties
until its has an established market for its products. Nonrefundable advance
royalties that qualify for capitalization are expensed at the contractual
royalty rate based on actual product sales.
F-9
<PAGE>
INTRANET SOLUTIONS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, EARNINGS PER SHARE, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of Statement
No. 128 on the periods presented is not expected to be material.
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.
DEFERRED FINANCING COSTS
Costs incurred through March 31, 1997 of approximately $169,900, in
connection with financing and registration costs, have been deferred. Such
costs will be charged against the proceeds of the related offering upon
completion, or expensed if the offering is not completed.
RECLASSIFICATIONS
Certain accounts in the prior year financial statements have been
reclassified for comparative purposes to conform with the presentation in the
current year financial statements.
(3) SPECIAL CHARGES
During the quarter ended March 31, 1997, the Company formalized details
of a change in strategic focus designed to increase emphasis on its higher
margin proprietary software products, reduce future capital investment
requirements associated with expansion of its digital distribution
facilities, reduce operating costs, and improve operations. As a result of
this change in strategic focus the Company recorded a one-time special charge
against earnings in the fourth quarter totaling $456,000. Included in this
change in strategy was the discontinuation of certain distribution group
operations in Denver and Milwaukee, primarily facility and equipment leases.
The discontinuation of these operations reflects a change in strategy toward
leveraging its proprietary software development and technological expertise,
resulting in more centralized growth of the Company's digital distribution
services that incorporates strategic alliances with partner printers to
perform remote production services rather than direct investment by the
Company. These actions resulted in an accrual for the remaining facility and
equipment lease obligations (net of estimate for related sublease income) of
$219,400, and the write-off of $86,700 of goodwill related to the
acquisition of these facilities. The accrual of $130,000 related to these
lease obligations are included in other liabilities, net of $89,400 current
portion, included in accrued expenses.
F-10
<PAGE>
INTRANET SOLUTIONS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) SUBSEQUENT EVENT
On June 6, 1997, $250,000 of the Company's 9% promissory notes were
converted into approximately 71,000 shares of the Company's Common Stock at a
rate of $3.50 per share. The exercise price of the related warrants to
purchase 50,000 shares of the Company's Common Stock was also adjusted to
$3.50 per share.
(5) NOTE RECEIVABLE
In conjunction with the reverse merger and recapitalization (see Note 1)
the Company acquired a note receivable from the predecessor entity in the
amount of $1,910,000. The note represents the balance due from Hutch Sports
USA, Inc. for the sale of the rights to use the MacGregor trademark. The note
requires monthly principal instalments of $159,200 plus interest at prime. At
March 31, 1997, the remaining balance due on the note, including accrued
interest, was $802,000. The note matures July 1997 and has accordingly been
classified as a current asset. The fair value of the note receivable
approximates its carrying value.
(6) BUSINESS ACQUISITIONS
On November 21, 1996, the Company acquired substantially all the assets and
liabilities of a graphic communications and custom printing company based in
Phoenix, Arizona for a total purchase price of $1,293,600. The purchase price
consisted of cash of $675,800, a promissory note of $267,800, and shares of
the Company's common stock valued at $350,000. The transaction has been
accounted for using the purchase method of accounting and accordingly, the
operations of the business are included in the Company's consolidated
financial statements from the date of acquisition. The purchase price
exceeded the fair value of the net assets acquired by $725,500, and the
resulting goodwill is being amortized over fifteen years.
The following unaudited pro forma financial information for the years
ended March 31, 1996 and 1997 give effect to the acquisition as if they had
occurred effective at the beginning of each respective period.
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------------------
1996 1997
---- ----
<S> <C> <C>
Revenue $17,135,817 $21,679,340
Net loss $(315,834) (3,767,878)
Loss per share $(.05) $(.58)
Shares used in per share calculation 5,777,149 6,446,940
</TABLE>
The unaudited pro forma financial information above does not purport to
represent the results which would actually have been obtained if the
acquisition had been in effect during the period covered or any future
results which may in fact be realized.
(7) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
<TABLE>
<CAPTION>
March 31,
---------------------------------------
1996 1997
----- ----
<S> <C> <C>
Equipment and furniture $2,007,626 $3,372,067
Vehicles - 53,410
Leasehold improvements 13,429 167,799
---------- -----------
Total property and equipment 2,021,055 3,593,276
Less: accumulated depreciation 481,737 978,052
------------- ----------
Total property and equipment, net $1,539,318 $2,615,224
------------- ----------
------------- ----------
</TABLE>
Property and equipment includes items under capital leases of, $852,300, and
$1,216,300, net of accumulated depreciation of $147,800, and $305,900, as of
March 31, 1996 and 1997, respectively. Depreciation expense was $158,200,
$292,900 and $508,400 for the years ended March 31, 1995, 1996 and 1997,
respectively.
F-11
<PAGE>
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) REVOLVING CREDIT FACILITY
The Company has a revolving credit agreement that provides for borrowings of
up to $3.1 million based on available collateral. Advances of $1,108,100, and
$1,809,100 were outstanding as of March 31, 1996 and 1997, respectively.
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, 1995
and 1996, and 11.0% on March 31, 1997). As of March 31, 1997 the Company had
borrowing availability, based on available collateral, of approximately
$34,000. 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.
During the year ended March 31, 1997, the Company violated its book net worth
covenant. The Company has received a waiver of this violation through August
31, 1997. Total debt underlying this agreement, including long-term debt, was
$2.6 million as of March 31,1997.
(9) LONG TERM DEBT AND CAPITAL LEASES
LONG-TERM DEBT -
March 31,
-------------------------
1996 1997
-------- --------
Term loans - bank, monthly principal
installments of $35,400 plus interest at
the bank's base lending rate plus 2.5%
(effective rates of 10.75% at March 31,
1996 and 10.5% to 11.0% at March 31, 1997),
matures at various dates from April 1998
through December 2000, secured by
substantially all Company assets and
guaranteed by a stockholder.(1) $208,337 $825,141
Notes payable - stockholder, due on
demand, quarterly interest payments at
12%, unsecured and subordinated to
bank indebtedness. 27,500 27,500
Promissory notes - due January 15,
1998, and April 15, 1998 net of $72,473
discount, interest at 9% due at maturity,
$750,000 secured by substantially all
Company assets andsubordinated to bank
debt.(2) -- 1,427,527
Note Payable - LaFountain Corporation,
principal installment of $133,313 due on
March 1, 1998, quarterly interest
payments at prime plus 1.5%, unsecured. -- 133,313
Notes Payable - other, monthly principal
installments of $3,000 plus interest at
prime plus 2.0%, secured by equipment
and vehicles. -- 227,980
--------- ---------
Total long-term debt 235,837 2,641,461
Less: current maturities 127,496 1,828,531
--------- ---------
Long-term debt, net $108,341 $ 812,930
--------- ---------
--------- ---------
(1) The Company has obtained a waiver from its primary lender with
respect to a book net worth violation with respect to these term loans. The
waiver expires August 31, 1997 if not otherwise cured and, accordingly, the
term loans have been classified as short term.
(2) The Company has issued $1.5 million of promissory notes, $800,000 of
which is secured and $250,000 of which was issued beneficially to the
principal stockholder of the Company. Included in the $1.5 million promissory
notes, the Company issued $150,000 to an officer of the Company and
$125,000 beneficially to a member of the Board of Directors. The promissory
notes bear interest at 9% plus 300,000 warrants with initial exercise prices
of
F-12
<PAGE>
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$6.00. The notes mature on January 15, 1998 ($850,000) and April 15, 1998
($650,000). Interest is payable at maturity and the warrant exercise price
may adjust to a floor of $4.00 based on the fair market value of the
Company's common stock. The amounts outstanding at March 31, 1997 are
recorded net of a discount of $72,473 which is the value ascribed to the
warrants, or $1,427,527. Such amount will be accreted to its redemption value
over the term of the debt, resulting in an effective rate of 16%.
On June 6, 1997, $250,000 of the 9% promissory notes were converted to Common
Stock. (See Note 4)
Future maturities of long-term debt are as follows:
1998 $1,869,599
1999 684,056
2000 34,509
2001 35,010
Thereafter 90,760
----------
2,713,934
Less: amount representing
unamortized warrant discount 72,473
----------
$2,641,461
----------
----------
The fair value of long-term debt approximates its carrying value,
estimated using discounted cash flow analysis, based on the Company's
incremental borrowing rate for similar types of securities.
CAPITAL LEASE OBLIGATIONS - The Company has certain assets under capital
lease obligations. The leases require total monthly payments of $28,400 and
carry interest rates between 10.1% and 16.6%.
The minimum lease payments required under the capital leases together with
the present value of the minimum lease payments at March 31, 1997 are as
follows:
1998 $ 342,155
1999 340,173
2000 285,147
2001 120,332
2002 63,768
----------
Total 1,151,575
Less: amount representing interest 234,964
----------
Present value of future minimum lease 916,611
payments
Less: current portion 233,097
----------
Long-term portion $ 683,514
----------
----------
Total interest expense was $97,000, and $230,300 and $380,200 for the years
ended March 31, 1995, 1996 and 1997, respectively.
(10) STOCKHOLDERS' EQUITY
STOCK REDEMPTION - During July 1995, the Company agreed 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 and is accreting such amount to
its redemption value over the term of the agreement.
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,
and on October 31, 1996, the Company declared a 1-for-4 reverse stock split.
The effects of the stock splits have been retroactively applied in the
financial statements.
F-13
<PAGE>
INTRANET SOLUTIONS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WARRANTS - As of March 31, 1997, the Company has 183,500 publicly traded
redeemable warrants outstanding. Each warrant entitles the holder the right
to purchase one share of the Company's common stock at an exercise price of
$4.00. Unless extended, the warrants have an expiration date of October 31,
1997. The Company may call the warrants for redemption at a price of $.05 per
warrant upon thirty day written notice at any time. The Company also has
770,180 non-redeemable stock purchase warrants with exercise prices of $0.29
to $9.00, outstanding at March 31, 1997. The warrants expire on various dates
through December, 2001.
STOCK OPTIONS - On January 16, 1996, the Board of Directors approved the
1994-1997 Stock Option Plan (the Plan), pursuant to which options and other
awards to acquire an aggregate of 2,500,000 shares of the Company's common
stock may be granted. The Company integrated all previously 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 terms of
exercisability.
Certain options have exercise prices less than the fair market value of
the Company's common stock on the date of the grant. The Company recognizes
the compensation element of these grants over the vesting period of the
related options, generally five years. The options generally vest over
periods of one to five years.
The Company has elected to follow Accounting Principles Board Opinion No
25, Accounting for Stock Issued to Employees ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, Accounting for Stock-Based Compensation ("Statement
123"), requires use of option valuation models that were not developed for
use in valuing employee stock options. Under APB 25, if the exercise price of
the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
PRO FORMA information regarding net loss and net loss per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
Statement 123. The fair value for those options was estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions for the years ended March 31, 1996 and 1997:
risk free interest rates of 6%, dividend yield of 0%; volatility factor of
the expected market price of the Company's common stock of 65% and a
weighted-average expected life of the options 8.5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions. Because the Company's
employee stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of PRO FORMA disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information is as follows:
Year Ended Year Ended
March 31, March 31,
1996 1997
------------- --------------
PRO FORMA net loss $(387,300) $(4,231,100)
PRO FORMA net loss per common share $(.07) $(0.66)
F-14
<PAGE>
INTRANET SOLUTIONS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The pro forma effect on net loss for the years ended March 31, 1996 and
March 31, 1997 is not representative of the PRO FORMA effect on net loss in
future years because it does not take into consideration pro forma
compensation expense related to grants made prior to 1996.
A summary of the Company's stock option activity, and related
information through March 31, 1997 is as follows:
Weighted-
Average
Options Exercise Price
------- --------------
Outstanding as of April 1, 1994 -- --
Granted 497,771 $ .22
--------- -----
Outstanding as of March 31, 1995 497,771 .22
Granted 934,166 4.25
--------- -----
Outstanding as of March 31, 1996 1,431,937 2.85
Granted 353,500 6.29
Exercised (47,618) .76
Forfeited (168,106) 3.15
--------- -----
Outstanding as of March 31, 1997 1,569,713 $3.66
--------- -----
--------- -----
Weighted-average fair value of options granted
during the year ended March 31, 1997 $6.44
---------
---------
The following table summarizes information about the stock options
outstanding at March 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- ------------------------------
Weighted- Weighted-
Average Average Weighted-
Range of Number Remaining Exercise Number Average
Exercise Price Outstanding Contractual Life Price Exercisable Exercise Price
- -------------- ----------- ---------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$.20-$.56 444,432 7.5 $ .27 229,161 $ .23
3.12 491,027 8.5 3.12 178,072 3.12
$4.63-$5.87 252,205 8.8 4.95 79,044 4.84
$6.00-6.50 273,750 9.5 6.30 -- --
10.36 108,299 8.9 10.36 108,299 10.36
--------- --- ------ ------- ------
$.20-$10.36 1,569,713 8.6 $ 3.38 594,576 $ 3.55
--------- --- ------ ------- ------
--------- --- ------ ------- ------
</TABLE>
(11) 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 discretionary. Contributions
for the years ended March 31, 1995, 1996 and 1997 were $48,200, $0 and $0,
respectively.
F-15
<PAGE>
INTRANET SOLUTIONS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) INCOME TAXES
The Company's provision for income taxes consisted of the following
components:
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------------
1995 1996 1997
---------------------------------
<S> <C> <C> <C>
Current:
Federal $12,787 ($59,770) $--
State 4,000 -- --
------- ---------- -----
Total 16,787 (59,770) --
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 1997
--------- ----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization $(118,000) $(123,800)
Deferred tax assets:
Deferred revenue -- 84,100
Allowance for doubtful accounts and returns 12,000 72,600
Inventory 12,000 11,800
Special charge reserve 87,700
Net operating loss carryforwards 71,000 1,409,000
Alternative minimum tax credit
carryforwards -- 23,800
Other 9,000 22,000
--------- ----------
14,000 1,587,200
Valuation allowance -- (1,587,200)
--------- ----------
Net deferred tax (liability) $(14,000) $--
--------- ----------
--------- ----------
</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. At March 31, 1997, the Company had net operating
loss (NOL) carryforwards of approximately $3.5 million which begin to expire
in 2011. Included in the NOL is approximately $296,000 of deductions
resulting from disqualifying dispositions of stock options. These deductions
currently have full valuation allowance and when realized for financial
statement purposes will not result in a reduction in income tax expense.
Rather, the benefit will be recorded as additional paid-in capital. The
Company also had alternative minimum tax credit carryovers at March 31, 1997
of approximately $23,800. The valuation allowance at March 31, 1997 was
recognized to completely reserve for the net deferred tax assets. The reserve
has been established due to the uncertainty of future taxable income which is
necessary to realize the benefits of the deferred tax assets.
F-16
<PAGE>
INTRANET SOLUTIONS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) 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, $220,000, $254,700,
and $874,100 for the years ended March 31, 1995, 1996, and 1997, respectively.
Minimum remaining rental commitments under operating leases as of March 31,
1997 are as follows:
1998 $1,293,582
1999 1,246,690
2000 938,528
2001 591,105
2002 397,300
Thereafter 367,808
----------
Total $4,835,013
----------
----------
SOFTWARE ROYALTIES -- The Company has entered into several software
royalty agreements whereby it is required to pay a royalty amount based upon
actual sales of certain software products. At March 31, 1996 and 1997, the
Company had advanced royalties of $50,000 and $51,500, respectively.
Royalties earned during the year ended March 31, 1997 were $209,200. No
royalties had been earned in previous periods.
CONSULTING AGREEMENT -- The Company has a consulting agreement with a
former stockholder that requires monthly payments of $10,300 through July
2000.
(14) CONCENTRATION OF RISK
MAJOR SUPPLIERS -- The Company utilizes a single supplier to provide the
majority of its computer hardware sales. Purchases from this supplier were
approximately 54%, 68%, and 67% of total product purchases during the years
ended March 31, 1995, 1996 and 1997, respectively. 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 14%, 13% and 12% of total product purchases during the years
ended March 31, 1995, 1996, and 1997, respectively. The Company has a supply
and resale agreement with this supplier that expires March 31, 1999.
ACCOUNTS RECEIVABLE -- Accounts receivable is presented net of an
allowances of $6,600, $30,000 and $181,500 as of March 31, 1995, 1996 and
1997, respectively. The Company sells its products and services principally
to large United States customers. No customer has accounted for 10% or more
of the Company's revenues in the years ended March 31, 1995, 1996 and 1997.
Credit is extended based on an evaluation of the customer's financial
condition and a cash deposit is generally not required. The Company estimates
its potential losses on trade receivables on an ongoing basis and provides
for anticipated losses in the period in which the revenues are recognized.
Credit losses have historically been minimal and have been within
management's expectations.
F-17
<PAGE>
EXHIBIT 3.3
ARTICLES OF AMENDMENT
OF
INTRANET SOLUTIONS, INC.
The undersigned Chief Financial Officer and Secretary of IntraNet
Solutions, Inc. (the "Corporation") does hereby certify that the following
Articles of Amendment to the Corporation's Amended and Restated Articles of
Incorporation were adopted by vote of the Shareholders of the Corporation at
a Special Meeting of Shareholders held on June 19, 1997 and were adopted by
unanimous written action in lieu of a meeting of the Board of Directors of
the Corporation dated May 27, 1997, pursuant to the provisions of the
Minnesota Business Corporation Act.
1. The name of the Corporation is IntraNet Solutions, Inc.
2. that Article III be amended by deleting the language set forth thereof
and replacing such language with the following:
ARTICLE III
A. THE CORPORATION IS AUTHORIZED TO ISSUE TWENTY FIVE MILLION
(25,000,000) SHARES OF CAPITAL STOCK, HAVING A PAR VALUE OF ONE CENT
($.01) PER SHARE IN THE CASE OF COMMON STOCK AND HAVING A PAR VALUE AS
DETERMINED BY THE BOARD OF DIRECTORS IN THE CASE OF PREFERRED STOCK, TO
BE HELD, SOLD AND PAID FOR AT SUCH TIMES AND IN SUCH MANNER AS THE
BOARD OF DIRECTORS MAY FROM TIME TO TIME DETERMINE IN ACCORDANCE WITH
THE LAWS OF THE STATE OF MINNESOTA.
B. IN ADDITION TO ANY AND ALL POWERS CONFERRED UPON THE BOARD OF
DIRECTORS BY THE LAWS OF THE STATE OF MINNESOTA, THE BOARD OF DIRECTORS
SHALL HAVE THE AUTHORITY TO ESTABLISH BY RESOLUTION MORE THAN ONE CLASS
OR SERIES OF SHARES, EITHER PREFERRED OR COMMON, AND TO FIX THE
RELATIVE RIGHTS, RESTRICTIONS AND PREFERENCES OF ANY SUCH DIFFERENT
CLASSES OR SERIES, AND THE AUTHORITY TO ISSUE SHARES OF A CLASS OR
SERIES TO ANOTHER CLASS OR SERIES TO EFFECTUATE SHARE DIVIDENDS, SPLITS
OR CONVERSION OF THE CORPORATION'S OUTSTANDING SHARES.
C. THE BOARD OF DIRECTORS SHALL ALSO HAVE THE AUTHORITY TO ISSUE RIGHTS
TO CONVERT ANY OF THE CORPORATION'S SECURITIES INTO SHARES OF STOCK OF
ANY CLASS OR CLASSES, THE AUTHORITY TO ISSUE OPTIONS TO PURCHASE OR
SUBSCRIBE FOR SHARES OF STOCK OF ANY CLASS OR CLASSES, AND THE
AUTHORITY TO ISSUE SHARE PURCHASE OR SUBSCRIPTION
<PAGE>
WARRANTS OR ANY OTHER EVIDENCE OF SUCH OPTION RIGHTS WHICH SET
FORTH THE TERMS, PROVISIONS AND CONDITIONS THEREOF, INCLUDING THE
PRICE OR PRICES AT WHICH SUCH SHARES MAY BE SUBSCRIBED FOR OR
PURCHASED. SUCH OPTIONS, WARRANTS AND RIGHTS, MAY BE TRANSFERABLE
OR NONTRANSFERABLE AND SEPARABLE OR INSEPARABLE FROM OTHER
SECURITIES OF THE CORPORATION. THE BOARD OF DIRECTORS IS
AUTHORIZED TO FIX THE TERMS, PROVISIONS AND CONDITIONS OF SUCH
OPTIONS, WARRANTS AND RIGHTS, INCLUDING THE CONVERSION BASIS OR
BASES AND THE OPTION PRICE OR PRICES AT WHICH SHARES MAY BE
SUBSCRIBED FOR OR PURCHASED.
3. This amendment has been adopted pursuant to Chapter 302A of the
Minnesota Business Corporation Act.
IN WITNESS WHEREOF the undersigned has hereunto set his hand this 20th
day of June, 1997.
/s/ Jeffrey J. Sjobeck
-------------------------------------
Jeffrey J. Sjobeck
Chief Financial Officer and Secretary
<PAGE>
EXHIBIT 10.7
PROMISSORY NOTE
Minneapolis, Minnesota
$750,000 December 23, 1996
FOR VALUE RECEIVED, IntraNet Solutions, Inc., a Minnesota corporation (the
"Maker"), hereby unconditionally promises to pay to CIRCLE F VENTURES, LLC, an
Arizona limited liability company, or its successors and assigns (the "Payee"),
at Minneapolis, Minnesota or at such other place or places as may be designated
by Payee from time to time, the sum of Seven Hundred Fifty Thousand Dollars
($750,000) (the "Principal Sum").
The Principal Sum plus interest thereon from the date hereof at a fixed
rate of nine percent (9%) per annum shall be due and payable on December 31,
1997 by Maker to Payee in any coin or currency of the United States of America
which, at the time of payment, is legal tender for the payment of public and
private debts.
All payments on account of this Note, when paid, shall be applied first to
the payment of all interest then due on the unpaid balance of this Note and the
balance, if any, shall be applied to reduction of the unpaid balance of the
Principal Sum. This Note may be prepaid in full or in part at any time without
premium.
Maker agrees to pay on demand the costs of collection, including, without
limitation, reasonable attorneys' fees incurred by Payee in collecting or
attempting to collect any amount under this Note after the failure of Maker to
make any payment required to be made under this Note within ten (10) days after
written notice from Payee to Maker that such payment is due or to enforce its
rights under this Note. All such costs of collection shall bear interest,
payable on demand, from the date of payment thereof by Payee until paid in full
by Maker at the rate applicable to the principal amount of this Note.
Maker waives presentment, protest and demand, notice of protest, notice of
dishonor and non-payment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time without in any way
affecting the liability of Maker.
The payment of this Note is secured under the terms of a Security Agreement
of even date herewith, including any Event of Default specified therein, and is
subject to a Subordination Agreement in favor of Diversified Business Credit,
Inc.
In the event Maker does not make when due any payment of the Principal Sum
or interest required to be made hereunder, Maker will pay, on demand, interest
on the amount of any overdue payment of the Principal Sum and interest for the
period following the due date, at a fixed rate of fifteen percent (15%).
The terms, conditions and provisions of this Note shall be construed and
enforced according to the laws of the State of Minnesota.
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IN WITNESS WHEREOF, the duly authorized officer of Maker has caused this
Note to be executed on the date first above written.
INTRANET SOLUTIONS, INC.
By: /s/ Robert F. Olson
-------------------
Its: Chief Executive Officer
-----------------------
<PAGE>
EXHIBIT 10.8
AMENDMENT TO PROMISSORY NOTE
This Amendment, dated as of March 4, 1997, is by and among IntraNet
Solutions, Inc., a Minnesota corporation (the "Maker") and CIRCLE F VENTURES,
LLC (the "Payee").
RECITALS
WHEREAS, the Maker executed that certain Promissory Note dated as of
December 23, 1996, made payable by the Maker to the order of the Payee in the
original face amount of Seven Hundred Fifty Thousand Dollars ($750,000) (the
"Note"); and
WHEREAS, the Maker and the Payee mutually agree to amend the Note in order
to extend the maturity date thereof;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the Maker and the Payee agree as
follows:
1. The Note shall be due and payable in full on January 15, 1998.
2. Except as specifically amended hereby, the Note shall remain in full
force and effect in accordance with its terms.
3. This Amendment shall not be construed as or be deemed to be a waiver
by the Payee of existing defaults by the Borrower, whether known or
undiscovered.
4. Upon execution hereof, the Payee will permanently attach this
Amendment to the Note, making it a part thereof.
INTRANET SOLUTIONS, INC.
By: /s/ Robert F. Olson
-------------------------
Its: CEO
-------------------------
CIRCLE F VENTURES, LLC
By: /s/ Daniel Cartwright
-------------------------
Its: CFO
-------------------------
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EXHIBIT 10.10
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT") AND MAY NOT BE TRANSFERRED UNLESS
REGISTERED UNDER THE 1933 ACT, EXCEPT IN A TRANSACTION WHICH, IN THE OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE HOLDER HEREOF QUALIFIES AS AN EXEMPT
TRANSACTION UNDER THE 1933 ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER.
STOCK PURCHASE WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
INTRANET SOLUTIONS, INC.
THIS CERTIFIES THAT, for good and valuable consideration, CIRCLE F
VENTURES, LLC, or its registered assignees, is entitled to subscribe for and
purchase from IntraNet Solutions, Inc., a Minnesota corporation (the "COMPANY"),
at any time during the period from the date hereof to and including the fifth
anniversary of the date hereof (the "DATE OF EXPIRATION"), One Hundred Fifty
Thousand (150,000) fully paid and nonassessable shares of the Common Stock, $.01
par value, of the Company (the "COMMON STOCK") at a price per share calculated
pursuant to Section 5 hereof (the "WARRANT EXERCISE PRICE"). The shares which
may be acquired upon exercise of this Warrant are referred to herein as the
"WARRANT SHARES." As used herein, the term "HOLDER" means the initial holder,
any party who acquires all or a part of this Warrant as a registered transferee
of the initial holder in accordance with the terms of this Warrant, or any
record holder or holders of the Warrant Shares issued upon exercise, whether in
whole or in part, of the Warrant. This Warrant has been granted in conjunction
with financing extended by the initial holder hereof to the Company evidenced by
a Promissory Note of the Company of even date herewith (the "NOTE").
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE; TRANSFERABILITY.
(a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share of Common
Stock), prior to the expiration of this Warrant by written notice of exercise
(in the form attached hereto) delivered to the Company at the principal office
of the Company and accompanied or preceded by the surrender of this Warrant
along with cash, a certified check or bank draft in payment of the Warrant
Exercise Price for such shares. The Holder shall then complete and comply with
a subscription agreement in a form requested by the Company.
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(b) This Warrant may not be sold, transferred, assigned, hypothecated
or divided into two or more Warrants of smaller denominations, nor may any
Warrant Shares issued pursuant to exercise of this Warrant be transferred,
except as provided in Section 7 hereof.
2. EXCHANGE AND REPLACEMENT. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant.
This Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any exchange or replacement. The Company shall pay all
expenses, taxes (other than stock transfer or income taxes), and other charges
payable in connection with the preparation, execution, and delivery of Warrants
pursuant to this Section.
3. ISSUANCE OF THE WARRANT SHARES.
(a) The Company agrees that the shares of Common Stock purchased
hereby shall be and are deemed to be issued to the Holder as of the close of
business on the date on which this Warrant shall have been surrendered, the
payment made for such Warrant Shares as aforesaid and the subscription agreement
is returned to the Company. Subject to the provisions of the next section,
certificates for the Warrant Shares so purchased shall be delivered to the
Holder within a reasonable time, not exceeding fifteen (15) days after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the right to purchase the
number of Warrant Shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws, except as provided in Section 8. The
Holder agrees to execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company, or the registrations made, for the
issuance of the Warrant Shares.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes (except stock transfer and income taxes),
liens, and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which
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the rights represented by this Warrant may be exercised, the Company will at
all times have authorized and reserved for the purpose of issue or transfer
upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of
the rights represented by this Warrant.
5. WARRANT EXERCISE PRICE; ANTIDILUTION ADJUSTMENT.
(a) The Warrant Exercise Price shall be the lower of:
(i) $6.00, or
(ii) the lowest average closing sales price per share over five
(5) consecutive trading days (but not less than $4.00 per
share) from the date hereof until the earlier to occur of:
(A) the date this Warrant is exercised, or (B) the later to
occur of December 31, 1997 or the date that the Note is
repaid in full.
(b) The Warrant Exercise Price shall be adjusted from time to time
such that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company
payable in Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
(iii)combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(c) Upon each adjustment of the Warrant Exercise Price pursuant to
Subsection (b) above, the Holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price
the number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as
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<PAGE>
adjusted as a result of all adjustments in the Warrant Exercise Price in
effect prior to such adjustment) by the Warrant Exercise Price in effect
prior to such adjustment and dividing the product so obtained by the adjusted
Warrant Exercise Price.
(d) In case of any consolidation or merger to which the Company is a
party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), there shall be no adjustment under
Subsection (b) above but the Holder of each Warrant then outstanding shall have
the right thereafter to convert such Warrant into the kind and amount of shares
of stock and other securities and property which he would have owned or have
been entitled to receive immediately after such consolidation, merger, statutory
exchange, sale, or conveyance had such Warrant been converted immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale,
or conveyance and in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this Section with
respect to the rights and interests thereafter of any Holders of the Warrant, to
the end that the provisions set forth in this Section shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock and other securities and property thereafter deliverable
on the exercise of the Warrant. The provisions of this Subsection shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.
(e) Upon any adjustment of the Warrant Exercise Price, then, and in
each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the Holder as shown on the books of the
Company, which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF THE WARRANT SHARES.
(a) The Holder, by acceptance hereof, agrees to give prior written
notice to the Company before transferring this Warrant or transferring any
Warrant Shares of such Holder's intention to do so, describing briefly the
manner of any proposed transfer. Such notice may be provided in the form of
Warrant Assignment attached hereto. Promptly upon receiving such written
notice, the Company shall present copies thereof to counsel reasonably
satisfactory to the Holder. If in the opinion of such counsel the proposed
transfer may be effected without registration or qualification (under any
federal or state securities laws), the Company, as promptly as practicable,
shall notify the Holder of such opinion, whereupon the Holder shall be entitled
to transfer this Warrant or to dispose of Warrant Shares received upon the
previous
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exercise of this Warrant, all in accordance with the terms of the
notice delivered by the Holder to the Company; provided that an appropriate
legend may be endorsed on this Warrant or the certificates for such Warrant
Shares respecting restrictions upon transfer thereof necessary or advisable in
the opinion of counsel and satisfactory to the Company to prevent further
transfer which would be in violation of Section 5 of the 1933 Act and applicable
state securities laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such representations, warranties
and agreements as may be required solely to comply with the exemptions relied
upon by the Company for the transfer or disposition of the Warrant or Warrant
Shares.
(b) If, in the opinion of the counsel referred to in this Section,
the proposed transfer or disposition of this Warrant or such Warrant Shares
described in the written notice given pursuant to this Section may not be
effected without registration or qualification of this Warrant or such Warrant
Shares, the Company shall promptly give written notice thereof to the Holder,
and the Holder will limit its activities to such as, in the opinion of such
counsel, are permitted by law.
8. REGISTRATION RIGHTS.
(a) If, at any time prior to the fifth anniversary hereof, the
Company shall propose to file any registration statement (other than any
registration on Form S-4, S-8 or any other similarly inappropriate form, or any
successor forms thereto) under the 1933 Act covering a public offering of the
Company's Common Stock, it will notify the Holder hereof at least thirty (30)
days prior to each such filing and will use its best efforts to include in the
Registration Statement (to the extent permitted by applicable regulation), the
Common Stock purchased by the Holder or purchasable by the Holder upon the
exercise of the Warrant to the extent requested by the Holder hereof within
twenty (20) days after receipt of notice of such filing (which request shall
specify the interest in this Warrant or the Warrant Shares intended to be sold
or disposed of by such Holder and describe the nature of any proposed sale or
other disposition thereof); provided, however, that if a greater number of
Warrants and Warrant Shares is offered for participation in the proposed
offering than in the reasonable opinion of the managing underwriter of the
proposed offering can be accommodated without adversely affecting the proposed
offering, then the amount of Warrant and Warrant Shares proposed to be offered
by such Holders for registration, as well as the number of securities of any
other selling shareholders participating in the registration, shall be
proportionately reduced to a number deemed satisfactory by the managing
underwriter.
(b) Further, on a one-time basis at any time prior to the fifth
anniversary hereof, upon request by the Holder, the Company will promptly take
all necessary steps to register or qualify, on Form S-3 under the 1933 Act (or
any successor form thereto) and the securities laws of such states as the Holder
may reasonably request, this Warrant and such number of Warrant Shares issued
and to be issued upon exercise of the Warrant requested by such Holder in its
request to the Company. The Company shall cause such registration to become
effective within sixty (60) days of the Company's receipt of such request. The
Company shall keep effective and maintain any registration, qualification,
notification or approval
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<PAGE>
specified in this subsection (b), and shall amend or supplement the
prospectus used in connection therewith to the extent necessary in order to
comply with applicable law, until the earliest to occur of the following: (i)
the second anniversary of the date hereof, (ii) the earliest date on which
the Holder may sell the Warrant Shares pursuant to Rule 144 under the 1933
Act, and (iii) the date on which the Holder has sold all of the Warrant
Shares.
(c) All expenses of any registration referred to in this Section,
except the fees of counsel to such holders, underwriting commissions or
discounts and filing fees, shall be borne by the Company.
(d) The Company hereby indemnifies each of the Holders of this
Warrant and of any Warrant Shares, and the officers and directors, if any, who
control such Holders, within the meaning of Section 15 of the 1933 Act, against
all losses, claims, damages, and liabilities caused by (i) any untrue statement
or alleged untrue statement of a material fact contained in any registration
statement or prospectus (and as amended or supplemented if the Company shall
have furnished any amendments thereof or supplements thereto), any preliminary
prospectus or any state securities law filings; (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as such
losses, claims, damages, or liabilities are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Holder expressly for use therein; and each such Holder by its acceptance hereof
severally agrees that it will indemnify and hold harmless the Company, each of
its officers who signs such Registration Statement, and each person, if any, who
controls the Company, within the meaning of Section 15 of the 1933 Act, with
respect to losses, claims, damages, or liabilities which are caused by any
untrue statement or omission contained in information furnished in writing to
the Company by such Holder expressly for use therein.
The Holder of this Warrant agrees to cooperate with the Company in the
preparation and filing of any Registration Statement, and in the furnishing of
information concerning the Holder for inclusion therein, or in any efforts by
the Company to establish that the proposed sale is exempt under the 1933 Act as
to any proposed distribution.
9. GOVERNING LAW. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the state of Minnesota without regard
to conflicts of laws principles.
IN WITNESS WHEREOF, IntraNet Solutions, Inc. has caused this Warrant to be
signed by its duly authorized officer this 23rd day of December, 1996.
INTRANET SOLUTIONS, INC.
By: /s/Robert F. Olson
------------------
Its: Chief Executive Officer
-----------------------
6
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NOTICE OF WARRANT EXERCISE
(To be signed only upon exercise of Warrant)
TO: INTRANET SOLUTIONS, INC.
The undersigned hereby irrevocably elects to exercise the attached Warrant
to purchase for cash, _____________ of the shares issuable upon the exercise of
such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
_________________________________
(Print Name)
_________________________________
Please insert social security or other
identifying number of registered holder
of certificate (_____________)
(Address)
Date: _____________________, 199_ _________________________________
Signature*
*The signature of the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
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WARRANT ASSIGNMENT
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________________ the right represented by the foregoing
warrant to purchase Common Stock of INTRANET SOLUTIONS, INC., to which the
foregoing warrant relates and appoints ________________________________ attorney
to transfer said right on the books of INTRANET SOLUTIONS, INC., with full power
of substitution in the premises.
The manner of the proposed transfer by the undersigned is described briefly
in the space below.
Dated:_________________________
_______________________________
(Signature)
_______________________________
_______________________________
_______________________________
(Address)
In Presence of:
______________________________
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EXHIBIT 10.11
SECURITY AGREEMENT
AGREEMENT made this 23rd day of December, 1996, between INTRANET SOLUTIONS,
INC., a Minnesota corporation, as debtor (herein called "DEBTOR") and CIRCLE F
VENTURES, LLC (herein called "LENDER"), as secured party.
For good and valuable consideration, Debtor hereby agrees for the benefit
of Lender as follows:
1.01 Debtor hereby grants Lender a security interest (the "SECURITY
INTEREST") in the property described below, as security for the payment
and performance of the Promissory Note of even date in the amount of
$750,000 (the "NOTE"). The Security Interest shall attach to the
following property of Debtor (the "COLLATERAL"), and all products and
proceeds thereof:
All accounts, instruments, documents, chattel paper, general
intangibles, contract rights, securities and certificates of
deposit of Debtor and all funds of Debtor on deposit,
whether now existing or hereafter arising; all inventory of
Debtor, whether now owned or hereafter acquired; and all
equipment and fixtures of Debtor, whether now owned or
hereafter acquired.
1.02 Debtor represents, warrants and agrees that:
(a) Debtor has full authority and power to enter into this Security
Agreement.
(b) Other than liens on the Collateral and proceeds thereof in favor
of Diversified Business Credit, Inc. and on certain equipment and
proceeds thereof in favor of Access Graphics, Inc. and other
currently existing lenders or lessors (the "PRIOR LENDERS"),
Debtor has absolute title to each item of Collateral and all
proceeds thereof, free and clear of all interests, liens,
attachments, encumbrances and security interests.
(c) Debtor agrees to keep the Collateral in good order and repair, and
will not waste or destroy the Collateral.
(d) Debtor will promptly pay when due all taxes and assessments upon
the Collateral, which are or may become liens against the
Collateral.
(e) Debtor will keep the Collateral insured at all times against loss
by fire and other hazards as to which, in the judgment of the
Lender, insurance protection is reasonably necessary, by a company
or companies satisfactory to Lender and in amounts sufficient to
protect Lender against loss or damage to the collateral and
<PAGE>
will pay the premiums therefor.
(f) Debtor from time to time will execute and deliver any and all
security agreements, financing statements and other agreements and
writings which Lender may reasonably request in order to secure,
protect, perfect or enforce the Security Interest or the rights of
Lender under this Agreement.
1.03 Each of the following occurrences shall constitute an Event of Default
hereunder (an "Event of Default"): (i) Debtor shall fail to pay the
Note when due; (ii) breach of any representation, warranty or covenant
made by Debtor hereunder; or (iii) insolvency or bankruptcy of Debtor,
inability of Debtor to pay its debts as they mature, Debtor's
assignment for the benefit of creditors or the institution of any
proceeding based on any of the foregoing. Debtor shall pay all costs
and expenses, including attorneys' fees, of Lender in connection with
Debtor's default under this Security Agreement, the Note or any action
to enforce Lender's rights hereunder or thereunder.
1.04 Upon the occurrence of any Event of Default under Section 1.03 and at
any time thereafter, Lender may exercise one or more of the following
rights and remedies: (i) declare any unmatured portion of the Note to
be immediately due and payable, and the same shall thereupon be
immediately due and payable, without presentment or other notice or
demand; (ii) subject to the rights of the Prior Lenders, exercise and
enforce any and all rights and remedies available upon default to a
secured party under the Uniform Commercial Code as enacted by the State
of Minnesota. If notice to Debtor 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 Section 1.05) at least
ten (10) calendar days prior to the date of intended disposition or
other action; (iii) exercise or enforce any and all other rights or
remedies available by law or agreement against the Collateral, against
Debtor, or against any other person or property.
1.05 This Agreement can be waived, modified, amended, terminated or
discharged, and the Security Interest can be released, only explicitly
in a writing signed by Lender. Mere delay or failure to act shall not
preclude the exercise or enforcement of any rights or remedies
available to Lender. All notices to be given to Debtor shall be deemed
sufficiently given if delivered or mailed by registered, certified or
ordinary mail, postage prepaid, to Debtor at its address set forth
above or at its most recent address shown on Lender's records.
1.06 This Agreement, and the Security Interest granted hereby, shall be
binding upon Debtor, its successors and assigns, and shall inure to the
benefit of and be enforceable by Lender and its successors and assigns,
and shall be effective when executed by Debtor and delivered to Lender
whether or not this Agreement is executed by Lender. Except to the
extent otherwise required by law, this Agreement and the transaction
evidenced hereby shall be governed by the laws of the state of
Minnesota. 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
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effect, and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein
or prescribed hereby.
IN WITNESS WHEREOF, this Security Agreement has been duly executed
and delivered by the proper officers thereunto duly authorized on the day and
year first above written.
DEBTOR: INTRANET SOLUTIONS, INC.
By /s/Robert F. Olson
----------------------------------
Its: Chief Executive Officer
---------------------------------
LENDER: CIRCLE F VENTURES, LLC
By /s/Hayden R. Fleming
-----------------------------------
Its: President
---------------------------------
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EXHIBIT 10.12
SUBORDINATION AGREEMENT
Lender: Diversified Business Credit, Inc.
Creditor: Circle F Ventures, LLC
Debtor: IntraNet Solutions, Inc.
Date: January 16, 1997
WHEREAS, the Debtor (Debtor, including any corporation or other entity
controlled by Debtor, controlling Debtor or under common control with Debtor
shall hereinafter be referred to collectively as "Debtor") is now or
hereafter may be indebted to the Lender on account of loans or other
extensions of credit or financial accommodations from the Lender to Debtor,
or to any other person under the guaranty or endorsement of the Debtor (all
indebtedness of every type and description which the Debtor may now or at any
time hereafter owe to the Lender, whether such indebtedness now exists or is
hereafter created or incurred, whether such indebtedness is fixed or
contingent, liquidated or unliquidated, is hereinafter collectively referred
to as "Lender Indebtedness"); and
WHEREAS, the Debtor is indebted to the Creditor in the amount of $750,000
evidenced by a Promissory Note dated of even date herewith (the "Promissory
Note") a copy of which is attached hereto as Exhibit A;
WHEREAS, the Lender is unwilling to continue the existing Lender
Indebtedness or to make future loans or to continue to extend financial
accommodations unless the Creditor executes this Debt Subordination Agreement;
NOW, THEREFORE, in consideration of the promises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Creditor does hereby agree with Lender as follows:
1. The payment of all Debtor's indebtedness of every type and
description to Creditor now existing, including all of the indebtedness
under the Promissory Note, (all such indebtedness being hereinafter
collectively referred to as the "Subordinated Indebtedness") is hereby
expressly subordinated to the extent and in the manner hereinafter set forth
to the payment in full of all the Lender Indebtedness.
2. The Creditor will not demand, receive or accept any principal
payment from the Debtor in respect of the Subordinated Indebtedness, except
that Creditor may receive regularly scheduled payments (but no prepayment) of
principal as payable pursuant to the terms of the Promissory Note of even
date herewith in the amount of $750,000, if at the time of payment Debtor is
not in default in any respect of its then existing Lender Indebtedness. In
addition, the Creditor will not demand, receive or accept any interest
payment from the Debtor in respect of the Subordinated Indebtedness if at the
time of payment the Debtor is in default in any respect on
<PAGE>
any of its then existing Lender Indebtedness.
3. The Creditor hereby agrees that (regardless of any priority
otherwise available to the undersigned by law or by agreement) any security
interest which the Creditor may now hold or may at any time hereafter acquire
in the following property of Debtor (the "Collateral"), namely:
INVENTORY: All inventory of every type and description, now owned or
hereafter acquired by Debtor, 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 Debtor.
RECEIVABLES: Each and every right of Debtor 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 Debtor or by some other person whose interest is subsequently
transferred to Debtor, 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 Debtor 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 any bank or other financial
institution.
EQUIPMENT AND FIXTURES: All equipment of every type and description now
owned or hereafter acquired by Debtor, 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 Debtor for any business or enterprise and
including all goods that are or may be attached or affixed or otherwise
become fixtures upon any real property.
EQUITY SECURITIES: All stocks and other instruments, now owned or
hereafter acquired by Debtor, evidencing an ownership interest in any
partnership, corporation, entity or enterprise.
<PAGE>
together, in each case, with all proceeds thereof, is, shall be and shall remain
fully subordinate for all purposes to any security interest now held or at any
time hereafter granted to or acquired by you in any portion or all of the
Collateral.
4. In the event that the Creditor shall receive any payment on the
Subordinated Indebtedness which the Creditor is not entitled to receive under
the provisions of the foregoing Paragraph 2, the Creditor will hold the amount
so received in trust for the Lender and will forthwith turn over such payment to
the Lender in the form received (except for the endorsement of the Creditor
where necessary) for application on the then existing Lender Indebtedness
(whether due or not due), in such manner of application as the Lender may deem
appropriate.
5. The Creditor will not exercise any collection rights as to any
Collateral, will not take possession of or sell or dispose of any Collateral,
and will not exercise or enforce any other right or remedy or commence any
action or proceeding against the Debtor to recover all or any part of the unpaid
principal amount of the Subordinated Indebtedness, or join with any creditor
(unless the Lender shall so join) in bringing any proceedings against the Debtor
under any bankruptcy, reorganization, readjustment of debt, arrangement of debt,
receivership, liquidation or insolvency law or statute of the federal or any
state government, unless and until the Lender Indebtedness has been paid in
full; provided, however, nothing herein shall limit the right of the Creditor to
file a proof of claim or claim in any bankruptcy, reorganization or similar
proceeding.
6. In the event of any receivership, insolvency, bankruptcy, assignment
for the benefit of creditors, reorganization or arrangement with creditors,
whether or not pursuant to bankruptcy laws, the sale of all or substantially
all of the assets, dissolution, liquidation or any other marshalling of the
assets or liabilities of the Debtor, the Creditor will file all claims,
proofs of claim or other instruments of similar character necessary to
enforce the obligations of the Debtor in respect of the Subordinated
Indebtedness and will hold in trust for the Lender and promptly pay over to
the Lender in the form received (except for the endorsement of the Creditor
where necessary) for application on the then existing Lender Indebtedness,
any and all moneys, dividends or other assets received in any such
proceedings on account of the Subordinated Indebtedness, unless and until
Lender Indebtedness has been paid in full. In the event that the Creditor
shall fail to take any such action, the Lender, as attorney-in-fact for the
Creditor, may take such action on behalf of the Creditor. For such limited
purpose only, the Creditor hereby irrevocably appoints the Lender, or any of
its officers or employees on behalf of the Lender, as the attorney-in-fact
for the Creditor with the right (but not the duty) to demand, sue for,
collect and receive any and all such moneys, dividends or other assets and
give acquittance therefor and to file any claim, proof of claim or other
instrument of similar character, and to take such other proceedings in the
Lender's own name or in the name of the Creditor as the Lender may deem
necessary or advisable for the enforcement of the agreements contained
herein; and the Creditor will execute and deliver to the Lender such other
and further powers of attorney or instruments as the Lender may request in
order to accomplish the foregoing.
7. The Creditor will cause all notes, bonds, debentures or other
instruments evidencing the Subordinated Indebtedness or any part thereof to
contain a specific statement thereon to the effect that the indebtedness thereby
evidenced is subject to the provisions of this
-3-
<PAGE>
Subordination Agreement. The Creditor warrants that any purchaser or
transferee of, or successor to the Creditor will be given written notice of
the subordination effected hereby prior to the time of purchase, transfer or
succession and that any such purchaser, transferee or successor will be in
all respects subject to and bound by this Agreement.
8. None of the provisions of this Subordination Agreement shall be
deemed or construed to constitute a commitment or an obligation on the part
of the Lender to make any future loans or other extensions of credit or
financial accommodation to the Debtor or any other person.
9. This Subordination Agreement shall constitute a continuing agreement
of subordination, and the Lender may continue, without notice to or consent
by the Creditor, to make loans and extend other credit or financial
accommodation to or for the account of the Debtor in reliance upon this
Subordination Agreement until written notice of revocation of this
Subordination Agreement shall have been received by the Lender from the
Creditor. Any such notice of revocation shall not affect this Subordination
Agreement in relation to any Lender Indebtedness then existing or created
thereafter pursuant to any previous commitment of the Lender to the Debtor,
or any extensions or renewals of any such Lender Indebtedness, and as to all
such Lender Indebtedness and extensions or renewals thereof, this
Subordination Agreement shall continue effective until the same have been
fully paid with interest. For purposes of this Subordination Agreement, the
Lender Indebtedness shall not be deemed to be paid in full if the Lender
shall have established a line of credit in favor of the Debtor, whether or
not the Lender shall have any obligation to make any advances or issue
guaranties or letters of credit or make other financial accommodations
thereunder, or if the Debtor shall have guaranteed the repayment of advances
or other financial accommodations under such a line of credit in favor of
another person.
10. The Lender may, at any time, and from time to time, either before or
after any such notice of revocation, without the consent of or notice to the
Creditor, without incurring responsibility to the Creditor, and without
impairing or releasing any of its rights or any of the obligations of the
Creditor hereunder: (a) change the interest rate or change the amount of
payment or extend the time of payment or renew or otherwise alter the terms
of any Lender Indebtedness or any instrument evidencing the same in any
manner; (b) sell, exchange, release or otherwise deal with all or any part of
any property at any time securing payment of the Lender Indebtedness or any
part thereof; (c) release anyone liable in any matter for the payment or
collection of the Lender Indebtedness or any part thereof; (d) exercise or
refrain from exercising any right against the Debtor or others (including the
Creditor); and (e) apply any sums received by the Lender, by whomsoever paid
and however realized, to Lender Indebtedness in such manner as the Lender
shall deem appropriate.
11. No waiver shall be deemed to be made by the Lender of any of its
rights hereunder unless the same shall be in writing signed on behalf of the
Lender, and each such waiver, if any, shall be a waiver only with respect to the
specific matter or matters to which the waiver relates and shall in no way
impair the rights of the Lender or the obligations of the Creditor to the Lender
in any other respect at any other time.
-4-
<PAGE>
12. This Subordination Agreement and every part hereof shall be binding
upon the Creditor and upon the heirs, legal representatives, successors and
assigns of the Creditor from and after the date of its execution and delivery
to the Lender irrespective of whether this or any similar agreement is
executed by any other creditor of Debtor. This Subordination Agreement is
enforceable by the Lender and each of its participants, successors and
assigns. Notice of acceptance by the Lender of this Subordination Agreement
or of reliance by the Lender upon the subordination herein contained is
hereby waived by the Creditor.
IN WITNESS WHEREOF, the Creditor has executed this Subordination Agreement
as of the day and year first above written.
Dated: January 16, 1997
CIRCLE F VENTURES, LLC
By /s/ Hayden R. Fleming
-------------------------
Its President
------------------------
-5-
<PAGE>
The undersigned, being the Debtor referred to in the foregoing
Subordination Agreement, hereby acknowledges receipt of a copy thereof and
agrees to all of the terms and provisions thereof, and agrees to and with the
Lender named therein that the undersigned will make no payment of the
Subordinated Indebtedness therein described or consent to or participate in
any act whatever which payment or act is in violation of any of the
provisions of said Subordination Agreement. The undersigned hereby
authorizes the Lender, without notice to the undersigned, to declare all of
the Lender Indebtedness to be due and payable forthwith upon any violation of
the undersigned of any of the provisions of the said Subordination Agreement.
INTRANET SOLUTIONS, INC.
Dated: January 24, 1997 By /s/ Robert F. Olson
----------------------------
Its Chief Executive Officer
-----------------------
-6-
<PAGE>
EXHIBIT 10.13
PROMISSORY NOTE
Minneapolis, Minnesota
$50,000 March 18, 1997
FOR VALUE RECEIVED, IntraNet Solutions, Inc., a Minnesota corporation (the
"Maker"), hereby unconditionally promises to pay to CIRCLE F VENTURES, LLC, an
Arizona limited liability company, or its successors and assigns (the "Payee"),
at Minneapolis, Minnesota or at such other place or places as may be designated
by Payee from time to time, the sum of Fifty Thousand Dollars ($50,000) (the
"Principal Sum").
The Principal Sum plus interest thereon from the date hereof at a fixed
rate of nine percent (9%) per annum shall be due and payable on January 15, 1998
by Maker to Payee in any coin or currency of the United States of America which,
at the time of payment, is legal tender for the payment of public and private
debts.
All payments on account of this Note, when paid, shall be applied first to
the payment of all interest then due on the unpaid balance of this Note and the
balance, if any, shall be applied to reduction of the unpaid balance of the
Principal Sum. This Note may be prepaid in full or in part at any time without
premium.
Maker agrees to pay on demand the costs of collection, including, without
limitation, reasonable attorneys' fees incurred by Payee in collecting or
attempting to collect any amount under this Note after the failure of Maker to
make any payment required to be made under this Note within ten (10) days after
written notice from Payee to Maker that such payment is due or to enforce its
rights under this Note. All such costs of collection shall bear interest,
payable on demand, from the date of payment thereof by Payee until paid in full
by Maker at the rate applicable to the principal amount of this Note.
Maker waives presentment, protest and demand, notice of protest, notice of
dishonor and non-payment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time without in any way
affecting the liability of Maker.
The payment of this Note is secured under the terms of a Security Agreement
of even date herewith, including any Event of Default specified therein, and is
subject to a Subordination Agreement in favor of Diversified Business Credit,
Inc.
In the event Maker does not make when due any payment of the Principal Sum
or interest required to be made hereunder, Maker will pay, on demand, interest
on the amount of any overdue payment of the Principal Sum and interest for the
period following the due date, at a fixed rate of fifteen percent (15%).
The terms, conditions and provisions of this Note shall be construed and
enforced according to the laws of the State of Minnesota.
<PAGE>
IN WITNESS WHEREOF, the duly authorized officer of Maker has caused this
Note to be executed on the date first above written.
INTRANET SOLUTIONS, INC.
By: /s/ Robert F. Olson
-----------------------------
Its: Chief Executive Officer
-----------------------------
<PAGE>
EXHIBIT 10.15
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT") AND MAY NOT BE TRANSFERRED UNLESS
REGISTERED UNDER THE 1933 ACT, EXCEPT IN A TRANSACTION WHICH, IN THE OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE HOLDER HEREOF QUALIFIES AS AN EXEMPT
TRANSACTION UNDER THE 1933 ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER.
STOCK PURCHASE WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
INTRANET SOLUTIONS, INC.
THIS CERTIFIES THAT, for good and valuable consideration, CIRCLE F
VENTURES, LLC, or its registered assignees, is entitled to subscribe for and
purchase from IntraNet Solutions, Inc., a Minnesota corporation (the "COMPANY"),
at any time during the period from the date hereof to and including the fifth
anniversary of the date hereof (the "DATE OF EXPIRATION"), Ten Thousand (10,000)
fully paid and nonassessable shares of the Common Stock, $.01 par value, of the
Company (the "COMMON STOCK") at a price per share calculated pursuant to Section
5 hereof (the "WARRANT EXERCISE PRICE"). The shares which may be acquired upon
exercise of this Warrant are referred to herein as the "WARRANT SHARES." As
used herein, the term "HOLDER" means the initial holder, any party who acquires
all or a part of this Warrant as a registered transferee of the initial holder
in accordance with the terms of this Warrant, or any record holder or holders of
the Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant. This Warrant has been granted in conjunction with financing extended
by the initial holder hereof to the Company evidenced by a Promissory Note of
the Company of even date herewith (the "NOTE").
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE; TRANSFERABILITY.
(a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share of Common
Stock), prior to the expiration of this Warrant by written notice of exercise
(in the form attached hereto) delivered to the Company at the principal office
of the Company and accompanied or preceded by the surrender of this Warrant
along with cash, a certified check or bank draft in payment of the Warrant
Exercise Price for such shares. The Holder shall then complete and comply with
a subscription agreement in a form requested by the Company.
<PAGE>
(b) This Warrant may not be sold, transferred, assigned, hypothecated
or divided into two or more Warrants of smaller denominations, nor may any
Warrant Shares issued pursuant to exercise of this Warrant be transferred,
except as provided in Section 7 hereof.
2. EXCHANGE AND REPLACEMENT. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant.
This Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any exchange or replacement. The Company shall pay all
expenses, taxes (other than stock transfer or income taxes), and other charges
payable in connection with the preparation, execution, and delivery of Warrants
pursuant to this Section.
3. ISSUANCE OF THE WARRANT SHARES.
(a) The Company agrees that the shares of Common Stock purchased
hereby shall be and are deemed to be issued to the Holder as of the close of
business on the date on which this Warrant shall have been surrendered, the
payment made for such Warrant Shares as aforesaid and the subscription agreement
is returned to the Company. Subject to the provisions of the next section,
certificates for the Warrant Shares so purchased shall be delivered to the
Holder within a reasonable time, not exceeding fifteen (15) days after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the right to purchase the
number of Warrant Shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws, except as provided in Section 8. The
Holder agrees to execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company, or the registrations made, for the
issuance of the Warrant Shares.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes (except stock transfer and income taxes),
liens, and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which
2
<PAGE>
the rights represented by this Warrant may be exercised, the Company will at
all times have authorized and reserved for the purpose of issue or transfer
upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of
the rights represented by this Warrant.
5. WARRANT EXERCISE PRICE; ANTIDILUTION ADJUSTMENT.
(a) The Warrant Exercise Price shall be the lower of:
(i) $6.00, or
(ii) the lowest average closing sales price per share over five
(5) consecutive trading days (but not less than $4.00 per
share) from the date hereof until the earlier to occur of:
(A) the date this Warrant is exercised, or (B) the later to
occur of December 31, 1997 or the date that the Note is
repaid in full.
(b) The Warrant Exercise Price shall be adjusted from time to time
such that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company
payable in Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(c) Upon each adjustment of the Warrant Exercise Price pursuant to
Subsection (b) above, the Holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price
the number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as
3
<PAGE>
adjusted as a result of all adjustments in the Warrant Exercise Price in
effect prior to such adjustment) by the Warrant Exercise Price in effect
prior to such adjustment and dividing the product so obtained by the adjusted
Warrant Exercise Price.
(d) In case of any consolidation or merger to which the Company is a
party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), there shall be no adjustment under
Subsection (b) above but the Holder of each Warrant then outstanding shall have
the right thereafter to convert such Warrant into the kind and amount of shares
of stock and other securities and property which he would have owned or have
been entitled to receive immediately after such consolidation, merger, statutory
exchange, sale, or conveyance had such Warrant been converted immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale,
or conveyance and in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this Section with
respect to the rights and interests thereafter of any Holders of the Warrant, to
the end that the provisions set forth in this Section shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock and other securities and property thereafter deliverable
on the exercise of the Warrant. The provisions of this Subsection shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.
(e) Upon any adjustment of the Warrant Exercise Price, then, and in
each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the Holder as shown on the books of the
Company, which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF THE WARRANT SHARES.
(a) The Holder, by acceptance hereof, agrees to give prior written
notice to the Company before transferring this Warrant or transferring any
Warrant Shares of such Holder's intention to do so, describing briefly the
manner of any proposed transfer. Such notice may be provided in the form of
Warrant Assignment attached hereto. Promptly upon receiving such written
notice, the Company shall present copies thereof to counsel reasonably
satisfactory to the Holder. If in the opinion of such counsel the proposed
transfer may be effected without registration or qualification (under any
federal or state securities laws), the Company, as promptly as practicable,
shall notify the Holder of such opinion, whereupon the Holder shall be entitled
to transfer this Warrant or to dispose of Warrant Shares received upon the
previous
4
<PAGE>
exercise of this Warrant, all in accordance with the terms of the notice
delivered by the Holder to the Company; provided that an appropriate legend
may be endorsed on this Warrant or the certificates for such Warrant Shares
respecting restrictions upon transfer thereof necessary or advisable in the
opinion of counsel and satisfactory to the Company to prevent further
transfer which would be in violation of Section 5 of the 1933 Act and
applicable state securities laws; and provided further that the prospective
transferee or purchaser shall execute such documents and make such
representations, warranties and agreements as may be required solely to
comply with the exemptions relied upon by the Company for the transfer or
disposition of the Warrant or Warrant Shares.
(b) If, in the opinion of the counsel referred to in this Section,
the proposed transfer or disposition of this Warrant or such Warrant Shares
described in the written notice given pursuant to this Section may not be
effected without registration or qualification of this Warrant or such Warrant
Shares, the Company shall promptly give written notice thereof to the Holder,
and the Holder will limit its activities to such as, in the opinion of such
counsel, are permitted by law.
8. REGISTRATION RIGHTS.
(a) If, at any time prior to the fifth anniversary hereof, the
Company shall propose to file any registration statement (other than any
registration on Form S-4, S-8 or any other similarly inappropriate form, or any
successor forms thereto) under the 1933 Act covering a public offering of the
Company's Common Stock, it will notify the Holder hereof at least thirty (30)
days prior to each such filing and will use its best efforts to include in the
Registration Statement (to the extent permitted by applicable regulation), the
Common Stock purchased by the Holder or purchasable by the Holder upon the
exercise of the Warrant to the extent requested by the Holder hereof within
twenty (20) days after receipt of notice of such filing (which request shall
specify the interest in this Warrant or the Warrant Shares intended to be sold
or disposed of by such Holder and describe the nature of any proposed sale or
other disposition thereof); provided, however, that if a greater number of
Warrants and Warrant Shares is offered for participation in the proposed
offering than in the reasonable opinion of the managing underwriter of the
proposed offering can be accommodated without adversely affecting the proposed
offering, then the amount of Warrant and Warrant Shares proposed to be offered
by such Holders for registration, as well as the number of securities of any
other selling shareholders participating in the registration, shall be
proportionately reduced to a number deemed satisfactory by the managing
underwriter.
(b) Further, on a one-time basis at any time prior to the fifth
anniversary hereof, upon request by the Holder, the Company will promptly take
all necessary steps to register or qualify, on Form S-3 under the 1933 Act (or
any successor form thereto) and the securities laws of such states as the Holder
may reasonably request, this Warrant and such number of Warrant Shares issued
and to be issued upon exercise of the Warrant requested by such Holder in its
request to the Company. The Company shall cause such registration to become
effective within sixty (60) days of the Company's receipt of such request. The
Company shall keep effective and maintain any registration, qualification,
notification or approval
5
<PAGE>
specified in this subsection (b), and shall amend or supplement the
prospectus used in connection therewith to the extent necessary in order to
comply with applicable law, until the earliest to occur of the following: (i)
the second anniversary of the date hereof, (ii) the earliest date on which
the Holder may sell the Warrant Shares pursuant to Rule 144 under the 1933
Act, and (iii) the date on which the Holder has sold all of the Warrant
Shares.
(c) All expenses of any registration referred to in this Section,
except the fees of counsel to such holders, underwriting commissions or
discounts and filing fees, shall be borne by the Company.
(d) The Company hereby indemnifies each of the Holders of this
Warrant and of any Warrant Shares, and the officers and directors, if any, who
control such Holders, within the meaning of Section 15 of the 1933 Act, against
all losses, claims, damages, and liabilities caused by (i) any untrue statement
or alleged untrue statement of a material fact contained in any registration
statement or prospectus (and as amended or supplemented if the Company shall
have furnished any amendments thereof or supplements thereto), any preliminary
prospectus or any state securities law filings; (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as such
losses, claims, damages, or liabilities are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Holder expressly for use therein; and each such Holder by its acceptance hereof
severally agrees that it will indemnify and hold harmless the Company, each of
its officers who signs such Registration Statement, and each person, if any, who
controls the Company, within the meaning of Section 15 of the 1933 Act, with
respect to losses, claims, damages, or liabilities which are caused by any
untrue statement or omission contained in information furnished in writing to
the Company by such Holder expressly for use therein.
The Holder of this Warrant agrees to cooperate with the Company in the
preparation and filing of any Registration Statement, and in the furnishing of
information concerning the Holder for inclusion therein, or in any efforts by
the Company to establish that the proposed sale is exempt under the 1933 Act as
to any proposed distribution.
9. GOVERNING LAW. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the state of Minnesota without regard
to conflicts of laws principles.
IN WITNESS WHEREOF, IntraNet Solutions, Inc. has caused this Warrant to be
signed by its duly authorized officer this 18th day of March, 1997.
-------------------------------------
INTRANET SOLUTIONS, INC.
By /s/ Robert F. Olson
---------------------------------
Its: Chief Executive Officer
---------------------------------
6
<PAGE>
NOTICE OF WARRANT EXERCISE
(To be signed only upon exercise of Warrant)
TO: INTRANET SOLUTIONS, INC.
The undersigned hereby irrevocably elects to exercise the attached Warrant
to purchase for cash, _____________ of the shares issuable upon the exercise of
such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
_____________________________________
(Print Name)
_____________________________________
Please insert social security or other
identifying number of registered holder
of certificate (_____________)
(Address)
Date: _____________________, 199_ ______________________________________
Signature*
*The signature of the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
7
<PAGE>
WARRANT ASSIGNMENT
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________________ the right represented by the foregoing
warrant to purchase Common Stock of INTRANET SOLUTIONS, INC., to which the
foregoing warrant relates and appoints ________________________________ attorney
to transfer said right on the books of INTRANET SOLUTIONS, INC., with full power
of substitution in the premises.
The manner of the proposed transfer by the undersigned is described briefly
in the space below.
Dated:_________________________
_______________________________
(Signature)
_______________________________
_______________________________
_______________________________
(Address)
In Presence of:
______________________________
8
<PAGE>
EXHIBIT 10.16
Schedule identifying certain material details of documents substantially
identical to those set forth in exhibits 10.17, 10.18, 10.19 and 10.20
<TABLE>
<CAPTION>
Promissory Shares
Note Underlying
By and between the Agreement Principal Stock Purchase Amendment Amendment
Company and Date Amount Warrant Date Date
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Wayne W. Mills 1-13-97 $125,000 25,000 3-4-97 6-5-97
James Sippl 1-17-97 $50,000 10,000 3-4-97 6-5-97
James Sippl 2-10-97 $100,000 20,000 3-4-97 6-5-97
Hayden R. Fleming
and Ladonna M.
Fleming irrevocable
Trust 3-18-97 $50,000 10,000 N/A
- ---------------------------------------------------------------------------------------------------------
Wyncrest Capital, Inc. 3-20-97 $125,000 25,000 N/A 6-5-97
</TABLE>
<PAGE>
EXHIBIT 10.17
PROMISSORY NOTE
Minneapolis, Minnesota
$250,000 December 20, 1996
FOR VALUE RECEIVED, IntraNet Solutions, Inc., a Minnesota corporation (the
"Maker"), hereby unconditionally promises to pay to RITA M. OLSON, an individual
resident of the State of Minnesota, or her successors and assigns (the "Payee"),
at Minneapolis, Minnesota or at such other place or places as may be designated
by Payee from time to time, the sum of Two Hundred Fifty Thousand Dollars
($250,000) (the "Principal Sum").
The Principal Sum plus interest thereon from the date hereof at a fixed
rate of nine percent (9%) per annum shall be due and payable on December 31,
1997 by Maker to Payee in any coin or currency of the United States of America
which, at the time of payment, is legal tender for the payment of public and
private debts.
All payments on account of this Note, when paid, shall be applied first to
the payment of all interest then due on the unpaid balance of this Note and the
balance, if any, shall be applied to reduction of the unpaid balance of the
Principal Sum. This Note may be prepaid in full or in part at any time without
premium.
Maker agrees to pay on demand the costs of collection, including, without
limitation, reasonable attorneys' fees incurred by Payee in collecting or
attempting to collect any amount under this Note after the failure of Maker to
make any payment required to be made under this Note within ten (10) days after
written notice from Payee to Maker that such payment is due or to enforce its
rights under this Note. All such costs of collection shall bear interest,
payable on demand, from the date of payment thereof by Payee until paid in full
by Maker at the rate applicable to the principal amount of this Note.
Maker waives presentment, protest and demand, notice of protest, notice of
dishonor and non-payment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time without in any way
affecting the liability of Maker.
In the event Maker does not make when due any payment of the Principal Sum
or interest required to be made hereunder, Maker will pay, on demand, interest
on the amount of any overdue payment of the Principal Sum and interest for the
period following the due date, at a fixed rate of fifteen percent (15%).
The terms, conditions and provisions of this Note shall be construed and
enforced according to the laws of the State of Minnesota.
IN WITNESS WHEREOF, the duly authorized officer of Maker has caused this
Note to be executed on the date first above written.
INTRANET SOLUTIONS, INC.
By: /s/ Jeffrey J. Sjobeck
----------------------
Its: Chief Financial Officer
-----------------------
<PAGE>
EXHIBIT 10.18
AMENDMENT TO PROMISSORY NOTE
This Amendment, dated as of March 4, 1997, is by and among IntraNet
Solutions, Inc., a Minnesota corporation (the "Maker") and RITA M. OLSON (the
"Payee").
RECITALS
WHEREAS, the Maker executed that certain Promissory Note dated as of
December 20, 1996, made payable by the Maker to the order of the Payee in the
original face amount of Two Hundred Fifty Thousand Dollars ($250,000) (the
"Note"); and
WHEREAS, the Maker and the Payee mutually agree to amend the Note in order
to extend the maturity date thereof;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the Maker and the Payee agree as
follows:
1. The Note shall be due and payable in full on January 15, 1998.
2. Except as specifically amended hereby, the Note shall remain in full
force and effect in accordance with its terms.
3. This Amendment shall not be construed as or be deemed to be a waiver
by the Payee of existing defaults by the Borrower, whether known or
undiscovered.
4. Upon execution hereof, the Payee will permanently attach this
Amendment to the Note, making it a part thereof.
INTRANET SOLUTIONS, INC.
By: /s/ Jeffrey J. Sjobeck
-------------------------
Its: CFO
-------------------------
/s/ Rita M. Olson
-------------------------
RITA M. OLSON
<PAGE>
EXHIBIT 10.19
AMENDMENT TO PROMISSORY NOTE
This Amendment, dated as of June 5, 1997, is by and among IntraNet
Solutions, Inc., a Minnesota corporation (the "Maker") and Rita M. Olson (the
"Payee").
W I T N E S S E T H:
WHEREAS, Maker executed that certain Promissory Note dated as of December
20, 1997, made payable by Maker to the order of Payee in the original face
amount of Two Hundred Fifty Thousand Dollars ($250,000) (the "Note"); and
WHEREAS, Maker and Payee mutually agree to amend the Note in order to
extend the maturity date thereof;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, Maker and Payee agree as follows:
A G R E E M E N T:
1. The Note shall be due and payable in full on April 15, 1998.
2. Except as specifically amended hereby, the Note shall remain in full
force and effect in accordance with its terms.
3. This Amendment shall not be construed as or be deemed to be a waiver
by Payee of existing defaults by Maker, whether known or undiscovered.
4. Upon execution hereof, Payee will permanently attach this Amendment to
the Note, making it a part thereof.
5. In consideration of Payee's execution and delivery of this Amendment,
Payee shall have the right, exercisable at any time from the date hereof to and
including April 15, 1998, to convert all or any portion of the principal amount
then outstanding under the Note into one or more Units at a conversion rate of
$20.00 per Unit. Each Unit shall consist of one share of the Company's 6%
Convertible Preferred Stock, par value $5.00 per share (the "Preferred Stock"),
and one 5-year warrant to purchase .60 shares of the Company's Common Stock, par
value $.01 per share (the "Common Stock"). Each share of Preferred Stock shall
be convertible at the option of the holder into shares of the Company's Common
Stock at the conversion price then in effect (the "Conversion Price"). The
Conversion Price shall equal 75 percent of the average closing bid price of the
Common Stock as reported by the Nasdaq Stock Market (or any other national
securities market or exchange upon which the Common Stock is listed for trading
over a five day trading period ending on the day prior to the conversion date;
PROVIDED, HOWEVER, that the Conversion Price shall in no event be less than
$2.50.
INTRANET SOLUTIONS, INC.
By: /s/ Jeffrey J. Sjobeck
-------------------------
Its: CFO
-------------------------
/s/ Rita M. Olson
-------------------------
RITA M. OLSON
<PAGE>
EXHIBIT 10.20
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT") AND MAY NOT BE TRANSFERRED UNLESS
REGISTERED UNDER THE 1933 ACT, EXCEPT IN A TRANSACTION WHICH, IN THE OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE HOLDER HEREOF QUALIFIES AS AN EXEMPT
TRANSACTION UNDER THE 1933 ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER.
STOCK PURCHASE WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
INTRANET SOLUTIONS, INC.
THIS CERTIFIES THAT, for good and valuable consideration, RITA M. OLSON, or
her registered assignees, is entitled to subscribe for and purchase from
IntraNet Solutions, Inc., a Minnesota corporation (the "COMPANY"), at any time
during the period from the date hereof to and including the fifth anniversary of
the date hereof (the "DATE OF EXPIRATION"), Fifty Thousand (50,000) fully paid
and nonassessable shares of the Common Stock, $.01 par value, of the Company
(the "COMMON STOCK") at a price per share calculated pursuant to Section 5
hereof (the "WARRANT EXERCISE PRICE"). The shares which may be acquired upon
exercise of this Warrant are referred to herein as the "WARRANT SHARES." As
used herein, the term "HOLDER" means the initial holder, any party who acquires
all or a part of this Warrant as a registered transferee of the initial holder
in accordance with the terms of this Warrant, or any record holder or holders of
the Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant. This Warrant has been granted in conjunction with financing extended
by the initial holder hereof to the Company evidenced by a Promissory Note of
the Company of even date herewith (the "NOTE").
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE; TRANSFERABILITY.
(a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share of Common
Stock), prior to the expiration of this Warrant by written notice of exercise
(in the form attached hereto) delivered to the Company at the principal office
of the Company and accompanied or preceded by the surrender of this Warrant
along with cash, a certified check or bank draft in payment of the Warrant
Exercise Price for such shares. The Holder shall then complete and comply
with a
<PAGE>
subscription agreement in a form requested by the Company.
(b) This Warrant may not be sold, transferred, assigned, hypothecated
or divided into two or more Warrants of smaller denominations, nor may any
Warrant Shares issued pursuant to exercise of this Warrant be transferred,
except as provided in Section 7 hereof.
2. EXCHANGE AND REPLACEMENT. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant.
This Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any exchange or replacement. The Company shall pay all
expenses, taxes (other than stock transfer or income taxes), and other charges
payable in connection with the preparation, execution, and delivery of Warrants
pursuant to this Section.
3. ISSUANCE OF THE WARRANT SHARES.
(a) The Company agrees that the shares of Common Stock purchased
hereby shall be and are deemed to be issued to the Holder as of the close of
business on the date on which this Warrant shall have been surrendered, the
payment made for such Warrant Shares as aforesaid and the subscription agreement
is returned to the Company. Subject to the provisions of the next section,
certificates for the Warrant Shares so purchased shall be delivered to the
Holder within a reasonable time, not exceeding fifteen (15) days after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the right to purchase the
number of Warrant Shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws, except as provided in Section 8. The
Holder agrees to execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company, or the registrations made, for the
issuance of the Warrant Shares.
<PAGE>
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes (except stock transfer and income taxes),
liens, and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized
and reserved for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant a sufficient number of shares of
Common Stock to provide for the exercise of the rights represented by this
Warrant.
5. WARRANT EXERCISE PRICE; ANTIDILUTION ADJUSTMENT.
(a) The Warrant Exercise Price shall be the lower of:
(i) $6.00, or
(ii) the lowest average closing sales price per share over five
(5) consecutive trading days (but not less than $4.00 per
share) from the date hereof until the earlier to occur of:
(A) the date this Warrant is exercised, or (B) the later to
occur of December 31, 1997 or the date that the Note is
repaid in full.
(b) The Warrant Exercise Price shall be adjusted from time to time
such that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company
payable in Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
3
<PAGE>
(c) Upon each adjustment of the Warrant Exercise Price pursuant to
Subsection (b) above, the Holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price
the number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as adjusted as a
result of all adjustments in the Warrant Exercise Price in effect prior to such
adjustment) by the Warrant Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the adjusted Warrant Exercise Price.
(d) In case of any consolidation or merger to which the Company is a
party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), there shall be no adjustment under
Subsection (b) above but the Holder of each Warrant then outstanding shall have
the right thereafter to convert such Warrant into the kind and amount of shares
of stock and other securities and property which he would have owned or have
been entitled to receive immediately after such consolidation, merger, statutory
exchange, sale, or conveyance had such Warrant been converted immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale,
or conveyance and in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this Section with
respect to the rights and interests thereafter of any Holders of the Warrant, to
the end that the provisions set forth in this Section shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock and other securities and property thereafter deliverable
on the exercise of the Warrant. The provisions of this Subsection shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.
(e) Upon any adjustment of the Warrant Exercise Price, then, and in
each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the Holder as shown on the books of the
Company, which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF THE WARRANT SHARES.
(a) The Holder, by acceptance hereof, agrees to give prior written
notice to the Company before transferring this Warrant or transferring any
Warrant Shares of such Holder's intention to do so, describing briefly the
manner of any proposed transfer. Such notice may be provided in the form of
Warrant Assignment attached hereto. Promptly upon receiving such written
notice, the Company shall present copies thereof to counsel reasonably
satisfactory to the
4
<PAGE>
Holder. If in the opinion of such counsel the proposed transfer may be
effected without registration or qualification (under any federal or state
securities laws), the Company, as promptly as practicable, shall notify the
Holder of such opinion, whereupon the Holder shall be entitled to transfer
this Warrant or to dispose of Warrant Shares received upon the previous
exercise of this Warrant, all in accordance with the terms of the notice
delivered by the Holder to the Company; provided that an appropriate legend
may be endorsed on this Warrant or the certificates for such Warrant Shares
respecting restrictions upon transfer thereof necessary or advisable in the
opinion of counsel and satisfactory to the Company to prevent further
transfer which would be in violation of Section 5 of the 1933 Act and
applicable state securities laws; and provided further that the prospective
transferee or purchaser shall execute such documents and make such
representations, warranties and agreements as may be required solely to
comply with the exemptions relied upon by the Company for the transfer or
disposition of the Warrant or Warrant Shares.
(b) If, in the opinion of the counsel referred to in this Section,
the proposed transfer or disposition of this Warrant or such Warrant Shares
described in the written notice given pursuant to this Section may not be
effected without registration or qualification of this Warrant or such Warrant
Shares, the Company shall promptly give written notice thereof to the Holder,
and the Holder will limit its activities to such as, in the opinion of such
counsel, are permitted by law.
8. REGISTRATION RIGHTS.
(a) If, at any time prior to the fifth anniversary hereof, the
Company shall propose to file any registration statement (other than any
registration on Form S-4, S-8 or any other similarly inappropriate form, or any
successor forms thereto) under the 1933 Act covering a public offering of the
Company's Common Stock, it will notify the Holder hereof at least thirty (30)
days prior to each such filing and will use its best efforts to include in the
Registration Statement (to the extent permitted by applicable regulation), the
Common Stock purchased by the Holder or purchasable by the Holder upon the
exercise of the Warrant to the extent requested by the Holder hereof within
twenty (20) days after receipt of notice of such filing (which request shall
specify the interest in this Warrant or the Warrant Shares intended to be sold
or disposed of by such Holder and describe the nature of any proposed sale or
other disposition thereof); provided, however, that if a greater number of
Warrants and Warrant Shares is offered for participation in the proposed
offering than in the reasonable opinion of the managing underwriter of the
proposed offering can be accommodated without adversely affecting the proposed
offering, then the amount of Warrant and Warrant Shares proposed to be offered
by such Holders for registration, as well as the number of securities of any
other selling shareholders participating in the registration, shall be
proportionately reduced to a number deemed satisfactory by the managing
underwriter.
(b) Further, on a one-time basis at any time prior to the fifth
anniversary hereof, upon request by the Holder, the Company will promptly take
all necessary steps to register or qualify, on Form S-3 under the 1933 Act (or
any successor form thereto) and the securities laws of such states as the Holder
may reasonably request, this Warrant and such
5
<PAGE>
number of Warrant Shares issued and to be issued upon exercise of the Warrant
requested by such Holder in its request to the Company. The Company shall
cause such registration to become effective within sixty (60) days of the
Company's receipt of such request. The Company shall keep effective and
maintain any registration, qualification, notification or approval specified
in this subsection (b), and shall amend or supplement the prospectus used in
connection therewith to the extent necessary in order to comply with
applicable law, until the earliest to occur of the following: (i) the second
anniversary of the date hereof, (ii) the earliest date on which the Holder
may sell the Warrant Shares pursuant to Rule 144 under the 1933 Act, and
(iii) the date on which the Holder has sold all of the Warrant Shares.
(c) All expenses of any registration referred to in this Section,
except the fees of counsel to such holders, underwriting commissions or
discounts and filing fees, shall be borne by the Company.
(d) The Company hereby indemnifies each of the Holders of this
Warrant and of any Warrant Shares, and the officers and directors, if any, who
control such Holders, within the meaning of Section 15 of the 1933 Act, against
all losses, claims, damages, and liabilities caused by (i) any untrue statement
or alleged untrue statement of a material fact contained in any registration
statement or prospectus (and as amended or supplemented if the Company shall
have furnished any amendments thereof or supplements thereto), any preliminary
prospectus or any state securities law filings; (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as such
losses, claims, damages, or liabilities are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Holder expressly for use therein; and each such Holder by its acceptance hereof
severally agrees that it will indemnify and hold harmless the Company, each of
its officers who signs such Registration Statement, and each person, if any, who
controls the Company, within the meaning of Section 15 of the 1933 Act, with
respect to losses, claims, damages, or liabilities which are caused by any
untrue statement or omission contained in information furnished in writing to
the Company by such Holder expressly for use therein.
The Holder of this Warrant agrees to cooperate with the Company in the
preparation and filing of any Registration Statement, and in the furnishing of
information concerning the Holder for inclusion therein, or in any efforts by
the Company to establish that the proposed sale is exempt under the 1933 Act as
to any proposed distribution.
9. GOVERNING LAW. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the state of Minnesota without regard
to conflicts of laws principles.
6
<PAGE>
IN WITNESS WHEREOF, IntraNet Solutions, Inc. has caused this Warrant to be
signed by its duly authorized officer this 20th day of December, 1996.
INTRANET SOLUTIONS, INC.
By /s/ Jeffrey J. Sjobeck
-----------------------
Its: Chief Financial Officer
-----------------------
<PAGE>
NOTICE OF WARRANT EXERCISE
(To be signed only upon exercise of Warrant)
TO: INTRANET SOLUTIONS, INC.
The undersigned hereby irrevocably elects to exercise the attached Warrant
to purchase for cash, _____________ of the shares issuable upon the exercise of
such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
______________________
(Print Name)
______________________
Please insert social security or other
identifying number of registered holder
of certificate (_____________)
(Address)
Date: _____________________, 199_ ______________________
Signature*
*The signature of the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
8
<PAGE>
WARRANT ASSIGNMENT
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________________ the right represented by the foregoing
warrant to purchase Common Stock of INTRANET SOLUTIONS, INC., to which the
foregoing warrant relates and appoints ________________________________ attorney
to transfer said right on the books of INTRANET SOLUTIONS, INC., with full power
of substitution in the premises.
The manner of the proposed transfer by the undersigned is described briefly
in the space below.
Dated:_________________________
_______________________________
(Signature)
_______________________________
_______________________________
_______________________________
(Address)
In Presence of:
______________________________
9
<PAGE>
EXHIBIT 10.21
INTRANET SOLUTIONS, INC.
NOTE CONVERSION AND SUBSCRIPTION AGREEMENT
INCLUDING INVESTMENT REPRESENTATIONS
COMMON STOCK
INSTRUCTIONS: Return this Note Conversion and Subscription Agreement,
completed and manually signed, together with the Note (as defined below),
marked as canceled, to the Company.
Gentlemen:
Effective this 6th day of June, 1997, I, RITA M. OLSON
(INSERT NAME OF INDIVIDUAL/ENTITY SUBSCRIBER) hereby elect to convert
$ 125,000 into shares of Common Stock, $.01 par
value (the "Shares"), of IntraNet Solutions, Inc., a Minnesota corporation
(the "Company"). Such amount represents the 50% of the principal amount (the
"Principal") currently outstanding under that certain promissory note dated
December 20 1996, made by the Company and payable to the order of the
undersigned (the "Note"). In connection with such election to convert, I
hereby acknowledge receipt of a draft of the Company's Confidential Private
Placement Memorandum, dated June, 1997, relating to a proposed private
offering of up to 150,000 Units, each Unit consisting of one share the
Company's 6% Convertible Preferred Stock and one warrant to purchase .60
shares of Common Stock (the "Disclosure Statement").
A. SUBSCRIPTION.
I hereby subscribe for that number of Shares that is equal the
result derived by dividing the Principal by $3.50 (with cash payable in lieu
of any fractional Shares).
Simultaneous with the execution of this Note Conversion and
Subscription Agreement, I have delivered the Note to the Company, marked as
canceled. The Company agrees to simultaneously issue a Promissory Note back
to RITA M. OLSON in the amount of $125,000 (representing the balance of the
Promissory Note not converted) with the same terms and conditions as
included in the Promissory Note dated December 20, 1996, as amended March 4,
1997 and June 5, 1997.
I acknowledge that this subscription is subject to acceptance
by the Company, and that the Company has the right, in its sole discretion,
to accept or reject subscriptions in whole or in part. Without limiting the
generality of the foregoing, the right is reserved to reject or cancel any
conversion if such conversion, in the opinion of the Company, would violate
federal or state securities laws. I understand that if this subscription is
rejected, in whole or in part, the Company will execute and deliver to the
undersigned a replacement note, to be issued to and payable to the order of
the undersigned, which such replacement note shall be identical in each and
every respect to the Note tendered herewith.
1
<PAGE>
B. REPRESENTATIONS AND WARRANTIES OF INVESTOR. In
connection with this conversion, I hereby acknowledge, represent and warrant
as follows:
1. I have received and carefully reviewed a copy of the
Disclosure Statement. I have not relied on any information or representation
other than those contained in the Disclosure Statement and in filings made by
the Company with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934
2. I have been given access to full and complete information
regarding the Company (including the opportunity to meet with Company
officers and review such documents as I may have requested in writing) and
have utilized such access to my satisfaction for the purpose of obtaining
information in addition to, or verifying information included in, the
Disclosure Statement.
3. I am experienced and knowledgeable in financial and
business matters, capable of evaluating the merits and risks of investing in
the Shares, and do not need or
4. I have been given access to full and complete information
regarding the Company (including the opportunity to meet with Company
officers and review such documents as I may have requested in writing) and
have utilized such access to my satisfaction for the purpose of obtaining
information in addition to, or verifying information included in, the
Disclosure Statement.
5. I am experienced and knowledgeable in financial and
business matters, capable of evaluating the merits and risks of investing in
the Shares, and do not need or desire the assistance of a knowledgeable
representative to aid in the evaluation of such risks.
6. I understand that an investment in the Shares is highly
speculative and involves a high degree of risk. I believe the investment is
suitable for me based on my investment objectives and financial needs. I can
bear the economic risk of an investment in the Shares for an indefinite
period of time and can afford a complete loss of such investment.
7. I understand that by electing to convert the Principal
into Shares, that I will no longer be a creditor of the Company, and
therefore, my interest in the Company will be subordinate to any claims of
the Company's creditors in connection with any voluntary or involuntary
declaration of bankruptcy, liquidation, dissolution or winding up of the
affairs of the Company.
8. I understand that there are significant restrictions on
the transferability of the Shares, and that for these and other reasons, I
may not be able to liquidate an investment in the Shares for an indefinite
period.
9. I understand that my decision to elect conversion of the
Principal into Shares, as evidenced by this Note Conversion and Subscription
Agreement, is irrevocable.
C. INVESTMENT INTENT; RESTRICTIONS ON TRANSFER OF SHARES.
1. I represent and warrant that I am acquiring the Shares
for my own account, for long-term investment and without the intention of
reselling or redistributing the Shares. I have made no
2
<PAGE>
arrangement or agreement with others regarding any of the Shares, and my
financial condition is such that it is not likely that it will be necessary
for me to dispose of any of the Shares in the foreseeable future.
2. I understand that the Shares have not been registered
under the 1933 Act, or applicable State Laws, and are being offered and sold
pursuant to exemptions from registration under the 1933 Act and the State
Laws. I understand that the Company's reliance on such exemptions is
predicated in part on my representations and warranties contained herein.
3. I understand that the Shares may not be sold by me except
pursuant to an effective registration statement under the 1933 Act and State
Laws, or an opinion of counsel that such registration is not required. I
understand that the Company does not have any obligation to file a
registration statement covering securities of the Company.
4. I understand that any transfer of the Shares by me will
be further restricted by a legend placed on the certificate(s) representing
the Shares containing substantially the following language:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or applicable state
securities laws. No transfer of such shares or any interest
therein may be made except pursuant to registration under said
laws unless the Company has received an opinion of counsel
acceptable to the Company stating that such transfer does not
require registration under said laws."
D. RESIDENCE. I represent and warrant as follows.
1. I am a bona fide resident of (or, if an entity, the
entity's principal executive office is located in) the State of Minnesota.
(INSERT NAME OF STATE)
2. The Shares are being acquired by me in my name solely for
my own beneficial interest and not as nominee for, on behalf of, for the
beneficial interest of, or with the intention to transfer to, any other
person, trust, or organization, except as specifically set forth in this
Subscription Agreement.
E. INVESTOR QUALIFICATIONS. ANSWER PART I FOR INDIVIDUAL OR
PART II FOR ENTITIES, AS APPLICABLE, BUT NOT BOTH. CHECK ALL APPLICABLE
ITEMS.
I. ACCREDITED INVESTOR - INDIVIDUALS. I am an INDIVIDUAL
subscriber and warrant as follows:
X 1. I have a net worth, or a joint net worth
together with my spouse, in excess of $1,000,000. [In calculating net worth,
you may include equity in personal property and real estate, including your
principal residence, cash, short-term investments, stock and securities. Equity
in personal property and real estate should be based on the fair market value of
such property minus debt secured by such property.]
3
<PAGE>
_______ 2. I had an individual income in excess of
$200,000 in each of the prior two years and reasonably expect an income in
excess of $200,000 in the current year; OR I had joint income in excess of
$300,000 in the current year.
_______ 3. I am a director or executive officer of
the Company.
II. ACCREDITED INVESTOR - ENTITIES. The undersigned
subscriber is an ENTITY and represents and warrants as follows:
_______ 1. The undersigned (or, in the case of a trust,
the undersigned trustee) is a bank, or savings and loan association as defined
in Sections3(a)(2) and 3(a)(5)(A), respectively, of the 1933 Act, acting either
in its individual or fiduciary capacity.
_______ 2. The undersigned is an insurance company as
defined in Section 2(13) of the 1933 Act.
_______ 3. The undersigned is an investment company
registered under
the Investment Company Act of 1940 or a business development company as defined
in Section 2(a)(48) of that Act.
_______ 4. The undersigned is a Small Business Investment
Company licensed by the U.S. Small Business Administration under Section 301(c)
or (d)of the Small Business Investment Act of 1959.
_______ 5. The undersigned is an employee benefit plan
within the meaning of Title I of the Employee Retirement Income Security
Act of 1974 AND either (check one or more, as applicable):
_______ a. the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or registered investment
adviser; or
_______ b. the employee benefit plan has total assets
in excess of $5,000,000; or
_______ c. the plan is a self-directed plan with
investment decisions made solely by persons who are "Accredited Investors"
as defined under the 1933 Act.
_______ 6. The undersigned has total assets in excess of
$5,000,000, was not formed for the specific purpose of acquiring shares of
the Company AND is one or more of the following (check one or more, as
appropriate):
_______ a. an organization described in Section
501(c)(3) of theInternal Revenue Code; or
_______ b. a corporation; or
4
<PAGE>
_______ c. a Massachusetts or similar business trust; or
_______ d. a partnership.
_______ 7. The undersigned is a private business development
company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940.
_______ 8. The undersigned is a trust with total assets
exceeding $5,000,000 which was not formed for
the purpose of acquiring shares of the Company
and whose purchase is directed by a person who
has such knowledge and experience in financial and
business matters that he or she is capable of
evaluating the merits and risks of the investment
in the Shares.
_______ 9. All of the equity owners of the undersigned meet
one of the tests set forth in I.(1) through I(3)
or II(1) through II(8) above. Please indicate
the NAMES of each such equity owner and which TEST
applies to each:______________________________
F. RELATIONSHIP TO BROKERAGE FIRMS. (Answer the following
questions by checking the appropriate response):
1. Yes__ ; No__ : Does the Individual subscriber or
any director, officer, partner or 5% owner of the Entity subscriber own
voting securities of any brokerage firm? (IF YES, please indicate the name
of each such person, the name of the broker firm, and such persons' relationship
to the subscriber and the brokerage firm.) -----------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
2. Yes__ ; No__ : Are you, if an Individual subscriber, or
is any director, officer, partner or 5% owner of the Entity subscriber, if an
Entity Subscriber, also a director, officer, partner, branch manager,
registered representative, employee, shareholder of, or similarly related to
or employed by, a brokerage firm? (IF YES, please indicate the name of each
such person, the name of the brokerage firm, and such person's relationship
to the subscriber and the brokerage firm.)------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
3. Yes__ ; No__: Is the spouse, father, mother,
father-in-law, mother-in-law, or any brother, sister, brother-in-law,
sister-in-law or child of, or any relative supported by, the Individual
subscriber or any director, officer, partner or 5% owner of the Entity
subscriber, as applicable, also a director, officer, partner, branch manager,
registered representative, employee, shareholder of, or similarly related to
or engaged by, a brokerage firm? (IF YES, please indicate the name of each
such person, the name of the brokerage firm, and such person's relationship
to the subscriber and the brokerage firm.)------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
G. MISCELLANEOUS.
5
<PAGE>
1. I agree to furnish any additional information that the
Company or its counsel deem necessary in order to verify the responses set
forth above.
2. I represent and warrant that I have not reproduced or
distributed the Registration Statement in whole or in part, or divulged any
of its contents, and that I will not do so without the prior written consent
of the Company.
3. I understand the meaning and legal consequences of the
agreements, representations and warranties contained herein. I agree that
such agreements, representations and warranties shall survive and remain in
full force and effect after the execution hereof and payment for the Shares.
I further agree to indemnify and hold harmless the Company and each current
and future officer, director, employee, agent and shareholder of the Company
and each current and future officer, director, employee, agent and
shareholder of the Company from an against any and all loss, damage or
liability due to, or arising out of, a breach of any of my agreements,
representations or warranties contained herein, which shall survive the
execution hereof.
4. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and to the successors and assigns of the
Company and to the legal representatives, successors and permitted assignees
of the undersigned.
5. This Note Conversion and Subscription Agreement shall be
governed by, and construed and enforced in accordance with, Minnesota law,
without reference to principles of conflicts of laws.
6. This instrument contains the entire agreement of the
parties, and there are no representations, covenants
or other agreements except as stated or referred to herein.
H. AMENDMENT OF WARRANT. In consideration of the
undersigned's execution and delivery of this Note Conversion
and Subscription Agreement the Company and the undersigned
agree that Section 5(a) of that certain Stock Purchase
Warrant issued by the Company to the undersigned and dated
December 20, 1996 is hereby amended to add the following:
"Notwithstanding the foregoing the Warrant Exercise Price
shall be $3.50 per share with respect to 25,000 shares".
6
<PAGE>
SIGNATURES/SUBSCRIBER INFORMATION
INSTRUCTIONS: If the subscriber is an Individual, please fill
out and sign ONLY the "Individual Subscriber" and "Individual Subscriber Type
of Ownership" sections below. If the subscriber is an Entity, please fill
out and sign ONLY the "Entity Subscriber" and "Entity Subscriber Type of
Ownership" sections below.
INDIVIDUAL SUBSCRIBER:
Dated: June 6, 1997 /s/ RITA M. OLSON
--------------------------------------------
Signature
RITA M. OLSON
--------------------------------------------
Name (Typed or Printed)
###-##-####
--------------------------------------------
Social Security No.
(612) 934-3141
--------------------------------------------
Telephone No
7073 TICONDEROGA TRAIL
--------------------------------------------
Residence Street Address
EDEN PRAIRIE, MN 55344
--------------------------------------------
City, State & Zip Code
(Must be same state indicated in question 7)
--------------------------------------------
Mailing Address (Only if different from residence
address)
--------------------------------------------
City, State & Zip Code
--------------------------------------------
Signature of Second Individual (if joint
ownership)
7
<PAGE>
--------------------------------------------
Name (Typed or printed)
-------------------------------------------
Social Security No.
( )
--------------------------------------------
Telephone No.
--------------------------------------------
Residence Street Address
--------------------------------------------
City, State & Zip Code
(Must be same state indicated in question 7)
--------------------------------------------
Mailing Address (Only if different from residence
address)
--------------------------------------------
City, State & Zip Code
INDIVIDUAL SUBSCRIBER TYPE OF OWNERSHIP:
The Shares subscribed for are to be registered in the following form of
ownership (check only ONE): one):
X Individual Ownership
--------
________ Tenants in Common
(Both parties must sign above)
________ Joint Tenants with Right of Survivorship
(Both parties must sign above)
8
<PAGE>
ENTITY SUBSCRIBER:
Dated: , 1997
--------------- Name of Entity (Typed or Printed)
-------------------------------------------------
Signature
-------------------------------------------------
Name (Typed or printed) and Title
-------------------------------------------------
Contact Person (If different from person signing)
-------------------------------------------------
Tax I.D. No.
( )
-------------------------------------------------
Telephone No
-------------------------------------------------
Principal Executive Office Address
-------------------------------------------------
(Must be same state indicated in question 7)
-------------------------------------------------
Mailing Address (Only if different from residence
address)
-------------------------------------------------
City, State & Zip Code
9
<PAGE>
ENTITY SUBSCRIBER TYPE OF OWNERSHIP:
The Shares subscribed for are to be registered in the following form of
ownership (check only ONE):
Partnership
-------
Corporation
-------
Trust or Estate (Describe and
------- enclose evidence of signer's authority)
IRA Trust Account
-------
Other (Describe)
-------
------- -------------------------------------
10
<PAGE>
ACCEPTANCE
This Note Conversion and Subscription Agreement of
RITA M.OLSON
--------------------------------------------------
[Individual/Entity Subscriber Name]
for shares of the Company's Common Stock is hereby accepted by IntraNet
Solutions, Inc.
Dated: June 6, 1997.
INTRANET SOLUTIONS, INC.
By /s/ JEFFREY J. SJOBECK
-----------------------------------
Its CHIEF FINANCIAL OFFICER & SECRETARY
-----------------------------------
11
<PAGE>
EXHIBIT 10.22
INTRANET SOLUTIONS, INC.
NOTE CONVERSION AND SUBSCRIPTION AGREEMENT
INCLUDING INVESTMENT REPRESENTATIONS
COMMON STOCK
INSTRUCTIONS: Return this Note Conversion and Subscription Agreement,
completed and manually signed, together with the Note (as defined below),
marked as canceled, to the Company.
Gentlemen:
Effective this 6th day of June, 1997, I, WAYNE W. MILLS
----------------------
(INSERT NAME OF INDIVIDUAL/ENTITY SUBSCRIBER) hereby elect to
convert $ 125,000 into shares of Common Stock, $.01
---------------------------------
par value (the "Shares"), of IntraNet Solutions, Inc., a Minnesota
corporation (the "Company"). Such amount represents the aggregate principal
amount (the "Principal") currently outstanding under that certain promissory
note dated January 13, 1997, made by the Company and payable to the order of
the undersigned (the "Note"). In connection with such election to convert, I
hereby acknowledge receipt of a draft of the Company's Confidential Private
Placement Memorandum, dated June, 1997, relating to a proposed private
offering of up to 150,000 Units, each Unit consisting of one share the
Company's 6% Convertible Preferred Stock and one warrant to purchase .60
shares of Common Stock (the "Disclosure Statement").
A. SUBSCRIPTION.
I hereby subscribe for that number of Shares that is equal the
result derived by dividing the Principal by $3.50 (with cash payable in lieu
of any fractional Shares).
Simultaneous with the execution of this Note Conversion and
Subscription Agreement, I have delivered the Note to the Company, marked as
canceled.
I acknowledge that this subscription is subject to acceptance
by the Company, and that the Company has the right, in its sole discretion,
to accept or reject subscriptions in whole or in part. Without limiting the
generality of the foregoing, the right is reserved to reject or cancel any
conversion if such conversion, in the opinion of the Company, would violate
federal or state securities laws. I understand that if this subscription is
rejected, in whole or in part, the Company will execute and deliver to the
undersigned a replacement note, to be issued to and payable to the order of
the undersigned, which such replacement note shall be identical in each and
every respect to the Note tendered herewith.
B. REPRESENTATIONS AND WARRANTIES OF INVESTOR. In
connection with this conversion, I hereby acknowledge, represent and warrant
as follows:
1
<PAGE>
1. I have received and carefully reviewed a copy of the
Disclosure Statement. I have not relied on any information or representation
other than those contained in the Disclosure Statement and in filings made by
the Company with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934
2. I have been given access to full and complete information
regarding the Company (including the opportunity to meet with Company
officers and review such documents as I may have requested in writing) and
have utilized such access to my satisfaction for the purpose of obtaining
information in addition to, or verifying information included in, the
Disclosure Statement.
3. I am experienced and knowledgeable in financial and
business matters, capable of evaluating the merits and risks of investing in
the Shares, and do not need or
4. I have been given access to full and complete information
regarding the Company (including the opportunity to meet with Company
officers and review such documents as I may have requested in writing) and
have utilized such access to my satisfaction for the purpose of obtaining
information in addition to, or verifying information included in, the
Disclosure Statement.
5. I am experienced and knowledgeable in financial and
business matters, capable of evaluating the merits and risks of investing in
the Shares, and do not need or desire the assistance of a knowledgeable
representative to aid in the evaluation of such risks.
6. I understand that an investment in the Shares is highly
speculative and involves a high degree of risk. I believe the investment is
suitable for me based on my investment objectives and financial needs. I can
bear the economic risk of an investment in the Shares for an indefinite
period of time and can afford a complete loss of such investment.
7. I understand that by electing to convert the Principal
into Shares, that I will no longer be a creditor of the Company, and
therefore, my interest in the Company will be subordinate to any claims of
the Company's creditors in connection with any voluntary or involuntary
declaration of bankruptcy, liquidation, dissolution or winding up of the
affairs of the Company.
8. I understand that there are significant restrictions on
the transferability of the Shares, and that for these and other reasons, I
may not be able to liquidate an investment in the Shares for an indefinite
period.
9. I understand that my decision to elect conversion of the
Principal into Shares, as evidenced by this Note Conversion and Subscription
Agreement, is irrevocable.
C. INVESTMENT INTENT; RESTRICTIONS ON TRANSFER OF SHARES.
1. I represent and warrant that I am acquiring the Shares
for my own account, for long-term investment and without the intention of
reselling or redistributing the Shares. I have made no arrangement or
agreement with others regarding any of the Shares, and my financial condition
is such that it is not likely that it will be necessary for me to dispose of
any of the Shares in the foreseeable future.
2
<PAGE>
2. I understand that the Shares have not been registered
under the 1933 Act, or applicable State Laws, and are being offered and sold
pursuant to exemptions from registration under the 1933 Act and the State
Laws. I understand that the Company's reliance on such exemptions is
predicated in part on my representations and warranties contained herein.
3. I understand that the Shares may not be sold by me except
pursuant to an effective registration statement under the 1933 Act and State
Laws, or an opinion of counsel that such registration is not required. I
understand that the Company does not have any obligation to file a
registration statement covering securities of the Company.
4. I understand that any transfer of the Shares by me will
be further restricted by a legend placed on the certificate(s) representing
the Shares containing substantially the following language:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or applicable state
therein securities laws. No transfer of such shares or any
interest may be made except pursuant to registration under
said laws unless the Company has received an opinion of
counsel acceptable to the Company stating that such
transfer does not require registration under said laws."
D. RESIDENCE. I represent and warrant as follows.
1. I am a bona fide resident of (or, if an entity, the
entity's principal executive office is located in) the State of Minnesota.
(INSERT NAME OF STATE)
2. The Shares are being acquired by me in my name solely for
my own beneficial interest and not as nominee for, on behalf of, for the
beneficial interest of, or with the intention to transfer to, any other
person, trust, or organization, except as specifically set forth in this
Subscription Agreement.
E. INVESTOR QUALIFICATIONS. ANSWER PART I FOR INDIVIDUAL OR
PART II FOR ENTITIES, AS APPLICABLE, BUT NOT BOTH. CHECK ALL APPLICABLE
ITEMS.
I. ACCREDITED INVESTOR - INDIVIDUALS. I am an INDIVIDUAL
subscriber and warrant as follows:
X 1. I have a net worth, or a joint net worth
---------
together with my spouse, in excess of $1,000,000. [In calculating net worth,
you may include equity in personal property and real estate, including your
principal residence, cash, short-term investments, stock and securities.
Equity in personal property and real estate should be based on the fair market
value of such property minus debt secured by such property.]
X 2. I had an individual income in excess of
--------
$200,000 in each of the prior two years and reasonably expect an income in
excess of $200,000 in the current year; OR I had joint income in excess
of $300,000 in the current year.
3
<PAGE>
________ 3. I am a director or executive officer of the
Company.
II. ACCREDITED INVESTOR - ENTITIES. The undersigned
subscriber is an ENTITY and represents and warrants as follows:
________ 1. The undersigned (or, in the case of a trust,
the undersigned trustee) is a bank, or savings and loan association as
defined in Sections 3(a)(2) and 3(a)(5)(A), respectively, of the 1933 Act,
acting either in its individual or fiduciary capacity.
________ 2. The undersigned is an insurance company as
defined in Section 2(13) of the 1933 Act.
________ 3. The undersigned is an investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of that Act.
________ 4. The undersigned is a Small Business Investment
Company licensed by the U.S. Small Business Administration under Section
301(c) or (d) of the Small Business Investment Act of 1959.
________ 5. The undersigned is an employee benefit plan
within the meaning of Title I of the Employee Retirement Income Security Act
of 1974 AND either (check one or more, as applicable):
________ a. the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or registered investment
adviser; or
________ b. the employee benefit plan has total assets
in excess of $5,000,000; or
________ c. the plan is a self-directed plan with
investment decisions made solely by persons who are "Accredited Investors" as
defined under the 1933 Act.
________ 6. The undersigned has total assets in excess of
$5,000,000, was not formed for the specific purpose of acquiring shares of
the Company AND is one or more of the following (check one or more, as
appropriate):
________ a. an organization described in Section
501(c)(3) of the Internal Revenue Code; or
________ b. a corporation; or
________ c. a Massachusetts or similar business trust;
or
4
<PAGE>
________ d. a partnership.
________ 7. The undersigned is a private business
development company as defined in Section 202(a)(22) of the Investment
Advisers Act of 1940.
________ 8. The undersigned is a trust with total assets
exceeding $5,000,000 which was not formed for the purpose of acquiring shares
of the Company and whose purchase is directed by a person who has such
knowledge and experience in financial and business matters that he or she is
capable of evaluating the merits and risks of the investment in the Shares.
________ 9. All of the equity owners of the undersigned
meet one of the tests set forth in I.(1) through I(3) or II(1) through II(8)
above. Please indicate the NAMES of each such equity owner and which TEST
applies to each:
F. RELATIONSHIP TO BROKERAGE FIRMS. (Answer the following
questions by checking the appropriate response):
1. Yes__ ; No_X_ : Does the Individual subscriber or any
director, officer, partner or 5% owner of the Entity subscriber own voting
securities of any brokerage firm? (IF YES, please indicate the name of each
such person, the name of the broker firm, and such persons' relationship to
the subscriber and the brokerage firm.)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
2. Yes X ;No__ : Are you, if an Individual
-- __
subscriber, or is any director, officer, partner or 5% owner of the Entity
subscriber, if an Entity Subscriber, also a director, officer, partner,
branch manager, registered representative, employee, shareholder of, or
similarly related to or employed by, a brokerage firm? (IF YES, please
indicate the name of each such person, the name of the brokerage firm, and
such person's relationship to the subscriber and the brokerage firm.)
Wayne . Mills, RJ Steichen & Company employee
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
3. Yes ; No X : Is the spouse, father, mother,
-- --
father-in-law, mother-in-law, or any brother, sister, brother-in-law,
sister-in-law or child of, or any relative supported by, the Individual
subscriber or any director, officer, partner or 5% owner of the Entity
subscriber, as applicable, also a director, officer, partner, branch manager,
registered representative, employee, shareholder of, or similarly related to
or engaged by, a brokerage firm? (IF YES, please indicate the name of each
such person, the name of the brokerage firm, and such person's relationship
to the subscriber and the brokerage firm.)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
G. MISCELLANEOUS.
1. I agree to furnish any additional information that the
Company or its counsel deem necessary in order to verify the responses set
forth above.
5
<PAGE>
2. I represent and warrant that I have not reproduced or
distributed the Registration Statement in whole or in part, or divulged any
of its contents, and that I will not do so without the prior written consent
of the Company.
3. I understand the meaning and legal consequences of the
agreements, representations and warranties contained herein. I agree that
such agreements, representations and warranties shall survive and remain in
full force and effect after the execution hereof and payment for the Shares.
I further agree to indemnify and hold harmless the Company and each current
and future officer, director, employee, agent and shareholder of the Company
and each current and future officer, director, employee, agent and
shareholder of the Company from an against any and all loss, damage or
liability due to, or arising out of, a breach of any of my agreements,
representations or warranties contained herein, which shall survive the
execution hereof.
4. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and to the successors and assigns of the
Company and to the legal representatives, successors and permitted assignees
of the undersigned.
5. This Note Conversion and Subscription Agreement shall be
governed by, and construed and enforced in accordance with, Minnesota law,
without reference to principles of conflicts of laws.
6. This instrument contains the entire agreement of the
parties, and there are no representations, covenants
or other agreements except as stated or referred to herein.
H. AMENDMENT OF WARRANT. In consideration of the
undersigned's execution and delivery of this Note Conversion
and Subscription Agreement the Company and the undersigned
agree that Section 5(a) ofthat certain Stock Purchase
Warrant issued by the Company to the undersigned and
dated January 13, 1997 is hereby amended to state as
follows: "The Warrant Exercise Price shall be $3.50
per share".
6
<PAGE>
SIGNATURES/SUBSCRIBER INFORMATION
INSTRUCTIONS: If the subscriber is an Individual, please fill
out and sign ONLY the "Individual Subscriber" and "Individual Subscriber Type
of Ownership" sections below. If the subscriber is an Entity, please fill
out and sign ONLY the "Entity Subscriber" and "Entity Subscriber Type of
Ownership" sections below.
INDIVIDUAL SUBSCRIBER:
Dated: June 6, 1997 /s/ WAYNE W. MILLS
---------------------------------------------------
Signature
Wayne W. Mills
---------------------------------------------------
Name (Typed or Printed)
###-##-####
---------------------------------------------------
Social Security No.
(612) 938-4545
---------------------------------------------------
Telephone No
5020 BLAKE RD
---------------------------------------------------
Residence Street Address
EDINA, MN 55436
---------------------------------------------------
City, State & Zip Code
(Must be same state indicated in question 7)
---------------------------------------------------
Mailing Address (Only if different from residence
address)
---------------------------------------------------
City, State & Zip Code
---------------------------------------------------
Signature of Second Individual (if joint ownership)
7
<PAGE>
---------------------------------------------------
Name (Typed or printed)
---------------------------------------------------
Social Security No.
( )
---------------------------------------------------
Telephone No.
---------------------------------------------------
Residence Street Address
---------------------------------------------------
City, State & Zip Code
(Must be same state indicated in question 7)
---------------------------------------------------
Mailing Address (Only if different from residence
address)
---------------------------------------------------
City, State & Zip Code
INDIVIDUAL SUBSCRIBER TYPE OF OWNERSHIP:
The Shares subscribed for are to be registered in the following form of
ownership (check only ONE): one):
X Individual Ownership
-------
Tenants in Common
------- (Both parties must sign above)
Joint Tenants with Right of Survivorship
------- (Both parties must sign above)
8
<PAGE>
ENTITY SUBSCRIBER:
Dated: , 1997
---------------- ---------------------------------------------------
Name of Entity (Typed or Printed)
---------------------------------------------------
Signature
---------------------------------------------------
Name (Typed or printed) and Title
---------------------------------------------------
Contact Person (If different from person signing)
---------------------------------------------------
Tax I.D. No.
( )
---------------------------------------------------
Telephone No
---------------------------------------------------
Principal Executive Office Address
---------------------------------------------------
(Must be same state indicated in question 7)
---------------------------------------------------
Mailing Address (Only if different from residence
address)
---------------------------------------------------
City, State & Zip Code
9
<PAGE>
ENTITY SUBSCRIBER TYPE OF OWNERSHIP:
The Shares subscribed for are to be registered in the following form of
ownership (check only ONE):
Partnership
--------
Corporation
--------
Trust or Estate (Describe and
-------- enclose evidence of signer's authority)
-------- IRA Trust Account
Other (Describe)
--------- ----------------------------
10
<PAGE>
ACCEPTANCE
This Note Conversion and Subscription Agreement of WAYNE W.
------------
MILLS [Individual/Entity Subscriber Name] for shares of the Company's Common
- ----------------------------------------
Stock is hereby accepted by IntraNet Solutions, Inc.
Dated: June 6, 1997.
INTRANET SOLUTIONS, INC.
By /s/ Jeffrey J. Sjobeck
----------------------------------------
Its CHIEF FINANCIAL OFFICER & SECRETARY
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated May 14, 1996 included in this Form 10-KSB into
the Company's previously filed registration statements number 333-14175 and
333-11489.
/s/ LUND KOEHLER COX & COMPANY, PLLP
Minneapolis, Minnesota
June 25, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 333-11489) pertaining to the 1994-1997 Stock Option
and Compensation Plan of IntraNet Solutions, Inc. and (Form SB-2 No.
333-14175) pertaining to the registration of 680,746 shares of IntraNet
Solutions, Inc. common stock, of our report dated June 30, 1997, with respect
to the consolidated financial statements of IntraNet Solutions,
Inc. included in the Annual Report (Form 10-KSB) for the year ended March 31,
1997.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
June 30, 1997
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 121,798
<SECURITIES> 0
<RECEIVABLES> 4,414,796
<ALLOWANCES> 0
<INVENTORY> 495,960
<CURRENT-ASSETS> 5,556,257
<PP&E> 3,593,275
<DEPRECIATION> 978,051
<TOTAL-ASSETS> 9,012,992
<CURRENT-LIABILITIES> 7,390,022
<BONDS> 0
0
0
<COMMON> 75,236
<OTHER-SE> (148,597)
<TOTAL-LIABILITY-AND-EQUITY> 9,012,992
<SALES> 20,010,006
<TOTAL-REVENUES> 20,010,006
<CGS> 15,147,584
<TOTAL-COSTS> 15,147,584
<OTHER-EXPENSES> 8,300,410
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 310,476
<INCOME-PRETAX> (3,748,464)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,748,464)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,748,464)
<EPS-PRIMARY> (0.58)
<EPS-DILUTED> (0.58)
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