<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 1997.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from -------- to --------.
Commission file number 0-19817
-------
IntraNet Solutions, Inc.
(Exact Name of Registrant as Specified in Its Chapter)
- -------------------------------------------------------------------------------
Minnesota 41-1652566
- --------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
9625 West 76th Street, Suite 150, Eden Prairie, Minnesota 55344
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(612) 903-2000
- -------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
- -------------------------------------------------------------------------------
(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
---- ----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: AT AUGUST 8, 1997 THERE
WERE 7,629,031 SHARES OF COMMON STOCK, $0.01 PAR VALUE OUTSTANDING.
Page 1 of 14
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INTRANET SOLUTIONS, INC.
Form 10-QSB Index
June 30, 1997
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1997 and March 31, 1997 3
Consolidated Statements of Operations -
for the three months ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -
for the three months ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II: Other Information
Item 6: Exhibits and Reports on Form 8-K 13
Page 2 of 14
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INTRANET SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
1997 1997
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 121,798 $ 111,210
Accounts receivable, net 3,612,803 4,606,266
Note receivable 801,993 570,580
Inventories 495,960 441,656
Prepaid expenses and other current assets 523,703 566,351
-------------- --------------
Total current assets 5,556,257 6,296,063
PROPERTY AND EQUIPMENT, NET 2,615,224 2,524,560
INTANGIBLE ASSETS, NET 841,511 819,419
-------------- --------------
$9,012,992 $9,640,042
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Revolving credit facility $1,809,086 $2,451,826
Promissory notes payable, net of discount 808,932 1,207,947
Current portion of long-term debt 1,019,599 594,722
Current portion of capital lease obligations 233,097 241,014
Accounts payable 2,716,723 3,709,226
Accrued expenses 802,585 786,010
-------------- --------------
Total current liabilities 7,390,022 8,990,745
LONG-TERM DEBT, NET OF CURRENT PORTION 812,930 501,952
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 683,514 624,948
OTHER 199,887 178,443
-------------- --------------
Total liabilities 9,086,353 10,296,088
-------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value, 25,000,000 undesignated shares
authorized, 7,523,603 and 7,606,431 issued and outstanding,
respectively 75,236 76,064
Additional paid-in capital 3,827,356 4,078,808
Retained earnings (deficit) (3,744,833) (4,597,159)
Unearned compensation (231,120) (213,759)
-------------- --------------
Total stockholders' equity (deficit) (73,361) (656,046)
-------------- --------------
$9,012,992 $9,640,042
-------------- --------------
-------------- --------------
</TABLE>
Page 3 of 14
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INTRANET SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30,
-------------------------------
1996 1997
------------- --------------
REVENUES:
Hardware integration $2,391,762 $2,951,690
Software, technical services and support 1,102,957 1,604,963
Distribution services 686,215 1,216,871
------------- --------------
Total revenues 4,180,934 5,773,524
------------- --------------
COST OF REVENUES:
Hardware integration 2,000,661 2,434,042
Software, technical services and support 748,468 988,913
Distribution services 477,004 998,570
------------- --------------
Total cost of revenues 3,226,133 4,421,525
------------- --------------
Gross profit 954,801 1,351,999
------------- --------------
OPERATING EXPENSES:
Sales and marketing 582,349 787,454
General and administrative 464,175 956,834
Research and development 258,080 305,366
------------- --------------
Total operating expenses 1,304,604 2,049,654
------------- --------------
Income (loss) from operations (349,803) (697,655)
INTEREST EXPENSE, NET 86,045 154,671
------------- --------------
LOSS BEFORE INCOME TAXES (435,848) (852,326)
Provision for (benefit of) income taxes (150,000) --
------------- --------------
NET LOSS ($285,848) ($852,326)
------------- --------------
------------- --------------
NET LOSS PER COMMON SHARE ($0.07) ($0.11)
------------- --------------
------------- --------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (NOTE 2) 4,328,335 7,543,951
------------- --------------
------------- --------------
Page 4 of 14
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INTRANET SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended June 30,
-----------------------------
1996 1997
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($285,848) ($852,326)
Adjustments to reconcile net loss
to cash flows from operating activities-
Depreciation and amortization 107,031 161,642
Stock option compensation earned 1,221 17,361
Discount amortization -- 30,420
Changes in operating assets and liabilities 182,835 (22,688)
------------- --------------
Cash flows from operating activities 5,239 (665,591)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from note receivable -- 248,222
Purchases of fixed assets (233,934) (48,886)
------------- --------------
Cash flows from investing activities (233,934) 199,336
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances from revolving credit facility 380,546 642,740
Payments on long-term debt (24,999) (117,260)
Payments on capital leases (47,298) (50,649)
Payments on other long-term liabilities -- (22,044)
Repurchase of treasury stock 29,340 600
Proceeds from stock options and warrants -- 2,280
------------- --------------
Cash flows from financing activities 337,589 455,667
------------- --------------
NET INCREASE (DECREASE) IN CASH 108,894 (10,588)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 37,513 121,798
------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $146,407 $111,210
------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid for interest $86,045 $127,945
Cash paid for income taxes $0 $3,531
DETAIL OF CHANGES IN OPERATING
ASSETS AND LIABILITIES:
Accounts receivable $168,837 ($993,463)
Inventories (185,556) 54,304
Prepaid expenses and other current assets (235,936) (59,457)
Accounts payable 522,259 992,503
Accrued expenses (86,769) (16,575)
------------- --------------
Net changes in operating assets and
liabilities $182,835 ($22,688)
------------- --------------
------------- --------------
Page 5 of 14
<PAGE>
IntraNet Solutions, Inc.
Notes To Consolidated Financial Statements
Three months ended June 30, 1997 and 1996
(Unaudited)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although management believes that
the disclosures are adequate to make the information presented not
misleading, it is suggested that these interim consolidated financial
statements be read in conjunction with the Company's most recent audited
consolidated financial statements and notes thereto. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim period presented have been made.
Operating results for the three months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year
ending March 31, 1998.
(2) 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.
(3) Promissory Notes
During the quarter ended June 30, 1997 $250,000 of the Company's 9%
promissory notes were converted into approximately 71,000 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.
Page 6 of 14
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(4) SUBSEQUENT EVENTS
During July 1997, the Company closed on the sale of $4,000,000 of convertible
preferred stock. The Company issued 800,000 units, each consisting of one
share of $5.00 par value Series A 5% convertible preferred stock and a
warrant to acquire one share of the Company's common stock at an exercise
price of $5.18. The preferred stock is convertible into the Company's common
stock at a price equal to 75% market value at the time of conversion, with a
maximum conversion price of $3.71 per share and a minimum conversion price of
$1.00 per share. In connection with this transaction, the Company will
record a deemed dividend that will increase the loss attributable to common
shareholders by approximately $1.6 million. The deemed dividend will have no
effect on stockholders equity.
The following unaudited proforma consolidated balance sheet presents the
financial position of the Company as if the transactions described above had
occurred as of June 30, 1997:
ASSETS
<TABLE>
<CAPTION>
PROFORMA
HISTORICAL ADJUSTMENTS PROFORMA
---------- ----------- --------
<S> <C> <C> <C>
Current Assets $6,296,063 $3,850,000 (A) $9,696,063
($450,000)(B)
Property and equipment, net 2,524,560 2,524,560
Intangible assets, net 819,419 819,419
------------ --------------- ------------
$9,640,042 $3,400,000 $13,040,042
------------ --------------- ------------
------------ --------------- ------------
LIABILITIES AND
STOCKHOLDERS EQUITY
Current liabilities $8,990,745 ($150,000) (A) $8,840,745
Long-term liabilities 1,305,343 1,305,343
------------ --------------- ------------
10,296,088 (150,000) 10,146,088
Stockholders' equity (deficiency) (656,046) 4,000,000 (A) 2,893,954
(450,000) (B)
------------ --------------- ------------
$9,640,042 $3,400,000 $13,040,042
------------ --------------- ------------
------------ --------------- ------------
</TABLE>
Proforma adjustments to reflect:
A) Proceeds before related offering expenses, of Series A Convertible Preferred
Stock, including the conversion of $150,000 of 9% promissory notes.
B) Estimated legal, accounting, and banking fees and other costs of the
transaction
(5)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.
Page 7 of 14
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
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 line of document management software products utilizing Web
technology.
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
ratably over the term of the contract. Revenue from contracts with original
durations of one year or less is recognized at the time of sale if the
Company does not expect to have material future obligations to service the
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.
Page 8 of 14
<PAGE>
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1997
COMPARED TO THE QUARTER ENDED JUNE 30, 1996
REVENUES
Total revenues increased to $5.8 million for the quarter ended June 30,
1997 from $4.2 million for the quarter ended June 30, 1996, or $1.6 million
(38.1%). This increase related to increases in all revenue product lines.
HARDWARE INTEGRATION. Hardware integration revenues increased a total of
$600,000 or 23.4% for the quarter ended June 30, 1997 compared to the quarter
ended June 30, 1996 ($3.0 million in 1997 compared to $2.4 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 $500,000, or 45.5% for the quarter
ended June 30, 1997 compared to the quarter ended June 30, 1996 ($1.6 million
in 1997 compared to $1.1 million in 1996). Increases in software and support
revenue each accounted for $200,000 of the total increase, and service
revenue accounted for $100,000 of the total increase. The growth in software
was primarily attributable to the Company's proprietary software products.
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 $500,000 for the quarter ended June 30, 1997 compared to the quarter
ended June 30, 1996 ($1.2 million in 1997 compared to $700,000 in 1996). The
increase in distribution services revenue was primarily attributable to the
expansion of the customer base through expansion of the direct sales force
and the opening of the Company's Arizona location, net of the closing of
three other locations.
COST OF REVENUES AND GROSS PROFIT
Total cost of revenues increased to $4.4 million for the quarter ended June
30, 1997 from $3.2 million for the quarter ended June 30, 1996. Total cost of
revenues as a percent of total revenues was 76.6% in 1997 compared to 77.2% in
1996. Gross profit increased to $1.4 million for the quarter ended June 30, 1997
compared to $1.0 million for the quarter ended June 30, 1996. Total gross profit
as a percent of total revenues was 23.4% in 1997 compared to 22.8% in 1996. The
increase in gross profit was primarily attributable to incremental revenue
contributions in all product lines.
Page 9 of 14
<PAGE>
HARDWARE INTEGRATION. Cost of hardware integration revenues increased to
$2.4 million for the quarter ended June 30, 1997 from $2.0 million for the
quarter ended June 30, 1996. Cost of hardware integration revenues as a percent
of hardware integration revenues was 82.5% in 1997 compared to 83.7% in 1996.
Gross profit from hardware integration was 17.5% for the quarter ended June 30,
1997 compared to 16.3% for the quarter ended June 30, 1996.
SOFTWARE, TECHNICAL SERVICES AND SUPPORT. Cost of software, technical
services and support revenues increased to $1.0 million for the quarter ended
June 30, 1997 from $700,000 for the quarter ended June 30, 1996. Cost of
software, technical services, and support revenues as a percent of software,
technical services, and support revenue was 61.6% in 1997 compared to 67.9% in
1996. Gross profit on software, technical services and support was 38.4% for
the quarter ended June 30, 1997 compared to 32.1% for the quarter ended June 30,
1996. The increase in gross profit was primarily attributable to the increase
in sales of higher margin proprietary software.
DISTRIBUTION SERVICES. Cost of distribution services revenue increased to
$1.0 million for the quarter ended June 30, 1997 compared to $500,000 for the
quarter ended June 30, 1996. Cost of distribution services revenues as a
percent of distribution services revenue was 82.1% in 1997 compared to 70.0% in
1996. Gross profit on distribution services was 17.9% for the quarter ended June
30, 1997 compared to 30.0% for the quarter ended June 30, 1996. Lower margins on
distribution services were primarily due to costs associated with experiencing
lower than optimal capacity utilization.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased to $800,000 for
the quarter ended June 30, 1997 compared to $600,000 for the quarter ended June
30, 1996. Sales and marketing expenses as a percent of total revenues were
13.6% in 1997 compared to 13.9% in 1996. Sales and marketing decreased as a
percent of revenues primarily due to a larger base of revenues to cover fixed
costs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $1.0 million for the quarter ended June 30, 1997 compared to $500,000 for the
quarter ended June 30, 1996. General and administrative expenses as a percent
of total revenue were 16.6% in 1997 compared to 11.1% 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 costs.
RESEARCH AND DEVELOPMENT. Research and development expenses were $300,000
for each of the quarters ended June 30, 1997 and June 30, 1996. Research and
development expenses as a percent of total revenue were 5.3% in 1997 compared to
6.2% in 1996. Total research and development expenses increased in 1997
compared to 1996 reflecting the introduction of the Company's proprietary
software product during the fiscal year ended March 31, 1997.
Page 10 of 14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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. As additional consideration for the loans, 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. During the quarter ended
June 30, 1997, $250,000 of these notes were converted into approximately
71,000 shares of common stock at $3.50 per share.
In July, 1997, the Company completed a $4.0 million private placement of
5% Series A $5.00 par value convertible preferred stock. Included in the
$4.0 million was $150,000 of 9% promissory notes which were converted into
the private placement. The remaining 9% promissory notes mature on January
15, 1998 ($850,000) and April 15, 1998 ($250,000).
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 June 30, 1997, the Company had advances of
$2.5 million, which are due on demand. On August 8, 1997, the Company has
$601,900 in advances and $1.1 million of availability on its working
capital line of credit. At June 30, 1997, the Company also had term loans and
promissory notes with financial institutions outstanding in the amount of
$944,000. The term loans require monthly principal payments of $38,400 plus
interest at the bank's base lending rate plus 2.5%. The notes issued in
December 1996 are at a rate of 9% and mature on January 15, 1998. At June 30,
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%.
As of June 30, 1997 the Company had a note receivable due from Hutch
Sports USA, Inc. ("Hutch") in the amount of $570,600. The entire amount of
this note receivable is now due and in arrears. On July 28, 1997, the Company
commenced a complaint against Hutch for collection of the amount due. The
Company believes that there are no valid defenses available to Hutch
concerning this claim and expects to receive full payment.
As of June 30, 1997 the Company had cash of $111,210. Capital
expenditures for the quarter ended June 30, 1996 and 1997, including
equipment financed with capital lease obligations, were $48,900 and $142,900
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 $125,200 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
$65,200 for facilities and $58,500 for production and office equipment. The
Company also has a long-term consulting agreement with a former stockholder
that requires monthly payments of $10,300 through July 2000.
With the completion of the $4.0 million private placement, the Company
believes that the net cash received of $3.4 million, after related offering
costs, and the availability under its credit line, will provide the Company
adequate capital resources to sustain its current plan of operations for the
forseeable future. However, the Company's capital requirements in connection
with its development and marketing activities have been and will continue to
be significant. Future financings, if necessary to pursue such objectives,
may be dilutive to shareholders, or may contain restrictive covenants. There
can be no assurance that additional financing will be available to the
Company on commercially reasonable terms, or at all.
Page 11 of 14
<PAGE>
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-QSB 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.
Page 12 of 14
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any material pending legal proceedings
and, to the best of its knowledge, its properties are not the subject of any
such proceedings.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security-Holders.
None
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description
----------- ------------
3(i)(A) Certificate of Designation of Series A Convertible
Preferred Stock.
4.1 Form of Stock Purchase Warrant issued to purchasers
of units containing the Company's Series A Convertible
Preferred Stock and Stock Purchase Warrants.
10.1 Form of Registration Rights Agreement entered into
by and between the Company and purchasers of units
containing the Company's Series A Convertible
Preferred Stock and Stock Purchase Warrants.
(b) Report on Form 8-k
For the quarter ended June 30, 1996, the Company did not file any
reports on Form 8-K.
Page 13 of 14
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTRANET SOLUTIONS, INC.
(the "Registrant" or "Company")
Dated August 14, 1997 By: /s/ Robert F. Olson
-----------------------------------
Robert F. Olson
Its: Chief Executive Officer
-----------------------------------
(Principal Executive Officer)
Dated August 14, 1997 By: /s/ Jeffrey J. Sjobeck
-----------------------------------
Jeffrey J. Sjobeck
Its: Chief Financial Officer
-----------------------------------
(Principal Financial Officer)
Page 14 of 14
<PAGE>
INTRANET SOLUTIONS, INC.
CERTIFICATE OF DESIGNATION OF
SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to Section 401(3)(b) of the Business Corporation Act of the State
of Minnesota, IntraNet Solutions, Inc. (the "Company"), a corporation organized
and existing under the Business Corporation Act of the State of Minnesota, DOES
HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors of
the Company by the Articles of Incorporation of the Company, and in
accordance with the provisions of Section 401(3)(a) of the Business
Corporation Act of the State of Minnesota, the Board of Directors of the
Company as of July 10, 1997, adopted the following resolution creating a
series of preferred stock designated as Series A Convertible Preferred Stock:
RESOLVED: That pursuant to the authority vested in the Board of Directors
of the Company in accordance with the provisions of its Articles of
Incorporation, as amended, a series of preferred stock, $.01 par value, to be
titled the "Series A Convertible Preferred Stock" (the "Preferred Shares") of
the Company is hereby created and designated. The number of shares of Preferred
Shares shall be 1,000,000 shares. The voting powers, preferences and relative,
participating, optional and other special rights of the Preferred Shares, and
the qualifications, limitations and restrictions thereof, are as follows:
1. DESIGNATION. The series of preferred stock established hereby shall
be designated the "Series A Convertible Preferred Stock (and shall be referred
to herein as the "Preferred Shares") and the authorized number of Preferred
Shares shall be 1,000,000.
(a) VOTING RIGHTS.
Except as otherwise provided by law, the holders of Preferred Shares
shall have no voting rights and their consent shall not be required (except to
the extent required by law) for taking any corporate action.
(b) PREFERRED SHARES.
2. DIVIDENDS. The holders of Preferred Shares shall be entitled to
receive out of funds legally available for such purpose, quarterly cumulative
dividends paid in arrears at the rate of 5% (five percent) of the Liquidation
Value (hereinafter defined) per annum per share payable in cash, or at the
discretion of the Company, payable in Preferred Shares. The first payment shall
occur three (3) months from the date of the issuance of the Preferred Shares and
every three (3) months thereafter. If such dividends are paid in Preferred
Shares, holders of Preferred Shares shall be entitled to at least 24 (twenty-
four) hour written notice in advance to the address of such holder as it appears
in the Company's registrar. Accrued but unpaid
<PAGE>
dividends shall not bear interest. Such declared dividends shall accrue from
day to day and shall be payable before any dividends on any shares of Common
Stock shall be declared or paid or set apart for payment, and shall be
cumulative, so that if at any time dividends on the outstanding Preferred
Shares at such rate have not been paid thereon, or funds set apart for the
payment thereof, with respect to all preceding dividends periods, the amount
of such deficiency shall be fully paid, or set apart for payment, before any
distribution by way of dividend or otherwise shall be declared or paid upon,
or set apart for, the shares of Preferred Shares or any other class of shares
of the Company ranking junior to the Preferred Shares with respect to the
payment of dividends or upon liquidation, dissolution or winding up of the
Company.
In no event shall any dividend be paid or declared, other than dividends
paid solely in shares of Preferred Stock, on the Preferred Stock or any other
class of shares of the Company ranking junior to the Preferred Shares, nor shall
any distribution be made on the Common Stock or any other class of shares of the
Company ranking junior to the Preferred Shares, be purchased, redeemed or
otherwise acquired by the Company for value, unless all dividends on the
Preferred Shares for all past dividend periods and for the then current period
shall have been paid or declared and a sum sufficient for the payment thereof
set apart for payment.
In the event that the Company thereafter declares or pays any dividends
upon the Common Stock (whether payable in cash, securities or other property)
other than dividends payable solely in shares of Common Stock, the Company shall
also declare and pay to the holders of the Preferred Shares at the same time
that it declares and pays such dividends to the holders of the Common Stock, the
dividends which would have been declared and paid with respect to the Common
Stock issuable upon conversion of the Preferred Shares had all of the
outstanding Preferred Shares been converted immediately prior to the record date
for such dividend, or if no record date is fixed, the date as of which the
record holders of Common Stock entitled to such dividends are to be determined.
3. LIQUIDATION RIGHT AND PREFERENCE. In the event of the liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of Preferred Shares shall be entitled to receive in cash, out of the
assets of the Company, an amount equal to Five Dollars ($5.00) per share for
each outstanding Preferred Share, plus all accumulated but unpaid dividends
(herein "Liquidation Value"), before any payments shall be made or any assets
distributed to the holders of Common Stock or any other class of shares of the
Company ranking junior to Preferred Shares. If, upon any liquidation,
dissolution or winding up of the Company, the assets of the Company are
insufficient to pay the Liquidation Value, the holders of such Preferred Shares
shall share pro rata in any such distribution in proportion to the full amounts
to which they would otherwise be respectively entitled. Following such payment
of the holders of Preferred Shares upon such liquidation, dissolution or a
winding up of the Company, the holders of Common Stock and Preferred Shares
shall then share ratably in all the assets of the Company thereafter remaining.
For purposes of this joint distribution of assets to the holders of Common Stock
and the holders of Preferred Shares, the holder
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<PAGE>
Preferred Shares should be regarded as owning that number of Common Stock
into which the Preferred Shares would then be convertible.
4. CONVERSION RIGHTS.
(a) OPTIONAL CONVERSION. Each Preferred Share (based upon its Liquidation
Value) shall be convertible at the option of the holder thereof into Common
Stock of the Company as follows:
At any time after the earlier of (i) the date on which a registration statement
relating to the Preferred Shares has been declared effective, or (ii) the
opening of business on the ninety first (91st) day following the date of
issuance of the Preferred Shares, 25% of the Preferred Shares shall become
convertible, at the option of the holder thereof, into Common Stock upon the
terms set forth herein. Additional 25% increments of the Preferred Shares would
then become available for conversion into Common Stock upon the terms set forth
herein beginning 30, 60 and 90 days thereafter, respectively.
(b) CONVERSION PRICE AND ADJUSTMENTS. The number of shares of Common
Stock issuable in exchange for Preferred Shares upon conversion shall be
calculated by dividing the Liquidation Value by the conversion price then in
effect (the "Conversion Price"). The Conversion Price shall equal 75% of the
average closing bid price of the Company's Common Stock as reported by
Bloomberg, L.P. over the last five (5) days of trading ending on the day prior
to the Conversion Notice Date (the "Valuation Period"), provided, however, that
the Conversion Price shall not exceed $3.7125 (the "Maximum Conversion Price")
or be less than $1.00 (the "Minimum Conversion Price").
(c) CONVERSION MECHANICS. In order to exercise the conversion privilege,
a holder of Preferred Shares shall 1) notify the Company via facsimile of such
holder's intent to convert a specified portion of such shares (the "Conversion
Notice" and the date of such notice which shall be the same or later than the
date notice is given, the "Conversion Notice Date") and 2) send via overnight
courier on the Conversion Notice Date to the Company at its principal office the
certificate evidencing the Preferred Shares being converted, duly endorsed to
the Company and accompanied by written notice to the Company that the holder
elects to convert a specified portion or all of such shares. Preferred Shares
converted at the option of the Holder shall be deemed to have been converted on
the day of receipt by the Company of the certificate representing such shares
for conversion in accordance with the foregoing provisions (the "Conversion
Date"), and at such time the rights of the holder of such Preferred Shares other
than the right to receive shares of Common Stock upon conversion of the
Preferred Shares pursuant to the terms hereof, as such holder, shall cease and
such holder shall be treated for all purposes as the record holder of Common
Stock issuable upon conversion. As promptly as practicable on or after the
Conversion Date, the Company shall issue and mail or deliver to such holder a
certificate or certificates for the number of Common Stock issuable upon
conversion, computed to the nearest full shares, and
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<PAGE>
a certificate or certificates for the balance of Preferred Shares
surrendered, if any, not so converted into Common Stock.
(d) MANDATORY CONVERSION. The Company shall, at the expiration of three
(3) years from the original date of issuance of the Preferred Shares, redeem any
then outstanding Preferred Shares in an amount equal to one hundred ten percent
(110%) of the Liquidation Value, payable in shares of Common Stock valued at the
fair market value for the Common Stock during the Valuation Period, or, at the
Company's sole option, in cash. Effective upon the Closing Date of the
Company's public sale of equity securities with gross proceeds equal to or in
excess of $10,000,000, any then remaining Preferred Shares shall be deemed
converted into the Company's Common Stock in accordance with Section 4(b)
hereof. In such case, the Valuation Period shall end on such Closing Date and
the Preferred Shares shall no longer be deemed outstanding for any purpose.
(e) ACCELERATION OF CONVERSION. The Preferred Shares and any accrued but
unpaid dividends, may, at the option of the holder thereof, be converted into
Common Stock upon the filing of a registration statement with the Securities and
Exchange Commission relating to an offering of the Company's Common Stock by the
Company.
(f) CASH DIVIDEND IN EXCESS OF 10% OF MARKET CAPITALIZATION. If the
Company, at any time while any Preferred Shares are outstanding, shall pay a
cash dividend in excess of ten (10) percent of the market capitalization of the
Company's issued and outstanding Common Stock, as defined herein, the Maximum
Conversion Price will be reduced by an amount equal to the per share dividend
distributed.
5. OTHER TERMS OF SERIES A CONVERTIBLE PREFERRED SHARES
(a) CONSOLIDATION, MERGER, EXCHANGE, ETC. If any capital reorganization
or reclassification of the capital stock of the Company, or consolidation or
merger of the Company with another company, or the sale of all or substantially
all of its assets to another company, shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holders of Preferred Shares shall
thereafter have the right to receive, in lieu of Common Stock of the Company
immediately theretofore receivable upon the conversion of such Preferred Shares,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding common Stock equal to the
number of Common Stock immediately theretofore receivable upon the conversion of
such Preferred Shares had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in many such case appropriate provisions
shall be made with respect to the rights and interests of the holders of the
Preferred Shares to the end that the provisions hereof (including without
limitation provisions for adjustments of the Conversion Price and of the number
of shares receivable upon the conversion of such Preferred Shares) shall
thereafter be applicable, as nearly as may be, in
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<PAGE>
relation to any shares of stock, securities or assets thereafter receivable
upon the conversion of such Preferred Shares. The Company shall not effect
any such reorganization, reclassification, consolidation, merger or sale,
unless prior to the consummation thereof the surviving company (if other than
the Company), the company resulting from such consolidation or the company
purchasing such assets shall assume by written instrument executed and mailed
to the registered holders of the Preferred Shares at the last address of such
holders appearing on the Books of the Company, the obligation to deliver to
such holders appearing on the books of the Company, the obligations to
deliver to such holders such shares of stock, securities or assets as, in
according to the foregoing provisions, such holders may be entitled to
receive.
(b) STOCK SPLIT, STOCK DIVIDEND, RECAPITALIZATION, ETC. If the Company,
at any time while any Preferred Shares are outstanding, (a) shall pay a stock
dividend or otherwise make a distribution or distributions payable in shares of
its capital stock (whether payable in shares of its Common Stock or of capital
stock of any class), (b) subdivide outstanding shares of Common Stock into a
larger number of shares, (c) combine outstanding shares of Common Stock into a
smaller number of shares, or (d) issue by reclassification of shares of Common
Stock any shares of capital stock of the Company, the number of issued and
outstanding Preferred Shares and the Maximum, Minimum and Base Conversion Prices
designated in Subsection 4(b) shall be appropriately adjusted in proportion to
the change in the outstanding shares of Common Stock. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of shareholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If any of the
aforementioned events occurred during a Valuation Period, the Maximum and
Minimum Conversion Prices with respect to the days within such Valuation Period
occurring prior to the date of such event, shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding after such event.
(c) NOTICE OF CONVERSION PRICE ADJUSTMENT. Whenever the Conversion Prices
are adjusted, the Company shall promptly mail to each holder of Preferred
Shares, a notice setting forth the Conversion Prices after such adjustment and
setting forth a brief statement of facts requiring such adjustment.
(d) NOTICE OF CERTAIN EVENTS. This provision shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or share
exchanges. If:
i. the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
ii. the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
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<PAGE>
iii. the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
iv. the approval of any shareholders of the Company shall be required
in connection with any reclassification of the Common Stock of
the Company (other than a subdivision or combination of the
outstanding shares of Common Stock), any consolidation or merger
to which the Company is a party, any sale or transfer of all of
substantially all of the assets of the Company, or any compulsory
share exchange whereby the Common Stock is converted into other
securities, cash or property; or
v. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding-up of the affairs of the
Company;
then the Company shall mail to the holders of Preferred Shares at their last
addresses as shall appear upon the stock books of the Company, at least 10
calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined, or (y) the date of which such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding-up is expected to become effective, and the date as of which it is
expected that holders of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding-up; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.
IN WITNESS WHEREOF, IntraNet Solutions, Inc. has caused this Certificate to
be duly executed in its corporate name on this 10th day of July, 1997.
INTRANET SOLUTIONS, INC.
By: /s/ Jeffrey J. Sjobeck
--------------------------------
Its: Chief Financial Officer
-------------------------
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<PAGE>
Warrant No. W-_________________________
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE TRANSFERRED UNLESS REGISTERED
UNDER THE ACT, EXCEPT IN A TRANSACTION WHICH, IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE HOLDER HEREOF QUALIFIES AS AN EXEMPT TRANSACTION
UNDER THE 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,
________________ ________ 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 five-year period
commencing on the date hereof _________ shares of the Common Stock of the
Company at $5.18 per share (the "Warrant Exercise Price"), subject to the
antidilution provisions set forth in Section 7 hereof. 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; the term "Common
Stock" means and includes the Company's presently authorized common stock,
$.01 par value per share, and shall also include any capital stock of any
class of the Company hereafter authorized which shall not be limited to a
fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the voluntary
or involuntary liquidation, dissolution, or winding up of the Company; and
the term "Convertible Securities" means any stock or other securities
convertible into, or exchangeable for, Common Stock. All capitalized terms
not otherwise defined herein shall have the meaning ascribed to such terms in
that certain Subscription Agreement, dated ______________, 1997, by and
between the initial holder and the Company (the "Subscription Agreement") or
that certain Certificate of Designation of Series A Convertible Preferred
Stock, as the case may be, unless the context otherwise requires.
<PAGE>
This Warrant is subject to the following provisions, terms and conditions:
1. NONDETACHABLE. This Warrant was issued pursuant to the terms and
conditions of the Subscription Agreement and is nondetachable from the shares of
Series A Convertible Preferred Stock purchased in connection therewith (the
"Preferred Stock") except and only to the extent that: (i) shares of Preferred
Stock have been converted into shares of the Company's Common Stock, or (ii)
this Warrant has been exercised.
2. NUMBER OF SHARES PURCHASABLE. The Holder of this Warrant is entitled
to purchase up to _________ shares of the Company's Common Stock (the "Base
Shares").
3. 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.
(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 Sections 1 and 9 hereof.
4. EXCHANGE AND REPLACEMENT. Subject to Sections 1 and 9 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;
provided, however, that if the initial holder shall be such Holder, an agreement
of indemnity by such Holder shall be sufficient for all purposes of this
Section 4. 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 4.
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<PAGE>
5. 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 that certain
Registration Rights Agreement, of even date herewith, by and between the initial
holder and the Company. If registrations are not in effect and if exemptions
are not available when the Holder seeks to exercise the Warrant, the Warrant
exercise period will be extended, if need be, to prevent the Warrant from
expiring, until such time as either registrations become effective or exemptions
are available, and the Warrant shall then remain exercisable for a period of at
least 30 calendar days from the date the Company delivers to the Holder written
notice of the availability of such registrations or exemptions. 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.
6. 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.
7. ANTIDILUTION ADJUSTMENT. The provisions of this Warrant are subject
to adjustment as provided in this Section 7.
(a) The Warrant Exercise Price shall be adjusted from time to time
such that in case the Company shall hereafter:
(i) subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
3
<PAGE>
(ii) 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 distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made pursuant
to this Subsection, the Holder of any Warrant thereafter surrendered for
exercise shall become entitled to receive shares of two or more classes of
capital stock or shares of Common Stock and other capital stock of the Company,
the Board of Directors (whose determination shall be conclusive) shall determine
the allocation of the adjusted Warrant Exercise Price between or among shares of
such classes of capital stock or shares of Common Stock and other capital stock.
All calculations under this Subsection shall be made to the nearest cent or to
the nearest 1/100 of a share, as the case may be. In the event that at any time
as a result of an adjustment made pursuant to this Subsection, the Holder of any
Warrant thereafter surrendered for exercise shall become entitled to receive any
shares of the Company other than shares of Common Stock, thereafter the Warrant
Exercise Price of such other shares so receivable upon exercise of any Warrant
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to Common Stock
contained in this Section.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to
Section 7(a) 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.
(c) 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 (a) of this Section 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,
4
<PAGE>
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.
(d) 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.
8. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
9. NOTICE OF TRANSFER OF WARRANT OR RESALE OF THE WARRANT SHARES.
(a) The Holder, by acceptance hereof, agrees to give seven (7) days
written notice to the Company before transferring this Warrant (which transfer
is subject to the restrictions set forth in Section 1 hereof) 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 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 Securities Act of 1933,
as amended (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 9,
the proposed transfer or disposition of this Warrant or such Warrant Shares
described in the written notice given pursuant to this Section 9 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 in respect to such as, in the opinion of
such counsel, are permitted by law.
5
<PAGE>
10. FRACTIONAL SHARES. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Fair Value of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Fair Value" with respect to shares of Common Stock of any class or series means
the last reported sale price or, if none, the average of the last reported
closing bid and asked prices on any national securities exchange or listed in
the National Association of Securities Dealers, Inc.'s Automated Quotations
System (Nasdaq), or if not listed on a national securities exchange or listed in
Nasdaq, the average of the last reported closing bid and asked prices as
reported by Metro Data Company, Inc. from quotations by market makers in such
Common Stock on the Minneapolis-St. Paul local over-the-counter sales or, if not
traded on the Minneapolis-St. Paul over-the-counter market, the per share
consideration received by the Company upon the most recent issuance and sale of
its Common Stock, exclusive of issuances pursuant to the exercise or conversion
of outstanding options, common stock purchase warrants or other securities
convertible into shares of the Company's Common Stock.
IN WITNESS WHEREOF, IntraNet Solutions, Inc. has caused this Warrant to be
signed by its duly authorized officers this _______ day of __________, 1997.
INTRANET SOLUTIONS, INC.
By:
---------------------------------
Its:
------------------------------
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<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: _______________, ____ -----------------------------------
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>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into this
______ day of _________, 1997 by and between IntraNet Solutions, Inc., a
Minnesota corporation (the "Company"), and the person named on the signature
page hereto (the "Investor").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Subscription Agreement, dated as of
_____________, 1997, by and between Investor and the Company (the "Subscription
Agreement"), the Company has agreed, upon the terms and subject to the
conditions of the Subscription Agreement, to issue and sell to Investor shares
of the Company's Series A Convertible Preferred Stock (the "Shares") as defined
in that certain Certificate of Designation of Series A Convertible Preferred
Stock (the "Certificate of Designation"), convertible into shares of Common
Stock, $.01 par value (the "Conversion Shares"); and
WHEREAS, to induce Investor to execute and deliver the Subscription
Agreement, the Company has agreed to provide Investor with certain rights
relating to the registration of: (i) the Conversion Shares and (ii) the shares
of Common Stock issuable upon exercise of that certain Stock Purchase Warrant,
of even date herewith, issued by the Company to Investor (the "Warrant Shares")
under the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "Securities
Act");
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Investor hereby agree as follows:
A G R E E M E N T:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Closing Date" means the date on which Investor and the Company
execute and deliver the Subscription Agreement.
(ii) "Holder" means Investor and any transferee or assignee who agrees
to become bound by the provisions of this Agreement in accordance with Section 9
hereof.
(iii) "Register," "registered," and "registration" refer to
a registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act on such appropriate
registration form promulgated by the Commission as shall be selected by the
<PAGE>
Company and the declaration or ordering of effectiveness of such Registration
Statement by the United States Securities and Exchange Commission (the "SEC").
(iv) "Registrable Securities" means the Conversion Shares and the
Warrant Shares.
(v) "Registration Statement" means a registration statement under the
Securities Act registering securities of the Company.
(b) Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Subscription Agreement or the Certificate
of Designation, as the case may be, unless the context otherwise requires.
2. REGISTRATION.
(a) REGISTRATION. On or before the twentieth day following the Closing
Date, the Company shall prepare and file a Registration Statement on Form S-3 or
any other appropriate form available to the Company covering the offer and sale
of the Registrable Securities with the SEC pursuant to the Securities Act;
PROVIDED, HOWEVER, that the Company may elect, in its sole discretion, to
include the Registerable Securities in a Registration Statement covering the
offer and sale of other equity securities issued or issuable by the Company and
filed with the SEC pursuant to the Securities Act.
(b) REGISTRATION REQUIRED. The Company will use its best efforts to have
the Registration Statement declared effective by the SEC no later than 90 days
from the Closing Date (the "Registration Period"). For the first month
subsequent to the expiration of the Registration Period during which the
Registration Statement has not been declared effective, the Company will pay to
each Holder a cash penalty of two percent (2%) of the purchase price paid by
Investor for the Shares. For each month thereafter during which the
Registration Statement has not been declared effective, the Company will pay to
each Holder a cash penalty of three percent (3%) of the purchase price paid by
Investor for the Shares.
(c) SUSPENSION. If, following such effectiveness, either the
effectiveness of the Registration Statement is suspended or a current prospectus
meeting the requirements of Section 10 of the Act is not available for delivery
by the Holder (except during periods that the Company provides notice to the
Holder that the Registration Statement fails to state or omits a material fact
therein and the Company promptly takes steps necessary to correct such failure)
(either referred to herein as a "suspension"), the Company shall pay Holder as
liquidated damages an amount equal to two percent (2%) of the total purchase
price of the Shares then held by Holder for the first thirty (30) day period
after the date of the suspension, plus an amount equal to three percent (3%) of
the total purchase price of Shares then held by Holder for each subsequent
thirty (30) day period thereafter (pro-rated as to a period of less than thirty
(30) days).
-2-
<PAGE>
(d) PAYMENTS. Any amounts due under this Section 2 shall be paid to the
Holder by cashier's check or wire transfer in immediately available funds to
such account as shall be designated in writing by the Holder, and shall be
delivered on or before the fifth (5th) day following the end of the calendar
month in which such payment obligation arose.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall:
(a) keep the Registration Statement effective at all times until the
earlier of (1) the Registerable Securities have been disposed thereunder or (2)
eleven months from the date the Registration Statement is declared effective (or
the aggregate period of eleven months of effectiveness in the event that the
effectiveness of such Registration Statement is temporarily suspended (the
"Registration Period"). In any case, the Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) filed by
the Company shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein, (in case of a prospect in light of the circumstances in
which they were made), not misleading; PROVIDED, HOWEVER, that if at any time
Holders shall be entitled to sell all Registrable Securities held by them
pursuant to Rule 144 promulgated under the Securities Act or any other similar
rule or regulation of the SEC that may at any time permit Holders to sell
securities of the Company to the public without registration and without
imposing restrictions arising under the federal securities laws on the purchases
thereof in a period of three consecutive months, then the Company shall, so long
as it meets the current public information requirements of Rule 144, thereafter
no longer be required to maintain the registration of Registrable Securities
pursuant to this Agreement;
(b) prepare and file with the SEC such amendments (including post-
effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times through the
Registration Period, and, during such period, comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities of
the Company covered by the Registration Statement until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statement or prospectus supplement;
(c) furnish to each Holder whose Registrable Securities are included in
the Registration Statement, such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents as such Holder may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Holder;
(d) use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as Holders who hold a majority in interest
of the Registrable Securities being offered reasonably request, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and
-3-
<PAGE>
supplements, (iii) take such other actions as may be necessary to maintain
such registrations and qualifications in effect at all times through the
Registration Period and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such
jurisdictions; PROVIDED, HOWEVER, that the Company shall not be required in
connection therewith or as a condition thereto to (I) qualify to do business
in any jurisdiction where it would not otherwise be required to qualify but
for this Section 3(d), (II) subject itself to general taxation in any such
jurisdiction, (III) file a general consent to service of process in any such
jurisdiction, (IV) provide any undertakings that cause more than nominal
expense or burden to the Company or (V) make any change in its charter or
bylaws;
(e) as promptly as practicable after becoming aware of such event, notify
each Holder who holds Registrable Securities being sold pursuant to such
registration of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to each
Holder as such Holder may reasonably request;
(f) as promptly as practicable after becoming aware of such event, notify
each Holder who holds Registrable Securities being sold pursuant to such
registration (or, in the event of an underwritten offering, the managing
underwriters) of the issuance by the SEC of any stop order or other suspension
of effectiveness of the Registration Statement at the earliest possible time;
(g) permit a single firm of counsel designated as selling stockholders'
counsel by Holders who hold a majority in interest of the Registrable Securities
being sold pursuant to such registration to review the Registration Statement
and all amendments and supplements thereto a reasonable period of time prior to
their filing with the SEC, and shall not file any document in a form to which
such counsel reasonably objects;
(h) provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) cooperate with Holders who hold Registrable Securities being sold to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Registrable Securities to be sold pursuant to
the denominations or amounts as the case may be, and registered in such names as
Holders may reasonably request; and
(j) take all other reasonable actions necessary to expedite and facilitate
disposition by Holders of the Registrable Securities pursuant to the
Registration Statement;
-4-
<PAGE>
4. OBLIGATIONS OF HOLDERS. In connection with the registration of the
Registrable Securities, Holders shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Agreement with respect to each Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of the
Registrable Securities held by it as shall be reasonably required to effect the
registration of the Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. At
least ten (10) business days prior to the first anticipated filing date of the
Registration Statement, the Company may notify each Holder of the information
the Company requires from each such Holder (the "Requested Information");
(b) Each Holder by such Holder's acceptance of the Registrable Securities
agrees to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of the Registration Statement
hereunder;
(c) Each Holder agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(f) such Holder
will immediately discontinue disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities until such
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(f) and, if so directed by the Company, such Holder
shall deliver to the Company (at the expense of the Company) or destroy (and
deliver to the Company a certificate of destruction) all copies in such Holder's
possession, of the prospectus covering such Registrable Securities current at
the time of receipt of such notice.
5. EXPENSES OF REGISTRATION. All expenses (other than fees and expenses
of investment bankers and other than brokerage commissions) incurred in
connection with registrations, filings or qualifications pursuant to Section 3,
including, without limitation, all registration, listing and qualifications
fees, printers and accounting fees and the fees and disbursements of counsel for
the Company, shall be borne by the Company; PROVIDED, HOWEVER, that Holders
shall bear the fees and out-of-pocket expenses of its legal counsel and
accountants and agents selected by it.
6. INDEMNIFICATION. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder who holds such Registrable Securities, the directors, if
any, of such Holder, the officers, if any, of such Holder, each person, if any,
who controls any Holder within the meaning of the Securities Act or the Exchange
Act, (each, an "Indemnified Person"), against any losses, claims, damages,
expenses or liabilities (joint or several) (collectively "Claims") to which any
of them become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations in the Registration Statement, or
any
-5-
<PAGE>
post-effective amendment thereof, or any prospectus included therein: (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act or any state securities law or any rule or regulation (the
matters in the foregoing clauses (i) through (iv) being, collectively,
"Violations"). Subject to the restrictions set forth in Section 6 (d) with
respect to the number of legal counsel, the Company shall reimburse Holders
promptly as such expenses are incurred and are due and payable, for any legal
fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a) (I) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(c) hereof; (II) with respect to
any preliminary prospectus, shall not inure to the benefit of any such person
from whom the person asserting any such Claim purchased the Registrable
Securities that are the subject thereof (or to the benefit of any person
controlling such person) if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected in the prospectus, as then
amended or supplemented, if such prospectus was timely made available by the
Company pursuant to Section 3(c) hereof; and (III) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Persons and shall survive
the transfer of the Registrable Securities by Holders pursuant to Section 9.
(b) In connection with any Registration Statement in which an Holder is
participating, each such Holder agrees to indemnify and hold harmless, to the
same extent and in the same manner set forth in Section 6(a), the Company, each
of its directors, each of its officers who signs the Registration Statement,
each person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act, and any other stockholder selling securities
pursuant to the Registration Statement or any of its directors or officers or
any person who controls such stockholder within the meaning of the Securities
Act or the Exchange Act (collectively and together with an Indemnified Person,
an "Indemnified Party"), against any Claim to which any of them may become
subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such Claim arises out of or is based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by such Holder
expressly for use in connection with such Registration Statement; and such
Holder will
-6-
<PAGE>
promptly reimburse any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such Claim; PROVIDED, HOWEVER,
that the indemnity agreement contained in this Section 6(b) shall not apply
to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Holder, which consent shall not be
unreasonably withheld; PROVIDED FURTHER, HOWEVER, that Holder shall be liable
under this Section 6(b) for only that amount of a Claim as does not exceed
the net proceeds to such Holder as a result of the sale of Registrable
Securities pursuant to such Registration Statement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by Holders pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any preliminary prospectus
shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary
prospectus was corrected on a timely basis in the prospectus, as then amended
or supplemented.
(c) The Company shall be entitled to receive indemnities from selling
brokers, dealer managers and similar securities industry professionals
participating in any distribution, to the same extent as provided above, with
respect to information such persons so furnished in writing by such persons
expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and this indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying parties;
PROVIDED, HOWEVER, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel, with the fees and expenses to be paid by
the indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and other party represented by such counsel in such
proceeding. The Company shall pay for only one separate legal counsel for
Holders; such legal counsel shall be selected by Holders holding a majority in
interest of the Registrable Securities. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action. The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.
7. CONTRIBUTION. To the extent any indemnification provided for herein
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any
-7-
<PAGE>
amounts for which it would otherwise be liable under Section 6 to the fullest
extent permitted by law; PROVIDED, HOWEVER, that (a) no contribution shall be
made under circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 6, (b) no
seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any seller of Registrable Securities who was not guilty
of such fraudulent misrepresentation and (c) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to
Holders the benefits of Rule 144 or any other similar rule or regulation of the
SEC that may at any time permit Holders to sell securities of the Company to the
public without registration, until such time as Holders have sold all the
Registrable Securities pursuant to a Registration Statement or Rule 144, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC all reports and other documents required of the
Company under the Securities Act and the Exchange Act; and
(c) furnish to each Holder so long as such Holder owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit Holders to
sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by Holders to transferees or assignees of all or any
portion of such securities only if: (a) the Company is, within a reasonable time
after such transfer or assignment, furnished with written notice of (i) the name
and address of such transferee or assignee and (ii) the securities with respect
to which such registration rights are being transferred or assigned, (b)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, (c) at or before the time the Company
received the written notice contemplated by clause (a) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, and (d) such transfers of Registered Securities
complies with the Subscription Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Holders who hold a
-8-
<PAGE>
majority in interest of the Registrable Securities. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each Holder
and the Company.
11. ISSUANCE OF CONVERSION SHARES. The Company agrees to issue and
deliver to the proper Holder certificates representing the Conversion Shares
within four business days from the date the Company receives such Holder's
request for conversion (the "Conversion Period"). For each day subsequent to
the expiration of the Conversion Period the certificates have not been so issued
and delivered, the Company shall pay to the Holder a cash penalty of one percent
(1%) of the purchase price paid by Investor for the Shares.
12. COMPANY STANDOFF. Except in a business combination, or under
existing employee stock incentive or purchase plans, the Company shall not for
its own account effect any public sale or distribution of any securities similar
to the Registrable Securities or any securities exercisable for or convertible
or changeable into the Registrable Securities during the thirty (30) days prior
to, and during the thirty (30) days immediately following, the effective date of
any registration statement filed pursuant to this Agreement; PROVIDED, HOWEVER,
that the Company may effect such public sale or distribution during the
thirty(30) days immediately following the effective date of such registration
statement if such sale or distribution of securities is at a price equal to or
greater than 130% of the last trade price of the Company's Common Stock on the
day of Closing.
13. RIGHT OF FIRST REFUSAL AND MOST-FAVORED-NATIONAL CLAUSE. If at any
time before the end of the thirty (30) day period following the effective date
of a registration statement filed pursuant to this Agreement the Company
proposes to issue Common Stock or securities convertible into or exercisable for
Common Stock or other convertible securities, pursuant to an offering exempt
from registration under the Act, the Company shall provide to Holder reasonable
advance notice of all the terms of such proposed issuance. The Holder shall
have the right to purchase or refuse to purchase all or any part of such
securities proposed to be issued in such offering, and shall have at least
seventy-two (72) hours after receipt of such notice to review the terms of the
proposed issuance.
If the Company issues Common Stock or securities convertible into or
exercisable for Common Stock or other convertible securities at a time when any
of the Shares remain outstanding at an effective price per share of Common Stock
which is lower than the conversion price of the Shares at that time, then the
Company shall issue to each Holder upon conversion an additional number of
shares of Common Stock necessary to reduce the effective conversion price to
such lower issue price. This Section shall not be applicable to issuances of
Common Stock, or options granted at market price, pursuant to any shareholder-
approved plan.
14. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same
-9-
<PAGE>
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered,
sent via facsimile or via overnight courier, or when sent by registered mail,
return receipt requested, addressed (i) if to the Company, at IntraNet
Solutions, Inc., 9625 West 76th Street, Suite 150, Minneapolis, Minnesota 55344,
Attention: Jeffrey J. Sjobeck, Chief Financial Officer (ii) if to Holder, at the
address set forth under its name in the Subscription Agreement and (iii) if to
any other Holder, at such address as such Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 11(b), and shall be effective, when
personally delivered, upon receipt, and when so sent by certified mail, four
business days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of Minnesota applicable to the agreements
made and to be performed entirely within such state, without giving effect to
rules governing the conflict of laws. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
(e) Any Holder of Shares shall be entitled to recover from the Company
reasonable attorneys' fees and expenses incurred by such Holder in connection
with enforcement by such Holder of any obligation of the Company hereunder.
(f) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(g) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(h) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require .
-10-
<PAGE>
(i) The headings in the Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
(j) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
INTRANET SOLUTIONS, INC.
By:
-----------------------------------------
Its:
-----------------------------------------
INVESTOR:
-------------------------------------
By:
-----------------------------------------
Its:
-----------------------------------------
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 111,210
<SECURITIES> 0
<RECEIVABLES> 5,176,846
<ALLOWANCES> 0
<INVENTORY> 441,656
<CURRENT-ASSETS> 6,296,063
<PP&E> 3,653,056
<DEPRECIATION> 1,128,496
<TOTAL-ASSETS> 9,640,042
<CURRENT-LIABILITIES> 8,990,745
<BONDS> 0
0
0
<COMMON> 76,064
<OTHER-SE> (732,110)
<TOTAL-LIABILITY-AND-EQUITY> 9,640,042
<SALES> 5,773,524
<TOTAL-REVENUES> 5,773,524
<CGS> 4,421,525
<TOTAL-COSTS> 4,421,525
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