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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION JUNE 18, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTRANET SOLUTIONS, INC.
(Exact name of registrant as specified in charter)
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<S> <C> <C>
MINNESOTA 7373 41-1652566
(State or other jurisdiction (Primary Standard Industrial (I.R.S. employer
of incorporation or organization) Classification Code Number) identification number)
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9625 WEST 76TH STREET, SUITE 150
MINNEAPOLIS, MINNESOTA 55344
(612) 903-2000
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
COPY TO:
PHILIP J. TILTON, ESQ.
MR. ROBERT F. OLSON MASLON EDELMAN BORMAN & BRAND, LLP
INTRANET SOLUTIONS, INC. 3300 NORWEST CENTER
9625 WEST 76TH STREET, SUITE 150 MINNEAPOLIS, MINNESOTA 55402-4140
MINNEAPOLIS, MINNESOTA 55344 (612) 672-8200
(612) 903-2000
APPROXIMATE DATE OF THE COMMENCEMENT OF PROPOSED DISTRIBUTION: From time to time
after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE PRICE(3) REGISTRATION FEE
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common stock, par value
$.01 per share 1,611,000(1) $ 4.625 $ 7,450,875.00 $ 2,525.72
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common stock, par value
$.01 per share 334,900(2) $ 4.625 $ 1,548,912.50 $ 525.06
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(1) Represents the maximum of 1,611,000 shares of common stock issuable upon the
conversion of Series B Convertible Preferred Stock (the "Preferred Stock") at
variable conversion prices. Pursuant to Rule 416 of the Securities Act of 1933,
as amended (the "Securities Act") there are also registered hereby an
indeterminate number of shares of Common Stock that may become issuable by
reason of anti-dilution provisions contained in the certificate of designation
governing the Preferred Stock.
(2) Represents shares of common stock issuable upon the exercise of outstanding
warrants.
(3) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 of the Securities Act based upon a $4.625 per share
average of high and low sales prices of the common stock on the Nasdaq SmallCap
Market on June 15, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
SUBJECT TO COMPLETION, DATED JUNE 18, 1998
PROSPECTUS
INTRANET SOLUTIONS, INC.
1,945,900 SHARES OF COMMON STOCK
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All of the shares of common stock of IntraNet Solutions, Inc. (the
"Company") offered hereby are issuable upon conversion of Series B Convertible
Preferred Stock (the "Preferred Stock") and upon exercise of warrants (the
"Warrants") to purchase up to 334,900 shares of the Company's common stock (the
"Common Stock") are being sold by certain shareholders of the Company (the
"Selling Shareholders"). This Prospectus also relates, pursuant to Rule 416 of
the Securities Act, to the offer and resale by Selling Shareholders of an
indeterminate number of shares of Common Stock that may become issuable by
reason of anti-dilution provisions contained in the certificate of designation
governing the Preferred Stock. Each share of Preferred Stock is convertible into
shares of the Company's Common Stock, at a conversion rate equal to the quotient
derived by dividing (A) the sum of (i) the stated value of $10,000 and (ii)
accrued but unpaid dividends by (B) the lower of (i) $7.56 or (ii) 84 percent of
the average closing bid price of the Common Stock for the five day period ending
on the date of conversion. Preferred Stock not converted three years after the
date of issuance will be automatically converted into shares of Common Stock,
subject to an aggregate conversion limit of 1,611,000 shares. The Company will
not receive any of the proceeds for the sale of shares by the Selling
Shareholders.
The Common Stock is listed on the Nasdaq SmallCap Market under the
symbol "INRS." On June 17, 1998, the last sale price for the Common Stock as
reported on the Nasdaq SmallCap Market was $5.00.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DESCRIPTION OF CERTAIN
FACTORS WHICH SHOULD BE CONSIDERED BY INVESTORS BEFORE PURCHASING THE SECURITIES
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is June 18, 1998.
ADDITIONAL INFORMATION
This Prospectus is part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") which the Company has filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act relating to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
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further information, reference is made to the Registration Statement. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to herein are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information statements
and other information as well as the Registration Statement and Exhibits of
which this Prospectus is a part filed by the Company may be inspected and copied
at the public reference facilities of the Commission, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549, as well as at the following
Regional Offices: 7 World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street--Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Commission by mail at prescribed rates.
Requests should be directed to the Commission's Public Reference Section, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549. Material
filed by the Company can also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street N.W., Washington, D.C.
20006. The Company is an electronic filer with the Commission pursuant to and
within the meaning of, Rules 101 and 901 of Regulation S-T. The Commission
maintains a site on the World Wide Web that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's site is :
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference and made a part hereof:
(i) the Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1997.
(ii) the Company's Quarterly Report on Form 10-QSB for the three-month
period ended June 30, 1997;
(iii) the Company's definitive proxy statement dated July 22, 1997;
(iv) the Company's Quarterly Report on Form 10-QSB for the three-month
period ended September 30, 1997;
(v) the Company's Quarterly Report on Form 10-QSB for the three-month
period ended December 31, 1997; and
(vi) the Company's Current Report on Form 8-K dated March 12, 1998; and
(vii) the description of the Company's Common Stock included in its
Registration Statement on Form SB-2 (Registration No. 333-14175) under the
caption "Description of Securities."
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act, subsequent to the date of this
Prospectus and prior to the termination of the offering described herein, shall
be deemed to be incorporated by reference in this Prospectus from the respective
dates those documents are filed. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this
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Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus has been delivered, on the written or oral request of such
person, a copy of any or all of the documents referred to above which have been,
or may be, incorporated in this Prospectus by reference, other than exhibits to
such documents. Request for such copies should be directed to Mr. Jeffrey
Sjobeck, IntraNet Solutions, Inc., 9625 West 76th Street, Suite 150,
Minneapolis, Minnesota 55344.
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RISK FACTORS
Each prospective investor should carefully consider the following
factors, among others, prior to purchasing any of the securities offered hereby.
History of Operating Losses and Accumulated Deficit; Anticipated Future
Losses; Limited Operating History. The Company incurred a loss attributable to
common shareholders of $4,046,473 for the nine month period ended December 31,
1997 and a net loss of $3,748,464 for the year ended March 31, 1997. The Company
had an accumulated deficit of $7,791,306 at December 31, 1997, and the report
issued by the Company's independent accountants on the Company's financial
statements as of and for the year ended March 31, 1997 contains an explanatory
paragraph relating to the Company's ability to continue as a going concern. The
Company intends to continue to make expenditures related to new product
introductions, marketing, research and development, and administrative
infrastructure over the near term.
The likelihood of the Company's success must be considered in light of
the problems, expenses, difficulties, complications and delays frequently
encountered in connection with the establishment of any business. There is no
assurance that the Company can operate profitably or that it will successfully
implement its expansion plans. Additionally, the Company has only a limited
operating history upon which to base an evaluation of its current principal
business and prospects. Operating results for future periods are subject to
numerous uncertainties, and there can be no assurance that the Company will
achieve or sustain profitability on an annual or quarterly basis. The Company's
prospects must be considered in light of the risks encountered by businesses in
the early stage of development, particularly businesses in new and rapidly
evolving markets. Future operating results will depend upon many factors,
including the demand for the Company's products, the level of product and price
competition, the ability of the Company to develop and market new products and
product enhancements, the growth of activity on the Internet, the World Wide Web
and private intranet networks, the success of the Company in attracting and
retaining motivated and qualified personnel, the ability of the Company to
control its costs and general economic conditions. There can be no assurance
that the Company will be successful in addressing such risks.
Significant Capital Requirements; Need for Additional Financing. The
Company's capital requirements in connection with its development and marketing
activities have been and will continue to be significant. The Company has been
dependent upon the proceeds from sales of its securities, as well as various
private loans, to fund its development and marketing activities. There can be no
assurance that such additional funding will be available on terms attractive to
the Company, or at all. Any additional equity financings may be dilutive to
shareholders, and additional debt financing, if available, may involve
restrictive covenants. Collaborative arrangements may require the Company to
relinquish rights to certain of its technologies, products or marketing
territories. In the event that the proceeds of the offering and cash flow prove
to be insufficient to fund operations (due to a change in the Company's plans or
a change or inaccuracy in its assumptions or as a result of unanticipated
expenses, technical difficulties, problems or otherwise), the Company would be
required to seek additional financing sooner than currently anticipated. The
Company has no current arrangement with respect to, or sources of, additional
financing. The inability to obtain additional financing when needed, would have
a material adverse effect on the Company.
Uncertainty of Future Operating Results; Fluctuations in Future
Operating Results. Prior growth rates in the Company's revenue and operating
results are not necessarily indicative of future growth, if any, or of future
operating results. The Company's future operating results may vary substantially
from quarter to quarter and will depend on many factors, including the level of
sales of its proprietary software products, and continued expansion of the
market for corporate intranets. At its current stage of operations, the
Company's quarterly revenues and results of operations may be
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materially affected by the timing of the development, introduction and market
acceptance of the Company's and its competitors' products. Product development
and marketing costs are often incurred in periods before any revenues are
recognized from the sales of products. Operating expenses are higher during
periods in which such product development costs are incurred and marketing
efforts are commenced. In addition, the timing of the Company's receipt of
significant contracts could add to quarter to quarter variation in operating
results. Due to these and other factors, including the general economy, stock
market conditions and announcements by the Company or its competitors, the
market price of the securities offered hereby may be highly volatile.
Intense Competition. The markets for business application software and
computer software generally are intensely competitive. The Company faces
competition from a variety of software vendors, most of whom have substantially
greater financial, technical and marketing resources than the Company, and many
of the Company's competitors currently marketing products in the document
management market are more established than the Company and have the benefits of
pre-existing relationships with potential customers and greater name recognition
than the Company. The Company also faces indirect competition from other systems
integrators and value added resellers. The Company's competitors could introduce
products with more features and lower prices than the Company's products, or
which render the Company's products obsolete. These companies could also bundle
existing or new products with other more established products in order to
compete with the Company. Although the Company believes its product features and
pricing enable it to compete effectively with respect to such factors, there can
be no assurance that the Company will have the financial resources, technical
expertise or marketing, distribution or support capabilities to compete
successfully in the future.
Emerging Markets; Dependence Upon Continued Market Expansion. The
continued expansion of the Company's business is generally dependent on the
continued expansion of the markets for which its products were developed, and
specifically dependent upon the continued growth of activity on the Internet,
the Web and private intranet networks. The intranet market is a relatively new
market and is intensely competitive, highly fragmented and subject to change. As
such, the Company's success will continue to be dependent upon a continuation of
the trend toward network-based computing environments and the continued
willingness of large businesses to reengineer the processes they employ to
create, store, manage and distribute data. Any factors which have an adverse
impact on the continued expansion of these markets generally could have a
material adverse impact on the Company.
Management of Rapid Growth. The Company has experienced rapid growth in
revenues, personnel, research and development activities and the general
expansion of its business. In addition, the Company's markets have evolved and
continue to evolve at a rapid pace. The Company believes that continued growth
in the number and breadth of its product lines and services and in its personnel
will be required to maintain its competitive position. The Company's growth,
coupled with the rapid evolution of its markets, has placed and will continue to
place significant strains on its administrative operations and financial
resources and will increase the demands placed on its internal systems,
procedures and controls. The Company's ability to support, manage and control
its continued growth is also dependent upon, among other things, its ability to
train, supervise and manage increased personnel. There can be no assurance that
the Company's personnel, procedures, staff, internal controls or systems will be
adequate to support such growth or that management will be able to achieve the
rapid, effective execution of the product and business initiatives necessary to
successfully penetrate the markets for the Company's products and services. If
the Company is unable to manage future growth effectively, the Company's
business, operating results and financial condition will be materially adversely
affected.
Dependence on Narrow Product Line; Technology Risks; Risk of Market
Acceptance. To date, the Company has marketed a limited line of its proprietary
software products. The Company's future
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success will depend, to a large extent, on its ability to increase sales from
existing products and derive sales from new products. There can be no assurance
that the Company will be able to further penetrate the market with its existing
products or introduce and gain acceptance of its new products. The market for
Internet software products is highly competitive and characterized by rapid
innovation and technological change. The Company's products were specifically
designed to meet the needs of the document management market, but other
companies have also introduced or announced the development of products designed
to address the same markets as the Company's products. In addition,
technological advances that would make the Company's products less attractive to
current and potential customers could adversely impact the business of the
Company. The Company's plans with respect to the development of new products are
subject to the risks inherent in the development and marketing of complex
software products, including the risks that the release of the product may be
delayed, errors may be found in the product after its release despite extensive
testing, and discovered errors may not be corrected in a timely manner. Further,
the commercial success of the Company's products will depend on the willingness
of potential customers to perform and accept the use of the Company's products
to create, manage and distribute unstructured business-critical data.
Dependence on Development of New Products. The Company's future success
is dependent upon its continued introduction of new software products and its
ability to develop enhancements and upgrades to its existing product line. The
Company devotes significant resources to research and development and believes
it will have sufficient resources to support its research and development
efforts; however, the development of new, technologically advanced products is a
complex and uncertain process requiring high levels of innovation, as well as
the accurate anticipation of technological and market trends. Delays in the
introduction or shipment of new or enhanced products, the inability of such
products to gain market acceptance or problems associated with new or enhanced
products could adversely affect the Company's operating results. The market for
the Company's products is characterized by rapidly changing technology, frequent
new product introductions and product enhancement and evolving industry
standards. The introduction or enhancement of products embodying new technology
or the emergence of new industry standards could render the Company's current
products, or any other products the Company may develop in the future, obsolete
and unmarketable. The Company's ability to anticipate changes in technology,
products and industry standards and to successfully develop and introduce new
and enhanced products on a timely basis will be a significant factor in the
Company's ability to grow and remain competitive. There can be no assurance that
the Company will be successful in introducing new products to respond to
emerging industry trends, and there can be no assurance that the level of
research and development expenses necessary for the Company to remain
competitive will be as currently anticipated or that the Company's revenues will
be sufficient to cover its research and development costs.
Dependence Upon Proprietary Technology; Risk of Infringement. The
Company's success is heavily dependent upon proprietary technology. The Company
has no patents or pending patent applications. In the absence of significant
patent or copyright protection, the Company may be vulnerable to competitors who
attempt to develop functionally equivalent products. Although the Company
believes that it has all rights necessary to market its products without
infringing upon any patents, copyrights or trademarks held by others, there can
be no assurance that conflicting patent, copyright or trademark rights do not
exist. There can be no assurance that third parties will not claim infringement
by the Company with respect to its current or future products. The Company
expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company or at all, which would have a material adverse effect upon the
Company's business, operating results and financial condition. The Company
relies upon
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trade secret protection, confidentiality procedures and contractual provisions
to protect its proprietary information. There can be no assurance that others
will not independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to the Company's trade secrets or
disclose such technology, or that the Company can meaningfully protect its trade
secrets. The Company has applied for trademark registration for the following
marks: Intra.doc!(TM) , INTRANET SOLUTIONS, DOCUMENT REFINERY, WEB REFINERY, and
WEB VAULT. There can be no assurance that any trademarks which have been applied
for but are not yet issued will be issued. In the absence of trademark
protection, the Company may be unable to take advantage of the brand name
recognition it is attempting to build. Further, even if all trademarks applied
for are issued, there can be no assurance that such trademarks will prove
valuable to the Company.
Dependence Upon Key Vendor Relationships. The Company is materially
dependent on Sun Microsystems, Inc. for the supply of hardware products sold as
part of its systems. Any disruption in the relationship between the Company and
Sun Microsystems, Inc. would have an immediate and material adverse impact on
the Company. Although the Company believes that secondary sources are currently
available for similar hardware products, there can be no assurance that suitable
alternative vendor relationships could be established in a timely manner, if at
all. The Company purchased approximately 54%, 68% and 67% of its total product
resale requirements from Sun Microsystems, Inc. in each of the fiscal years
ended 1995, 1996 and 1997, respectively.
Dependence on Key Personnel; Need for Additional Employees. The Company
is currently greatly dependent on the personal knowledge and experience of
Messrs. Olson and Sjobeck. The Company believes that its senior management team
has knowledge which, due to the Company's relatively small size, is personal to
such individuals and has not been institutionalized. As such, the loss of any of
these key personnel could be detrimental to the Company. There can be no
assurance that the loss of the services of Mr. Olson or any of its executive
officers or other key employees would not have a material adverse effect on the
Company. To avoid the negative impact which the loss of a senior manager could
have on the Company, as well as to achieve its business plan, the Company must
hire additional employees at various operational levels. The future development
and success of the Company will depend in part upon its ability to attract and
retain additional personnel with the highly specialized expertise necessary to
provide, engineer, design and support the integration of such products and
services. There can be no assurance that the Company will be able to attract or
retain such personnel or that the hiring and retention of such personnel will
result in the institutionalization of vital information.
Product Defects and Product Liability. The Company's software products
are complex and sophisticated and could from time to time contain design defects
or software errors that could be difficult to detect and correct. Errors, bugs
or viruses may result in the loss of or the delay in market acceptance or the
loss of customer data. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims; however, it is possible that the limitation
of liability provisions contained in the Company's license agreements may not be
effective under the laws of certain jurisdictions. Although the Company has not
experienced any material adverse effect resulting from any software defects or
errors, there can be no assurance that despite testing by the Company and its
customers, errors will not be found in new products which could result in a
delay or an inability to achieve market acceptance and thus could have a
material adverse impact upon the Company's business, operating results or
financial condition.
Former Shareholder Lien. On July 31, 1995, Technical Publishing
Solutions, Inc., a predecessor in interest to the Company ("TPSI") redeemed 50
percent of the outstanding shares of its common stock from a former shareholder
and director for an aggregate redemption price of $200,000. TPSI paid $150,000
of the purchase price in cash and delivered a the balance of the redemption
price in the form of a promissory note with a face amount of $50,000. The note
requires annual principal
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payments of approximately $10,000 and matures in August 2000. TPSI and the
former shareholder also entered into consulting and non-competition agreements
pursuant to which the Company is obligated to make payments of $10,000 per month
through August 2000. To secure the purchase price of the redeemed shares and
TPSI's monetary obligations under the aforementioned agreements, TPSI granted
the former shareholder a security interest in the redeemed shares. As a result
of the 1996 merger of TPSI with and into the Company, the Company succeeded to
the obligations of TPSI under these agreements. In the event the Company fails
to satisfy its monetary obligations under these agreements, the former
shareholder may be able to assert a claim of ownership interest in the Company.
If the former shareholder is successful in this regard, the value of the shares
of Common Stock may be reduced substantially.
Control by Founder. Mr. Robert F. Olson, the Company's President and
Chief Executive Officer, holds approximately 47 percent of the Company's
outstanding Common Stock and will hold approximately 44 percent of the Company's
outstanding Common Stock, upon the conversion of all shares of Preferred Stock
into an aggregate of 571,428 shares of Common Stock (based on an assumed
five-day average closing bid price of the Company's Common Stock of $6.25), and
without giving effect to the exercisability of the Warrants. As such, Mr. Olson
is able to exercise control over the business policies and affairs of the
Company. Additionally, directors, executive officers and principal shareholders
of the Company, and certain of their affiliates, will beneficially own
approximately 48 percent of the Company's outstanding Common Stock upon the
conversion of all shares of Preferred Stock on the basis described above.
Accordingly, these persons, individually and as a group, effectively control the
Company and can direct its affairs and business, including all determinations
with respect to the acquisition or disposition of assets by the Company, future
issuances of Common Stock or other securities by the Company, and any dividend
payable on the Common Stock. Such concentration of ownership may also have the
effect of delaying, deferring or preventing a change in control of the Company.
Effects of Delisting from Nasdaq SmallCap Market; Lack of Liquidity of
Low Priced Stocks. If the Company fails to maintain the qualification for its
Common Stock to trade on the Nasdaq SmallCap Market, its securities could be
subject to delisting. The Nasdaq Stock Market recently implemented increases in
the quantitative standards for maintenance of listings on the Nasdaq SmallCap
Market. The new standards for continued listing on the Nasdaq SmallCap Market
include maintenance of any of (i) $2,000,000 of net tangible assets, (ii)
$35,000,000 of market capitalization or (iii) $500,000 of net income for two of
the last three years. In the event that the Common Stock is delisted from the
Nasdaq SmallCap Market, trading, if any, in the Common Stock would thereafter be
conducted in the over-the-counter markets in the so-called "pink sheets" or the
National Association of Securities Dealer's "Electronic Bulletin Board."
Consequently, the liquidity of the Company's Common Stock would likely be
impaired, not only in the number of shares which could be bought and sold, but
also through delays in the timing of the transactions, reduction in security
analysts' and the news media's coverage if any, of the Company and lower prices
for the Company's securities than might otherwise prevail.
In addition, if the Company's securities were to become delisted from
trading on the Nasdaq SmallCap Market and the trading price of such securities
were to fall below $5.00 per share, trading in such securities would also be
subject to the requirements of certain rules promulgated under the Exchange Act,
which require additional disclosure by broker-dealers in connection with any
trades involving a stock defined as a penny stock (generally, any non-Nasdaq
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions). Such rules require the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stock to persons other than established customers
and accredited investors (generally institutions). For these types of
transactions, the broker-dealer must make a special suitability determination
for the
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purchase and have received the purchaser's written consent to the transaction
prior to the sale. The additional burdens imposed upon broker-dealers by such
requirements may discourage broker-dealers from effecting transactions in the
Common Stock which could severely limit the market liquidity of such Common
Stock and the ability of purchasers in this offering to sell their shares of
Common Stock in the secondary market.
Demand and Incidental Registration Rights. Certain shareholders and
warrant holders of the Company, including Robert F. Olson, have the right,
subject to certain conditions, to participate in future registrations of the
Company's equity securities or to demand that the Company register up to
approximately 4.3 million shares of Common Stock owned by them as of the date of
this Prospectus. Pursuant to these registration rights, if the Company proposes
to register any of its Common Stock, other than in certain specified instances,
either on its own behalf or for the account of others, such holders are entitled
to notice of such proposed registration and must be given the opportunity to
participate therein. These demand and incidental registration rights are subject
to certain terms and limitations. All such holders have waived their
registration rights with respect to this offering.
Absence of Dividends. The Company has never paid cash dividends on its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. Moreover, the Company is prohibited from paying any cash dividends under
the terms of its existing credit agreement.
Shares Eligible for Future Sale. Assuming the conversion of all shares
of Preferred Stock into an aggregate of 571,428 shares of Common Stock (based on
a hypothetical five-day average closing bid price of the Company's Common Stock
of $6.25) but without giving effect to the exercise of Warrants, approximately
9,218,000 shares of Common Stock will be outstanding. Of the shares outstanding
after this offering, approximately 4.9 million shares of Common Stock will be
freely tradable by persons who are not affiliates of the Company and 4.2 million
shares will be eligible for public sale under Rule 144, subject in certain cases
to volume and manner of sale limitations. The Company is obligated to issue
approximately 1.4 million shares of Common Stock in the event that currently
outstanding warrants are exercised all of which will be freely tradable without
restriction except for volume restrictions on sales by affiliates pursuant to
Rule 144. The Company may issue up to an additional 2.3 million shares of Common
Stock under its employee stock option plan. The Company may issue additional
options, warrants, or equity securities in the future. The sale, or availability
for sale, of substantial amounts of Common Stock in the public market subsequent
to this offering, or the perception that such sales could occur, could adversely
affect the prevailing market price of the Common Stock and could impair the
Company's ability to raise additional capital through the sale of its equity
securities.
Volatility of Stock Price. The market prices of the Company's
securities have experienced and may continue to experience substantial
volatility. The securities markets have from time to time experienced
significant price and volume fluctuations that may be unrelated to the operating
performance of particular companies. The market prices of the common stock of
many publicly traded technology companies have in the past been, and in the
future are expected to be, especially volatile. Announcements of technological
innovations or new products by the Company or its competitors, developments or
disputes concerning patents or proprietary rights, and economic and other
external factors, as well as period-to-period fluctuations in the Company's
financial results, may have a significant impact on the market price of the
Common Stock.
Possible Issuances of Preferred Stock; Anti-Takeover Effect of
Minnesota Law. Pursuant to the Company's Articles of Incorporation, the
Company's shareholders do not have the right to cumulative voting in the
election of directors. In addition, the Board of Directors has authority to fix
the rights, preferences, privileges and restrictions, including voting rights,
of unissued shares of the Company's capital stock and to issue such stock
without any further vote or action by the shareholders. The rights
9
<PAGE> 11
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be created and
issued in the future. The issuance of preferred stock could have the effect of
delaying, deferring or preventing a change in control of the Company. In
addition, certain provisions of Minnesota law applicable to the Company could
have the effect of discouraging certain attempts to acquire the Company, which
could deprive the Company's shareholders of opportunities to sell their shares
of Common Stock at prices higher than prevailing market prices and may also have
a depressive effect on the market price of the Company's Common Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Common
Stock by the Selling Shareholders.
10
<PAGE> 12
SELLING SHAREHOLDERS
The following table sets forth the number of shares of the Common Stock
owned by each Selling Shareholder as of the date hereof and after giving effect
to this offering. All Selling Shareholders have represented to the Company that
they are "accredited investors" as that term is defined in Regulation D
promulgated under the Securities Act of 1933. The Company will not receive any
proceeds from the sale of the Common Stock by the Selling Shareholders.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Owned(1) Shares to Beneficially Owned
Prior to the Offering be Sold After the Offering
--------------------- in the ------------------
Name of Beneficial Owner Number Percentage Offering Number Percentage
- ------------------------ ------ ---------- -------- ------ ----------
<S> <C> <C> <C> <C> <C>
Stark International 805,500(2) 8.5 805,500 --- ---
Shepherd Investments International, Ltd. 805,500(2) 8.5 805,500 --- ---
Bruce Reichert, Trustee 84,619(3) * 84,619 --- ---
Bruce Reichert 26,000(4) * 25,000 1,000 ---
Wyncrest Capital, Inc. 287,445(5) 3.3 42,072 245,371 2.3
David Koentopf 58,263(6) * 1,034 57,299 *
Wayne Mills 281,966(7) 3.1 105,956 176,100 1.7
James Sippl 102,984(8) 1.2 36,250 66,734 *
Boston Financial Partners 50,000(9) * 23,621 --- ---
Edward Wallick 14,335(10) * 3,335 11,000 *
Joseph Buska 8,040(11) * 940 7,100 *
John Feltl 9,405(12) * 9,405 --- ---
Paul R. Kuehn 1,000(13) * 1,000 --- ---
David B. Johnson 1,000(13) * 1,000 --- ---
Eldon C. Miller 334(13) * 334 --- ---
Stanley D. Rahm 334(13) * 334 --- ---
</TABLE>
- -------------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Shares of Common Stock subject to options, warrants and
convertible securities currently exercisable or convertible, or exercisable
or convertible within 60 days, are deemed outstanding, including for
purposes of computing the percentage ownership of the person holding such
option, warrant or convertible security, but not for purposes of computing
the percentage of any other holder.
(2) Represents shares of Common Stock issuable upon conversion of shares of
Preferred Stock. Each share of Preferred Stock is convertible into shares
of Common Stock at a conversion rate equal to the quotient derived by
dividing (A) the sum of (i) the stated value of $10,000 and (ii) accrued
but unpaid dividends by (B) the lower of (i) $7.56 or (ii) 84 percent of
the average closing bid price of the Common Stock for the five trading days
ending on the date of conversion, subject to an aggregate conversion limit
of 1,611,000 shares, provided that in no event shall a Selling shareholder
be entitled to convert shares of Preferred Stock in excess of that number
of shares of Preferred Stock which, upon giving effect to such conversion,
would cause the aggregate number of shares of Common Stock beneficially
owned by such Selling Shareholder and its affiliates to exceed 4.9% of the
outstanding shares of Common Stock following such conversion. The share
amounts appearing above were calculated with reference to the aggregate
conversion limit of 1,611,000 shares.
(3) Represents shares issuable upon exercise of common stock purchase warrants
granted in connection with the MacGregor-IntraNet merger in July 1996.
(4) Includes 25,000 shares issuable upon exercise of common stock purchase
warrants granted in the July 1996 MacGregor IntraNet merger.
11
<PAGE> 13
(5) Includes 20,000 shares issuable upon exercise of options owned by
Ronald Eibensteiner, a director of the Company and an affiliate of
Wyncrest Capital, Inc. Also includes 42,072 shares issuable to Wyncrest
Capital upon exercise of warrants received by Wyncrest Capital in
connection with bridge financing completed in December 1995 and March
1997, and the MacGregor-IntraNet merger completed in July 1996.
(6) Includes 1,034 shares issuable upon exercise of warrants received in
connection with the MacGregor-IntraNet merger completed in July 1996.
(7) Includes (i) 66,087 shares issuable upon exercise of warrants issued in
connection with the July 1996 MacGregor-IntraNet merger (of which 62,550
were acquired from another warrantholder), (ii) 25,000 shares issuable
upon exercise of warrants received in consideration of bridge financing
provided to the Company in January 1997, and (iii) 17,869 shares issuable
upon exercise of warrants issued for consulting services rendered to the
Company.
(8) Includes 36,250 shares issuable upon exercise of warrants received in
connection with bridge financing provided to the Company in January and
February 1997.
(9) Includes 23,621 shares issuable upon exercise of warrants received in
connection with the July 1996 MacGregor-IntraNet merger.
(10) Includes 3,335 shares issuable upon exercise of warrants received for
consulting services rendered to the Company in July 1997.
(11) Includes 940 shares issuable upon exercise of warrants received for
consulting services rendered to the Company in July 1997.
(12) Includes 9,405 shares issuable upon exercise of warrants received for
consulting services rendered to the Company in July 1997.
(13) Represents stocks is changable upon exercise of warrants received for
consulting services provided to the Company in 1997.
* Less than one percent.
To the extent required, the specific shares of Common Stock to be sold, the
names of the Selling Shareholders, other additional shares of Common Stock
beneficially owned by such Selling Shareholders, the public offering price of
the shares of Common Stock to be sold, the names of any agent, dealer or
underwriter employed by such Selling Shareholders in connection with such sale,
and any applicable commission or discount with respect to a particular offer
will be set forth in an accompanying Prospectus Supplement.
12
<PAGE> 14
PLAN OF DISTRIBUTION
An aggregate of 300 shares of Series B Convertible Preferred Stock were
originally issued to and purchased by certain of the Selling Shareholders at a
price of $10,000 per share in connection with a private placement made by the
Company. Each share of Preferred Stock is convertible into shares of Common
Stock at a conversion ratio equal to the quotient derived by dividing (A) the
sum of (i) the stated value of $10,000 and (ii) accrued but unpaid dividends by
(B) the lower of (i) $7.56 or (ii) 84 percent of the average closing bid price
of the Common Stock for the five day period ending on the date of conversion,
subject to an aggregate conversion limit of 1,611,000 shares. At the expiration
of three years from the original date of issuance of the Preferred Stock or, at
the option of the Company, on the date of the public announcement by the Company
of a public offering of its Common Stock yielding net proceeds of at least $10
million, all outstanding shares of Preferred Stock will automatically convert
into shares of Common Stock, subject to the aggregate conversion limit of
1,611,000 shares referred to above. This Registration Statement is being filed
by, and at the expense of, the Company pursuant to obligations contained in the
Registration Rights Agreement executed in May of 1998.
Warrants for the purchase of 208,504 shares included in this
registration statement are exercisable at $4.00 per share. Warrants for the
remaining 126,396 shares covered by this registration statement are exercisable
at various rates ranging from $2.32 to $8.00.
The Selling Shareholders and/or their pledgees, donees, transferees or
other successors in interest will sell the securities of the Company covered by
this Prospectus to the public on the over-the-counter market, or in negotiated
transactions, or otherwise, at prices and at terms then obtainable.
Broker-dealers either may act as agents for the Selling Shareholders and/or
their pledgees, donees, transferees or other successors in interest for such
commissions as may be agreed upon at the time, or may purchase any of the
securities covered thereby as principals and thereafter may sell such securities
from time to time in the over-the-counter market or in negotiated transactions,
or otherwise, at prices and on terms then obtainable.
LEGAL MATTERS
Certain legal matters in connection with the validity of the securities
offered hereby will be passed upon for the Company by Maslon Edelman Borman &
Brand, LLP, Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of IntraNet Solutions, Inc. at
March 31, 1997, and for the year then ended, incorporated by reference in this
Prospectus and elsewhere in the Registration Statement have been audited by
Ernst & Young LLP, independent auditors, and at March 31, 1996, and for each of
the two years in the period ended March 31, 1996, by Lund Koehler Cox & Company,
PLLP, independent auditors, as set forth in their respective reports thereon
(which contains an explanatory paragraph describing conditions that raise
substantial doubt about the Company's ability to continue as a going concern as
of March 31, 1997) incorporated herein by reference, and are included in
reliance upon such reports given upon the authority of such firms as experts in
accounting an auditing.
13
<PAGE> 15
<TABLE>
<CAPTION>
____________________________
<S> <C>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, INTRANET SOLUTIONS, INC.
AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN 1,945,900
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT SHARES
CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER OF
TO BUY, ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN COMMON STOCK
ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION
WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY _____________________
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME PROSPECTUS
SUBSEQUENT TO THE DATE HEREOF. _____________________
____________________________
TABLE OF CONTENTS
Additional information 1
Incorporation of certain documents 2
by reference
Risk factors 4
Use of proceeds 10
Selling shareholders 11
Plan of distribution 13
Legal matters 13
Experts 13 JUNE 18, 1998
</TABLE>
14
<PAGE> 16
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution
of the securities registered hereby, other than underwriting discounts and fees,
are set forth in the following table:
Securities and Exchange Commission
Registration Fee $ 3,051
Accounting Fees 3,000
Nasdaq Listing Fee 7,500
Legal Fees and Expenses 8,000
Miscellaneous 2,000
-------
Total $23,551
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is governed by Minnesota Statutes Chapter 302A. Minnesota Statutes
Section 302A.521 provides that a corporation shall indemnify any person made or
threatened to be made a party to any proceeding by reason of the former or
present official capacity of such person against judgments, penalties, fines,
including, without limitation, excise taxes assessed against such person with
respect to an employee benefit plan, settlements, and reasonable expenses,
including attorney's fees and disbursements, incurred by such person in
connection with the proceeding, if, with respect to the acts or omissions of
such person complained of in the proceeding, such person has not been
indemnified by another organization or employee benefit plan for the same
expenses with respect to the same acts or omissions; acted in good faith;
received no improper personal benefit and Section 302A.255, if applicable, has
been satisfied; in the case of a criminal proceeding, had no reasonable cause to
believe the conduct was unlawful; and in the case of acts or omissions by
persons in their official capacity for the corporation, reasonably believed that
the conduct was in the best interests of the corporation, or in the case of acts
or omissions by persons in their capacity for other organizations, reasonably
believed that the conduct was not opposed to the best interests of the
corporation. Subdivision 4 of Section 302A.521 of the Minnesota Statutes
provides that a company's articles of incorporation or bylaws may prohibit such
indemnification or place limits upon the same. The Company's articles and bylaws
do not include any such prohibition or limitation. As a result, the Company is
bound by the indemnification provisions set forth in Section 302A.521 of the
Minnesota Statutes.
As permitted by Section 302A.251 of the Minnesota Statutes, the Articles of
Incorporation of the Company provide that a director shall have no personal
liability to the Company and its shareholders for breach of his fiduciary duty
as a director, to the fullest extent permitted by law.
II-1
<PAGE> 17
ITEM 16. EXHIBITS.
NUMBER DESCRIPTION
------ -----------
4(1) Certificate of Designation of Series B Preferred Stock
4(2) Securities Purchase Agreement dated May 6, 1998, by and among
the Company, Stark International and Shepherd Investments
International, Ltd.
4(3) Registration Rights Agreement dated May 6, 1998, by and among
the Company, Stark International and Shepherd Investments
International, Ltd.
5 Opinion of Maslon Edelman Borman & Brand, LLP
23(1) Consent of Ernst & Young LLP
23(2) Consent of Maslon Edelman Borman & Brand, LLP (included in
Exhibit 5)
23(3) Consent of Lund Koehler Cox & Company, PLLP
24 Power of Attorney (included on Page II-3)
_______________
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the Prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement; and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-2
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Minneapolis, State of
Minnesota, on June 15, 1998.
INTRANET SOLUTIONS, INC.
Registrant
By: /s/ Robert F. Olson
-------------------------------------
Name: Robert F. Olson
Title: President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Robert F. Olson and Jeffrey J. Sjobeck,
each or either of them, his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution for him or her and in his or
her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and to file the same with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her substitutes,
may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of June, 1998 by
the following persons in the capacities indicated:
SIGNATURE TITLE
/s/ Robert F. Olson President, Chief Executive
- ---------------------------------- Officer (Principal Executive
Robert F. Olson Officer) and Chairman of the
Board
/s/ Jeffrey J. Sjobeck Chief Financial Officer (Chief
- ---------------------------------- Financial Officer and
Jeffrey J. Sjobeck Accounting Officer) and
Director
/s/ Ronald E. Eibensteiner Director
- ----------------------------------
Ronald E. Eibensteiner
/s/ David Koentopf Director
- ----------------------------------
David Koentopf
/s/ Paul R. Anderson Director
- ----------------------------------
Paul R. Anderson
/s/ Kenneth J. Holec Director
- ----------------------------------
Kenneth H. Holec
/s/ Steven C. Waldron Director
- ----------------------------------
Steven C. Waldron
II-3
<PAGE> 19
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF DOCUMENT PAGE NO.
4(1) Certificate of Designation of Series B Preferred Stock
4(2) Securities Purchase Agreement dated May 6, 1998, by and among
the Company, Stark International and Shepherd Investments
International, Ltd.
4(3) Registration Rights Agreement dated May 6, 1998, by and among
the Company, Stark International and Shepherd Investments
International, Ltd.
5 Opinion of Maslon Edelman Borman & Brand, LLP.
23(1) Consent of Ernst & Young LLP.
23(2) Consent of Maslon Edelman Borman & Brand, LLP (included in
Exhibit 5).
23(3) Consent of Lund Koehler Cox & Company, PLLP
24 Power of Attorney (included on Page II-3).
II-4
<PAGE> 1
EXHIBIT 4.(1)
INTRANET SOLUTIONS, INC.
CERTIFICATE OF DESIGNATION OF
SERIES B CONVERTIBLE PREFERRED STOCK
Pursuant to Section 302A.401, Subd. 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, as
amended, and in accordance with the provisions of Section 302A.401, Subd. 3 of
the Business Corporation Act of the State of Minnesota, the Board of Directors
of the Company on May 5, 1998, duly adopted the following resolution authorizing
a new series of the Company's previously authorized preferred stock, $.01 par
value per share, designated as Series B 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 new series of preferred stock,
$.01 par value, to be titled the "Series B Convertible Preferred Stock"
of the Company is hereby created and designated. The number of shares
of Series B Preferred Shares shall be 350 shares. The voting powers,
preferences and relative, participating, optional and other special
rights of the Series B 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 B Convertible Preferred Stock"
(and shall be referred to herein as the "SERIES B PREFERRED Shares")
and the authorized number of Series B Preferred Shares shall be 350.
The stated value per share shall be $10,000 (the "STATED VALUE").
(a) Voting Rights. The holders of the outstanding
Series B Preferred Shares (collectively, the "HOLDERS" and each a
"HOLDER") shall have no voting rights, except as required by law,
including but not limited to the Business Corporation Act of the State
of Minnesota, and as expressly provided in this Certificate of
Designation.
(2) Holder's Conversion of Series B Preferred Shares. A Holder
of Series B Preferred Shares shall have the right, at such holder's
option, to convert the Series B Preferred Shares into shares of the
Company's common stock, $.01 par value per share (the "COMMON STOCK"),
on the following terms and conditions:
<PAGE> 2
(a) Conversion Right. Subject to the provisions of
Section 2(f) below, each Series B Preferred Share shall be convertible
at the option of the Holder thereof, at any time or from time to time
on or after the initial date of issuance of the Series B Preferred
Shares (the "INITIAL ISSUANCE DATE") into fully paid and nonassessable
shares (rounded to the nearest whole share in accordance with Section
2(g) below) of Common Stock, at the Conversion Rate (as defined below),
provided, however, that in no event shall the aggregate number of
shares of Common Stock issuable upon conversion of all of the Series B
Preferred Shares exceed 1,611,000 (the "COMMON SHARE LIMIT") except as
provided in this Certificate of Designation; provided further, however,
that in no event shall any Holder be entitled to convert Series B
Preferred Shares in excess of that number of Series B Preferred Shares
which, upon giving effect to such conversion, would cause the aggregate
number of shares of Common Stock beneficially owned by the Holder and
its affiliates to exceed 4.9% of the outstanding shares of the Common
Stock following such conversion. For purposes of this paragraph
beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended.
(b) Conversion Rate. The number of shares of Common
Stock issuable upon conversion of each of the Series B Preferred Shares
pursuant to Sections (2)(a) and 2(f) shall be determined according to
the following formula (the "CONVERSION RATE"), subject to the
provisions of Section 7 hereof:
Stated Value + amount of accrued but unpaid dividends
-----------------------------------------------------
Conversion Price
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
(i) "AVERAGE MARKET PRICE" means the average of
the Closing Bid Prices of the Common Stock on the five consecutive
trading days immediately preceding the applicable date;
(ii) "CLOSING BID PRICES" means, for any security
as of any date, the last closing bid price on the Nasdaq SmallCap
Market as reported by Bloomberg, L.P. ("BLOOMBERG"), or, if the Nasdaq
SmallCap Market is not the principal securities exchange for such
security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the
last closing bid price of such security in the over-the-counter market
on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported for such security by
Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc.;
(iii) "CONVERSION PRICE" means as of any
Conversion Date (as defined below) or other date of determination, the
lower of (I) $7.56 (the "CONVERSION
-2-
<PAGE> 3
CEILING") and (II) 84% of the Average Market Price for the relevant
Conversion Date, subject to adjustment as provided herein.
(c) Effect of Failure to Obtain and Maintain
Effectiveness of Registration Statement. If the registration statement
(the "REGISTRATION STATEMENT") covering the resale of the shares of
Common Stock issuable upon conversion of the Series B Preferred Shares
and required to be filed by the Company pursuant to the Registration
Rights Agreement between the Company and the initial Holders of the
Series B Preferred Shares (THE "REGISTRATION RIGHTS AGREEMENT") is not
declared effective by the United States Securities and Exchange
Commission (the "SEC") on or before the 90th calendar day following the
Initial Issuance Date (the "SCHEDULED EFFECTIVE DATE"), then each
Holder of Series B Preferred Shares shall be entitled to the following
payments until such time as the Registration Statement is declared
effective by the SEC (all such payments to be made in cash and
nonrefundable on the first day of the relevant thirty (30) day period):
(i) for the thirty (30) day period beginning
immediately following the Scheduled Effective Date and ending 30 days
following the Scheduled Effective Date, an amount equal to the product
of (I) (.01), multiplied by (II) 120% of Stated Value, multiplied by
(III) the number of Series B Preferred Shares held by such Holder.
(ii) for each consecutive thirty (30) day period
beginning 31 days following the Scheduled Effective Date, an amount
equal to the product of (I) (.02), multiplied by (II) 120% of Stated
Value, multiplied by (III) the number of Series B Preferred Shares held
by such Holder; provided however that if the Registration Statement
shall not have been declared effective by the thirtieth day following
the Scheduled Effective Date, the Company shall be required, at the
option of the Holders, to redeem the Series B Preferred Shares in
accordance with Section 3(a) and in connection therewith the Company
shall pay the Holders who so elect, a price per Series B Preferred
Share equal to the Redemption Price, provided that for the purposes of
this Section 2(c), the relevant date for calculations pursuant to
Sections 3(a)(I) and 3(a)(II) herein shall be the Notice of Redemption
at Option of Holder Date, as defined in Section 3(c)(ii) below.
(d) Adjustment to Conversion Price -- Dilution and
Other Events. In order to prevent dilution of the rights granted under
this Certificate of Designation, the Conversion Ceiling, the Closing
Bid Prices for any days during any measuring period prior to any of the
events set forth below (the "ADJUSTING CLOSING BID PRICES") and the
Common Share Limit will be subject to adjustment from time to time as
provided in this Section 2(d). Any such adjustments to the Conversion
Ceiling and Adjusting Closing Bid Prices will be applicable to Series B
Preferred Shares not yet converted or redeemed.
(i) Adjustment upon Declaration of Dividends and
Other Events. If the Company shall (I) declare a dividend or make a
distribution in shares of Common Stock, (II) subdivide or reclassify
the outstanding shares of Common Stock into
-3-
<PAGE> 4
a greater number of shares, or (III) combine or reclassify the
outstanding Common Stock into a smaller number of shares, the
Conversion Ceiling, the Adjusting Closing Bid Prices and the Common
Share Limit in effect on the record date of such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted.
(ii) Adjustment upon Issuance of Common Stock. If
and whenever on or after the Initial Issuance Date, the Company issues
or sells shares of Common Stock for a consideration per share (the "NEW
COMMON STOCK ISSUANCE PRICE") less than the Conversion Price
immediately prior to such time, then, from and after the time of such
issue or sale, the Conversion Ceiling shall be reduced, if necessary,
so that it shall not exceed the New Common Stock Issuance Price.
(iii) Adjustment upon Issuance of Convertible
Securities with Conversion Price Floors. If and whenever on or after
the Initial Issuance Date, the Company in any manner issues or sells
any stock or other securities convertible into, exchangeable for or
exercisable for Common Stock (such convertible, exchangeable or
exercisable stock or securities being herein called the "CONVERTIBLE
SECURITIES") and the price per share for which Common Stock is issuable
upon the conversion or exchange of such Convertible Securities is
subject to a minimum price (the "NEW CONVERTIBLE SECURITIES FLOORS")
which is less than the Conversion Price immediately prior to such time,
then from and after the time of such issue or sale, the Conversion
Price shall be reduced, if necessary, so that it shall not exceed the
New Convertible Securities Floors.
(iv) Reorganization, Reclassification,
Consolidation, Merger or Sale. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets to another Person (as defined below) or other transaction which
is effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock is referred to herein as
"ORGANIC CHANGE." Prior to the consummation of any Organic Change, the Company
will make appropriate provision (in form and substance satisfactory to the
Holders of a majority of the Series B Preferred Shares then outstanding) to
insure that each of the Holders of the Series B Preferred Shares will thereafter
have the right to acquire and receive in lieu of or addition to (as the case may
be) the shares of Common Stock immediately theretofore acquirable and receivable
upon the conversion of such Holder's Series B Preferred Shares, such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
acquirable and receivable upon the conversion of such Holder's Series B
Preferred Shares had such Organic Change not taken place. In any such case, the
Company will make appropriate provision (in form and substance satisfactory to
the Holders of a majority of the Series B Preferred Shares then outstanding)
with respect to such Holders' rights and interests to insure that the provisions
of this Section 2(d) below will thereafter be applicable to the Series B
Preferred Shares (including, in the case of any such consolidation, merger or
sale in which the successor entity or purchasing entity is other than the
Company, an immediate adjustment of the Conversion Price to the value for the
Common Stock reflected by the terms of such
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<PAGE> 5
consolidation, merger or sale, if the value so reflected is less than the
Conversion Price in effect immediately prior to such consolidation, merger or
sale). The Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof, the successor entity (if other than
the Company) resulting from consolidation or merger or the entity purchasing
such assets assumes, by written instrument (in form and substance satisfactory
to the Holders of a majority of the Series B Preferred Shares then outstanding),
the obligation to deliver to each Holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such Holder may be
entitled to acquire. "PERSON" shall mean an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(v) Notices.
(A) Immediately upon any adjustment pursuant
hereto of the Conversion Ceiling, the Adjusting Closing Bid Prices or
the Common Share Limit, the Company will give written notice thereof to
each Holder, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(B) The Company will give written notice to
each Holder at least twenty (20) days prior to the date on which the
Company closes its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, or (II) for determining
rights to vote with respect to any Organic Change, dissolution or
liquidation; provided that in no event shall such notice be provided to
such Holder prior to such information being made known to the public.
(C) The Company will also give written notice
to each Holder at least twenty (20) days prior to the date on which any
Organic Change, dissolution or liquidation will take place.
(vi) Successive Adjustments. Successive
adjustments in the Conversion Ceiling, the Adjusting Closing Bid Prices
and the Common Share Limit shall be made whenever any event specified
above shall occur. All calculations under this Section 2(d) shall be
made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be. No adjustment in the Conversion Price shall be made if
the amount of such adjustment would be less than $0.01, but any such
amount shall be carried forward and an adjustment with respect thereto
shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $0.01 or more.
(e) Mechanics of Conversion. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice
(as defined below) as provided for in Section 5 below:
(i) Holder's Delivery Requirements. To convert
Series B Preferred Shares into full shares of Common Stock on any date
(the "CONVERSION DATE"), the Holder thereof shall (A) deliver or
transmit by facsimile, for receipt on or prior to
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11:59 p.m., Eastern Time on such date, a copy of a fully executed
notice of conversion in the form attached hereto as Exhibit I (the
"CONVERSION NOTICE"), to the Company or its designated transfer agent
(the "TRANSFER AGENT"), and (B) surrender to a common carrier for
delivery to the Company or the Transfer Agent as soon as practicable
following such date, the original certificates representing the Series
B Preferred Shares being converted (or an indemnification undertaking
with respect to such shares in the case of their loss, theft or
destruction) (the "PREFERRED STOCK CERTIFICATES") and the originally
executed Conversion Notice.
(ii) Company's Response. Upon receipt by the
Company of a facsimile copy of a Conversion Notice, the Company shall
by the next business day send, via facsimile, a confirmation of receipt
of such Conversion Notice to such Holder. Upon receipt by the Company
or the Transfer Agent of the Preferred Stock Certificates to be
converted pursuant to a Conversion Notice, together with the originally
executed Conversion Notice, the Company or the Transfer Agent (as
applicable) shall, on the fourth business day following the date of
receipt: (I) issue and surrender to a common carrier for overnight
delivery to the address as specified in the Conversion Notice, a
certificate, registered in the name of the Holder or its designee, for
the number of shares of Common Stock to which the Holder shall be
entitled, or (II) credit such aggregate number of shares of Common
Stock to which the Holder shall be entitled to the Holder's or its
designee's balance account with The Depository Trust Company, or (III)
if the Holder requests, issue shares in electronic format (e.g. via
DWAC).
(iii) Dispute Resolution. In the case of a
dispute as to the determination of the Conversion Price, the Company
shall promptly issue to the Holder the number of shares of Common Stock
that is not disputed and shall submit the disputed determinations or
arithmetic calculations to the Holder via facsimile within one (1)
business day of receipt of such Holder's Conversion Notice. If such
Holder and the Company are unable to agree upon the determination of
the Conversion Price within one (1) business day of such disputed
determination or arithmetic calculation being submitted to the Holder,
then the Company shall within one (1) business day submit via facsimile
the disputed determination of the Conversion Price to an independent,
reputable accounting firm of national standing acceptable to the
Company and such Holder of Series B Preferred Shares. The Company shall
cause such accounting firm to perform the determinations or
calculations and notify the Company and the Holder of the results no
later than forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such accounting firm's
determination, shall be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons
entitled to receive the shares of Common Stock issuable upon a
conversion of Series B Preferred Shares shall be treated for all
purposes as the record Holder or Holders of such shares of Common Stock
on the Conversion Date.
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<PAGE> 7
(v) Company's Failure to Timely Convert. If the
Company shall fail (other than as a result of the situations described
in Section 4(a) with respect to which the Holder has elected, and the
Company has satisfied its obligations under, one of the options set
forth in subparagraphs (i) through (iv) of Section 4(a)) to issue to a
Holder on a timely basis as described in this Section 2(e), a
certificate for the number of shares of Common Stock to which such
Holder is entitled upon such Holder's conversion of Series B Preferred
Shares, the Company shall pay damages to such Holder equal to the
greater of (A) actual damages incurred by such Holder as a result of
such Holder's needing to "buy in" shares of Common Stock to satisfy its
securities delivery requirements ("BUY IN ACTUAL DAMAGES") and (B) if
the Company fails to deliver such certificates within five days after
the last possible date which the Company could have issued such Common
Stock to such Holder without violating this Section 2(e), on each date
such conversion is not timely effected in an amount equal to 1% of the
product of (A) the number of shares of Common Stock not issued to the
Holder on a timely basis and to which such Holder is entitled and (B)
the Closing Bid Price of the Common Stock on the last possible date
which the Company could have issued such Common Stock to such Holder
without violating this Section 2(e).
(f) Mandatory Conversion. If any Series B Preferred
Shares remain outstanding on the Mandatory Conversion Date (as defined
below), then all such Series B Preferred Shares shall be converted as
of such date in accordance with this Section 2 as if the Holders of
such Series B Preferred Shares had given the Conversion Notice on the
Mandatory Conversion Date, and the Conversion Date had been fixed as of
the Mandatory Conversion Date, for all purposes of this Section 2. Such
conversion pursuant to this Section 2(f) shall be subject to the Common
Share Limit, as adjusted as provided herein. All Holders of Series B
Preferred Shares shall thereupon and within two (2) business days
thereafter surrender all Preferred Stock Certificates, duly endorsed
for cancellation, to the Company or the Transfer Agent. No person shall
thereafter have any rights in respect of Series B Preferred Shares,
except the right to receive shares of Common Stock on conversion
thereof as provided in this Section 2. "MANDATORY CONVERSION DATE"
means the earlier of: (i) May 6, 2001 (the "Expiration Date") or (ii)
at the option of the Company, the date of the public announcement by
the Company of a public offering of Common Stock of the Company, the
proceeds of which (after underwriting discounts or commissions but
before the expenses of the offering) are at least $10 million, pursuant
to a registration statement (other than a registration on Form S-4 or
S-8 (or its equivalent)) filed with, and declared effective by, the
SEC, upon the consummation of which such Common Stock of the Company is
listed on a United States securities exchange or included in the NASDAQ
Stock Market System.
(g) Fractional Shares. The Company shall not issue
any fraction of a share of Common Stock upon any conversion. All shares
of Common Stock (including fractions thereof) issuable upon conversion
of more than one Series B Preferred Share by a Holder shall be
aggregated for purposes of determining whether the conversion would
result in the issuance of a fraction of a share of Common Stock. If,
after the aforementioned aggregation, the issuance would result in the
issuance of a fraction of a
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<PAGE> 8
share of Common Stock, the Company shall round such fraction of a share
of Common Stock up or down to the nearest whole share.
(h) Taxes. The Company shall pay any and all taxes
which may be imposed upon it with respect to the issuance and delivery
of Common Stock upon the conversion of the Series B Preferred Shares.
(3) Redemption.
(a) Redemption Option Upon Triggering Event. In
addition to all other rights of the Holders of Series B Preferred
Shares contained herein, after a Triggering Event (as defined below),
each Holder of Series B Preferred Shares shall have the right in
accordance with Section 3(c), at such Holder's option, to require the
Company to redeem all or a portion of such Holder's Series B Preferred
Shares at a price per Series B Preferred Share equal to the product of
(I) the aggregate number of shares of Common Stock for which each such
Series B Preferred Share would be converted into as of the date
immediately preceding such Triggering Event on which the exchange or
market on which the Common Stock is traded is open multiplied by (II)
the Average Market Price of the Common Stock on such date(the
"REDEMPTION PRICE").
(b) "Triggering Event". A "Triggering Event" shall be
deemed to have occurred at such time as any of the following events:
(i) notice from the Company that Common Stock
issued or issuable upon conversion of the Series B Preferred Shares
cannot be sold under the Registration Statement (the "SUSPENSION
PERIOD"), for any period of ten consecutive trading days or any twenty
non-consecutive trading days (other than by reason of a general
suspension of trading of all securities on the applicable exchange or
market) during any period of 180 consecutive days that is (A) after the
date the Registration Statement has been declared effective by the SEC
and (B) prior to the time that the Conversion Shares may be sold
without limitation in accordance with Rule 144(k) under the 1933 Act;
provided that any demand for redemption under this Section 3(b)(i) must
be made by a Holder of Series B Preferred Shares within 15 days after
receipt of notice from the Company of the termination of the Suspension
Period; and, provided further that if the aggregate number of days in
all Suspension Periods (the "SUSPENSION DAYS") is equal to or greater
than forty-five (45) days, then the Expiration Date shall be extended
by the aggregate number of Suspension Days;
(ii) the failure of the Common Stock or the
Conversion Shares to be listed on the AMEX, The New York Stock
Exchange, the Nasdaq National Market System or the Nasdaq SmallCap
Market for a period of ten consecutive trading days or any twenty
non-consecutive trading days during any period of 180 consecutive days
(the "DELISTING PERIOD"); provided however that any demand for
redemption under this Section 3(b)(ii) must be made by a Holder of
Series B Preferred Shares within 15 days after receipt of notice from
the Company of the termination of the Delisting Period and provided
further that if a Holder does not make a demand for redemption pursuant
to this
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<PAGE> 9
Section 3(b)(ii), then the Expiration Date shall be extended by the
aggregate number of days in all Delisting Periods; or
(iii) the Company's notice to any Holder of
Series B Preferred Shares, including by way of public announcement, at
any time, of its intention not to comply with proper requests for
conversion of any Series B Preferred Shares into shares of Common
Stock, including due to any of the reasons set forth in Section 4(a)
below, except in any case in which the basis for such intention by the
Company is a bona fide dispute as to the right of such Holder to such
conversion.
(c) Mechanics of Redemption.
(i) Mechanics of Redemption at Option of Holder
Upon Triggering Event. Within one (1) day after the occurrence of a
Triggering Event, the Company shall deliver written notice thereof via
facsimile and overnight courier ("NOTICE OF TRIGGERING EVENT") to each
Holder of Series B Preferred Shares. At any time after receipt of a
Notice of Triggering Event, but only for as long as the facts giving
rise to the Triggering Event continue to exist, except as specifically
provided in this Section 3, the Holders of the Series B Preferred
Shares then outstanding may require the Company to redeem all or any
portion of the Series B Preferred Shares by delivering written notice
thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT
OPTION OF HOLDER UPON TRIGGERING EVENT") to the Company, which Notice
of Redemption at Option of Holder Upon Triggering Event shall indicate
(i) the number of Series B Preferred Shares that such Holders are
requesting redemption for and (ii) the Redemption Price, as calculated
pursuant to Section 3(a) above.
(ii) Mechanics of Redemption at Option of Holder
Upon Failure to Obtain and Maintain Effectiveness of Registration
Statement. As set forth in Section 2(c)(ii) above, if the Registration
Statement shall not have been declared effective by the thirtieth day
following the Scheduled Effective Date, the Holders of the Series B
Preferred Shares then outstanding may require the Company to redeem all
or any portion of the Series B Preferred Shares by delivering written
notice ("NOTICE OF REDEMPTION AT OPTION OF HOLDER") thereof via
facsimile (such date a "NOTICE OF REDEMPTION AT OPTION OF HOLDER DATE")
to the Company, which Notice of Redemption at Option of Holder shall
indicate (i) the number of Series B Preferred Shares that such Holders
are requesting redemption for and (ii) the Redemption Price, as
calculated pursuant to Section 2(c)(ii) above.
(d) Payment of Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption at Option of Holder Upon
Triggering Event or Notice(s) of Redemption at Option of Holder from
any Holder, the Company shall immediately notify each Holder by
facsimile of the mechanics of the delivery of each Holder's Preferred
Stock Certificate and, if applicable, the Company's receipt of such
requisite notices necessary to effect a redemption and each Holder of
Series B Preferred Shares shall thereafter promptly send such Holder's
Preferred Stock Certificates to be redeemed to the
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<PAGE> 10
Company or its Transfer Agent. The Company shall deliver the Redemption
Price to such Holder within ten (10) days after the Company's receipt
of the requisite notices required to affect a redemption; provided that
a Holder's Preferred Stock Certificates shall have been so delivered to
the Company or its Transfer Agent; provided further that if the Company
is unable to redeem all of the Series B Preferred Shares, the Company
shall redeem an amount from each Holder of Series B Preferred Shares
equal to such Holder's pro-rata amount (based on the number of Series B
Preferred Shares held by such Holder relative to the number of Series B
Preferred Shares outstanding) of all Series B Preferred Shares being
redeemed. If the Company shall fail to redeem all of the Series B
Preferred Shares submitted for redemption (other than pursuant to a
dispute as to the arithmetic calculation of the Redemption Price), in
addition to any remedy such Holder of Series B Preferred Shares may
have under this Certificate of Designation and the Securities Purchase
Agreement, the Redemption Price payable in respect of such unredeemed
Series B Preferred Shares shall bear interest at the rate of 1.25% per
month (prorated for partial months) until paid in full. Until the
Company pays such unpaid Redemption Price in full to each Holder,
Holders of the Series B Preferred Shares then outstanding, including
shares of Series B Preferred Shares submitted for redemption pursuant
to this Section 3 and for which the applicable Redemption Price has not
been paid, shall have the option (the "VOID OPTIONAL REDEMPTION
OPTION") to, in lieu of redemption, require the Company to promptly
return to each Holder all of the Series B Preferred Shares that were
submitted for redemption by such Holder under this Section 3 and for
which the Redemption Price has not been paid, by sending written notice
thereof to the Company via facsimile (the "VOID OPTIONAL REDEMPTION
NOTICE"). Upon the Company's receipt of such Void Optional Redemption
Notice(s) and prior to payment of the full Redemption Price to each
Holder, (i) the Notice(s) of Redemption at Option of Holder Upon
Triggering Event shall be null and void with respect to those Series B
Preferred Shares submitted for redemption and for which the Redemption
Price has not been paid, and (ii) the Company shall immediately return
any Series B Preferred Shares submitted to the Company by each Holder
for redemption under this Section 3(d) and for which the Redemption
Price has not been paid. Notwithstanding the foregoing, in the event of
a dispute as to the determination of the arithmetic calculation of the
Redemption Price, such dispute shall be resolved pursuant to Section
2(e)(iii) above.
(4) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert.
If, upon the Company's receipt of a Conversion Notice, the Company
cannot issue shares of Common Stock registered for resale under the
Registration Statement for any reason, including, without limitation,
because the Company (x) does not have a sufficient number of shares of
Common Stock authorized and available, (y) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Company or its Securities, from issuing all of
the Common Stock which is to be issued to a Holder of Series B
Preferred Shares pursuant to a Conversion Notice or (z) fails to have a
sufficient number of shares of Common Stock registered for resale under
the Registration Statement, then the
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<PAGE> 11
Company shall issue as many shares of Common Stock as it is able to
issue in accordance with such Holder's Conversion Notice and pursuant
to Section 2(e) above and, with respect to the unconverted Series B
Preferred Shares, the Holder, solely at such Holder's option, can elect
to (unless the Company issues and delivers the Conversion Shares
underlying the unconverted Series B Preferred Shares prior to the
Holder's election hereunder, in which case such Holder shall only be
entitled to receive Buy In Actual Damages under Section 2(e)(v)):
(i) require the Company to redeem from such
Holder those Series B Preferred Shares for which the Company is unable
to issue Common Stock in accordance with such Holder's Conversion
Notice ("MANDATORY REDEMPTION") at a price per Series B Preferred Share
(the "MANDATORY REDEMPTION PRICE") equal to the Redemption Price as of
such Conversion Date, provided that for the purposes of this Section
4(a), the relevant date for calculations pursuant to Sections 3(a)(I)
and 3(a)(II) herein shall be the Conversion Date, and provided further
that the Company shall not be required to redeem the Series B Preferred
Shares if the Company has issued shares of Common Stock to the Holders
upon conversion of the Series B Preferred Shares in an amount equal to
the Common Share Limit, as adjusted herein;
(ii) if the Company's inability to fully convert
Series B Preferred Shares is pursuant to Section 4(a)(z) above, require
the Company to issue restricted shares of Common Stock in accordance
with such Holder's Conversion Notice and pursuant to Section 2(e)
above;
(iii) void its Conversion Notice and retain or
have retained, as the case may be, the nonconverted Series B Preferred
Shares that were to be converted pursuant to such Holder's Conversion
Notice; or
(iv) if the Company's inability to fully convert
Series B Preferred Shares is pursuant to the rules and regulations
described in Section 4(a)(y) above, require the Company to issue shares
of Common Stock in accordance with such Holder's Conversion Notice and
pursuant to Section 2(e) above at a Conversion Price equal to the
Average Market Price of the Common Stock for the five (5) consecutive
trading days preceding such Holder's Notice in Response to Inability to
Convert (as defined below).
(b) Mechanics of Fulfilling Holder's Election. The
Company shall immediately send via facsimile to a Holder of Series B
Preferred Shares, upon receipt of a facsimile copy of a Conversion
Notice from such Holder which cannot be fully satisfied as described in
Section 4(a) above, a notice of the Company's inability to fully
satisfy such Holder's Conversion Notice (the "INABILITY TO FULLY
CONVERT NOTICE"). Such Inability to Fully Convert Notice shall indicate
(i) the reason why the Company is unable to fully satisfy such Holder's
Conversion Notice, (ii) the number of Series B Preferred Shares which
cannot be converted and (iii) the applicable Mandatory Redemption
Price. Such Holder must within five (5) business days of receipt of
such Inability to Fully
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<PAGE> 12
Convert Notice deliver written notice via facsimile to the Company
("NOTICE IN RESPONSE TO INABILITY TO CONVERT") of its election pursuant
to Section 4(a) above.
(c) Payment of Mandatory Redemption Price. If such
Holder shall elect to have its shares redeemed pursuant to Section
4(a)(i) above, the Company shall pay the Mandatory Redemption Price in
cash to such Holder within ten (10) days of the Company's receipt of
the Holder's Notice in Response to Inability to Convert. If the Company
shall fail to pay the applicable Mandatory Redemption Price to such
Holder on a timely basis as described in this Section 4(c) (other than
pursuant to a dispute as to the determination of the arithmetic
calculation of the Redemption Price), in addition to any remedy such
Holder of Series B Preferred Shares may have under this Certificate of
Designation and the Securities Purchase Agreement, such unpaid amount
shall bear interest at the rate of 1.25% per month (prorated for
partial months) until paid in full. Until the full Mandatory Redemption
Price is paid in full to such Holder, such Holder may void the
Mandatory Redemption with respect to those Series B Preferred Shares
for which the full Mandatory Redemption Price has not been paid and
receive back such Series B Preferred Shares. Notwithstanding the
foregoing, if the Company fails to pay the applicable Mandatory
Redemption Price within such ten (10) day time period due to a dispute
as to the determination of the arithmetic calculation of the Redemption
Price, such dispute shall be resolved pursuant to Section 2(e)(iii)
above.
(d) Pro-rata Conversion and Redemption. In the event
the Company receives a Conversion Notice from more than one Holder of
Series B Preferred Shares on the same day and the Company can convert
and redeem some, but not all, of the Series B Preferred Shares pursuant
to this Section 4, the Company shall convert and redeem from each
Holder of Series B Preferred Shares electing to have Series B Preferred
Shares converted and redeemed at such time an amount equal to such
Holder's pro-rata amount (based on the number of Series B Preferred
Shares held by such Holder relative to the number of Series B Preferred
Shares outstanding) of all Series B Preferred Shares being converted
and redeemed at such time.
(5) Reissuance of Certificates. In the event of a
conversion or redemption pursuant to this Certificate of Designation of
less than all of the Series B Preferred Shares represented by a
particular Preferred Stock Certificate, the Company shall promptly
cause to be issued and delivered to the Holder of such Series B
Preferred Shares a preferred stock certificate representing the
remaining Series B Preferred Shares which have not been so converted or
redeemed.
(6) Reservation of Shares. The Company shall, so long as
any of the Series B Preferred Shares are outstanding, reserve and keep
available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Series B Preferred
Shares, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the Series B
Preferred Shares then outstanding; provided that the number of shares
of Common Stock initially reserved on the Initial Issuance Date shall
not be less than 1,611,000 shares of Common Stock for
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which the Series B Preferred Shares are at any time convertible;
provided further that such shares of Common Stock so reserved shall be
allocated for issuance upon conversion of Series B Preferred Shares pro
rata among the Holders of Series B Preferred Shares based on the number
of Series B Preferred Shares held by such Holder relative to the total
number of authorized Series B Preferred Shares.
(7) Dividends. The Holders of the outstanding Series B
Preferred Shares shall be entitled to receive cumulative dividends at
the rate of 4% of the Stated Value per annum per Series B Preferred
Share. Such dividends shall be payable quarterly in arrears on the last
day of March, June, September and December of each year, commencing on
June 30, 1998 (each of such dates being a "DIVIDEND PAYMENT Date").
Such dividend shall accrue on each Series B Preferred Share from the
Initial Issuance Date (with appropriate proration for any partial
dividend period) and shall accrue from day-to-day, whether or not
earned or declared. Dividend payments made with respect to Series B
Preferred Shares may be made, subject to the terms hereof, in cash or,
at the option of and in the sole discretion of the Board of Directors,
in full or in part, (i) by issuing fully paid and nonassessable Series
B Preferred Shares such that the Stated Value of such Series B
Preferred Shares plus the amount of cash dividend paid in part, if any,
is equal to the amount of the cash dividend which would otherwise be
paid on such Dividend Payment Date if such dividend were paid entirely
in cash or (ii) by increasing the Stated Value of the Series B
Preferred Shares by the amount of such dividend such that the amount of
such increase in the Stated Value of the Series B Preferred Shares plus
the amount of cash dividend paid in part, if any, is equal to the
amount of the cash dividend which would otherwise be paid on such
Dividend Payment Date if such dividend were paid entirely in cash. If
the Board of Directors shall elect to pay any part of a dividend by
such increase in Stated Value, the Company shall provide notice to such
effect to the Holders of the Series B Preferred Shares by no later than
the applicable Dividend Payment Date. The issuance of such Series B
Preferred Shares or any such increase in the Stated Value (plus the
amount of cash dividend, if any, paid together therewith) shall
constitute full payment of such dividend. In no event shall an election
by the Board of Directors to pay dividends, in full or in part, in cash
on any Dividend Payment Dates preclude the Board of Directors from
electing any other available alternative in respect of all or any
portion of any subsequent dividend.
(8) Liquidation, Dissolution, Winding-Up. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of
the Company, the Holders of the Series B Preferred Shares shall be
entitled to receive in cash out of the assets of the Company, whether
from capital or from earnings available for distribution to its
stockholders (the "PREFERRED FUNDS"), before any amount shall be paid
to the holders of any of the capital stock of the Company of any class
junior in rank to the Series B Preferred Shares in respect of the
preferences as to the distributions and payments on the liquidation,
dissolution and winding up of the Company, an amount per Series B
Preferred Share equal to the sum of (i) Stated Value and (ii) all
accrued and unpaid dividends (such sum being referred to as the
"LIQUIDATION VALUE"); provided that, if the Preferred Funds are
insufficient to pay the full amount due to the holders of Series B
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<PAGE> 14
Preferred Shares and holders of shares of other classes or series of
preferred stock of the Company that are of equal rank with the Series B
Preferred Shares as to payments of Preferred Funds (the "PARI PASSU
SHARES"), then each holder of Series B Preferred Shares and Pari Passu
Shares shall receive a percentage of the Preferred Funds equal to the
full amount of Preferred Funds payable to such holder as a liquidation
preference, in accordance with their respective Certificate of
Designation, as a percentage of the full amount of Preferred Funds
payable to all holders of Series B Preferred Shares and Pari Passu
Shares. The purchase or redemption by the Company of stock of any
class, in any manner permitted by law, shall not, for the purposes
hereof, be regarded as a liquidation, dissolution or winding up of the
Company. Neither the consolidation or merger of the Company with or
into any other Person, nor the sale or transfer by the Company of less
than substantially all of its assets, shall, for the purposes hereof,
be deemed to be a liquidation, dissolution or winding up of the
Company.
(9) Preferred Rank. All shares of Common Stock of the
Company shall be of junior rank to all Series B Preferred Shares in
respect to the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Company. All other
shares of preferred stock, other than the Company's Series A
Convertible Preferred Stock which shall rank pari passu to the Series B
Preferred Shares, shall not be of senior rank to all Series B Preferred
Shares in respect to the preferences as to distributions and payments
upon the liquidation, dissolution and winding up of the Company. As
long as the Series B Preferred Shares initially issued remain
outstanding, then without the prior express written consent of the
holders of not less than two-thirds (2/3) of the then outstanding
Series B Preferred Shares, the Company shall not hereafter authorize or
issue additional or other capital stock that is of senior rank to the
Series B Preferred Shares in respect of the preferences as to
distributions and payments upon the liquidation, dissolution and
winding up of the Company. Without the prior express written consent of
the holders of not less than two-thirds (2/3) of the then outstanding
Series B Preferred Shares, the Company shall not hereafter authorize or
make any amendment to the Company's Articles of Incorporation or
bylaws, or file any resolution of the board of directors of the Company
with the Minnesota Secretary of State containing any provisions, which
would adversely affect or otherwise impair the rights or relative
priority of the holders of the Series B Preferred Shares relative to
the holders of the Common Stock or the holders of any other class of
capital stock. In the event of the merger or consolidation of the
Company with or into another corporation, the Series B Preferred Shares
shall maintain their relative powers, designations and preferences
provided for herein and no merger shall result inconsistent therewith.
(10) Restriction on Redemption and Cash Dividends with
respect to Other Capital Stock. Until all of the Series B Preferred
Shares have been converted or redeemed as provided herein, the Company
shall not, directly or indirectly, declare or pay any cash dividend or
distribution on its Common Stock without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then
outstanding Series B Preferred Shares.
-14-
<PAGE> 15
(11) Vote to Change the Terms of Series B Preferred
Shares. The affirmative vote at a meeting duly called for such purpose
or the written consent without a meeting, of the holders of not less
than two-thirds (2/3) of the then outstanding Series B Preferred
Shares, shall be required for any change to this Certificate of
Designation or the Company's Articles of Incorporation which would
amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Series B Preferred Shares.
(12) Lost or Stolen Certificates. Upon receipt by the
Company of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any Preferred Stock Certificates
representing the Series B Preferred Shares, and, in the case of loss,
theft or destruction, of any indemnification undertaking by the holder
to the Company and, in the case of mutilation, upon surrender and
cancellation of the Preferred Stock Certificate(s), the Company shall
execute and deliver new Preferred Stock Certificate(s) of like tenor
and date; provided, however, the Company shall not be obligated to
re-issue Preferred Stock Certificates if the holder contemporaneously
requests the Company to convert such Series B Preferred Shares into
Common Stock.
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<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation to be signed by Robert F. Olson, its President and Chief Executive
Officer, as of the 6th day of May 1998.
INTRANET SOLUTIONS, INC.
By: /s/ Robert F. Olson
--------------------------
Name: Robert F. Olson
Its: President and Chief
Executive Officer
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<PAGE> 17
EXHIBIT I
INTRANET SOLUTIONS, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designation of IntraNet Solutions, Inc.
(the "CERTIFICATE OF DESIGNATION"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series B Convertible Preferred Stock, $.01 par value per share (the
"SERIES B PREFERRED SHARES"), of IntraNet Solutions, Inc., a Minnesota
corporation (the "COMPANY"), indicated below into shares of Common Stock, $.01
par value per share (the "COMMON STOCK"), of the Company, by tendering the stock
certificate(s) representing the share(s) of Series B Preferred Shares specified
below as of the date specified below.
Date of Conversion:
-----------------------
Number of Series B Preferred Shares to be converted:
-----------------------
Stock certificate no(s). of Series B
Preferred Shares to be converted:
-----------------------
Please confirm the following information:
Conversion Price:
-----------------------
Number of shares of Common Stock to be issued:
-----------------------
Please issue the Common Stock and, if applicable, any check drawn on an account
of the Company into which the Series B Preferred Shares are being converted in
the following name and to the following address:
Issue to:
-----------------------
-----------------------
-----------------------
-----------------------
Facsimile Number:
-----------------------
Authorization:
-----------------------
By:
-------------------
Title:
----------------
Dated:
-----------------------
<PAGE> 1
EXHIBIT 4.(2)
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of
May 6, 1998 by and among IntraNet Solutions, Inc., a Minnesota corporation, with
headquarters located at 9625 W. 76th Street, Suite 150, Eden Prairies, MN 55344
(the "COMPANY"), and the investors listed on the Schedule of Buyers attached
hereto (individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D ("REGULATION D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 ACT");
B. The Company has authorized the following new series of its
Preferred Stock, $.01 par value per share (the "PREFERRED STOCK"): the Company's
Series B Convertible Preferred Stock ("SERIES B PREFERRED STOCK") which shall be
convertible into shares of the Company's Common Stock, $.01 par value per share
(the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in accordance with
the terms of the Company's Certificate of Designation of the Series B Preferred
Shares, in the form attached hereto as Exhibit A (the "CERTIFICATE OF
DESIGNATION");
C. The Buyers wish to purchase, upon the terms and conditions
stated in this Agreement, an aggregate of $3 million of Series B Preferred Stock
in the respective amounts set forth opposite each Buyer's name on the Schedule
of Buyers; and
D. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement in the form attached hereto as Exhibit B (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as
follows:
1. PURCHASE AND SALE OF SERIES B PREFERRED SHARES.
a. Purchase of Series B Preferred Shares. Subject to
the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7
below, the Company shall issue and sell to the Buyers and the Buyers shall
purchase from the Company an aggregate of 300 shares of Series B Preferred Stock
(the "SERIES B PREFERRED SHARES"), in the respective amounts set forth opposite
each Buyer's name on the Schedule of Buyers (the "CLOSING"). The per share
purchase price (the "PURCHASE PRICE") of the Preferred Shares shall be $10,000
or an aggregate purchase price of $3 million. On the Closing Date (as defined
below), the Company shall deliver to each
<PAGE> 2
Buyer, a stock certificate(s) representing such number of the Series B Preferred
Shares which such Buyer is then purchasing (as indicated opposite such Buyer's
name on the Schedule of Buyers), duly executed on behalf of the Company and
registered in the name of such Buyer or its designee (the "STOCK CERTIFICATES").
b. Closing Date. The date and time of the Closing
(the "CLOSING DATE") shall be 10:00 a.m. Eastern Standard Time on May 6, 1998,
subject to notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 6 and 7 below (or such later date as is mutually
agreed to by the Company and the Buyers).
c. Form of Payment. On the Closing Date each Buyer
shall pay the Purchase Price to the Company for the Series B Preferred Shares to
be issued and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions
provided to the Buyers at least two days prior to the Closing Date.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to
only itself that:
a. Investment Purpose. Such Buyer (i) is acquiring
the Series B Preferred Shares and (ii) upon conversion of the Series B Preferred
Shares, will acquire the Conversion Shares then issuable, for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any Series B Preferred
Shares for any minimum or other specific term and reserves the right to dispose
of Series B Preferred Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an
"accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D.
c Reliance on Exemptions. Such Buyer understands that
the Series B Preferred Shares and the Conversion Shares are being offered and
sold to it in reliance on specific exemptions from the registration requirements
of United States federal and state securities laws and that the Company is
relying in part upon the truth and accuracy of, and such Buyer's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of such Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of such Buyer to acquire the
Series B Preferred Shares and the Conversion Shares.
d. Information. Such Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Series B Preferred Shares and the Conversion Shares which have been requested by
such Buyer. Such Buyer and its advisors, if any, have been
2
<PAGE> 3
afforded the opportunity to ask questions of the Company. Neither such inquiries
nor any other due diligence investigations conducted by such Buyer or its
advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below.
e. No Governmental Review. Such Buyer understands
that no United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement of
the Series B Preferred Shares or the Conversion Shares or the fairness or
suitability of the investment in the Series B Preferred Shares or the Conversion
Shares nor have such authorities passed upon or endorsed the merits of the
offering of the Series B Preferred Shares or the Conversion Shares.
f. Transfer or Resale. Such Buyer understands that
except as provided in the Registration Rights Agreement: (i) the Series B
Preferred Shares and the Conversion Shares have not been and are not being
registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that such
securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such
securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule thereto) ("RULE 144"); (ii) any sale of
such securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.
g. Legends. Such Buyer understands that the
certificates or other instruments representing the Series B Preferred Shares
and, until such time as the sale of the Conversion Shares have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Conversion Shares, except as set forth
below, shall bear a restrictive legend in substantially the following form (and
a stop-transfer order may be placed against transfer of such stock
certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF
3
<PAGE> 4
COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS
SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Series B Preferred Shares
or the Conversion Shares upon which it is stamped, if (i) the Series B Preferred
Shares or the Conversion Shares are registered for sale under the 1933 Act, (ii)
in connection with a sale transaction, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of the Series B Preferred Shares or the Conversion
Shares may be made without registration under the 1933 Act, or (iii) the Series
B Preferred Shares or the Conversion Shares can be sold pursuant to Rule 144(k)
under the 1933 Act. Each Buyer acknowledges, covenants and agrees to sell the
Series B Preferred Shares and the Conversion Shares represented by a
certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the 1933 Act, or (ii) advice of counsel
that such sale is exempt from registration required by Section 5 of the 1933
Act. In the event the above legend is removed from the Series B Preferred Shares
or the Conversion Shares, the Company may, upon reasonable advance notice to the
holder, require that the above legend be placed on any Series B Preferred Shares
or Conversion Shares that cannot then be sold pursuant to an effective
registration statement or Rule 144(k) under the 1933 Act (or any successor rule
thereto).
h. Authorization; Enforcement. This Agreement has
been duly and validly authorized, executed and delivered on behalf of such Buyer
and is a valid and binding agreement of such Buyer enforceable in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that
country specified in the Schedule of Buyers.
j. Short Sales. As of the date hereof, the Buyers do
not maintain short positions with respect to the Common Stock.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the
Buyers that:
a. Organization and Qualification. The Company and
its subsidiaries (a complete list of which is set forth in Schedule 3(a)) are
corporations duly incorporated and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent
4
<PAGE> 5
that the failure to be so qualified or be in good standing would not have a
material adverse effect on the business, properties, operations, financial
condition, results of operations or prospects of the Company and its
subsidiaries taken as a whole or on the transaction contemplated hereby.
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement and the Registration Rights Agreement, and
to issue, sell and perform its obligations with respect to the Series B
Preferred Shares and the Conversion Shares in accordance with the terms hereof
and the Certificate of Designation and to issue the Conversion Shares upon
conversion of the Series B Preferred Shares in accordance with the Certificate
of Designation, (ii) the execution and delivery of this Agreement and the
Registration Rights Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including without limitation the
issuance of the Series B Preferred Shares and the reservation for issuance and
the issuance of the Conversion Shares issuable upon conversion thereof, have
been duly authorized by the Company's Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or its
shareholders, (iii) this Agreement, the Registration Rights Agreement and the
certificates for the Series B Preferred Shares have been duly executed and
delivered by the Company, (iv) this Agreement, the Registration Rights Agreement
and the certificates for the Series B Preferred Shares constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors' rights and remedies, and (v) prior to the Closing
Date, the Certificate of Designation will have been filed with the Secretary of
State of the State of Minnesota and will be in full force and effect,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.
c. Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of 25,000,000 shares of Common
Stock, of which as of May 5, 1998, 8,637,797 shares were issued and outstanding,
and 1,000,000 shares of Preferred Stock, of which as of May 5, 1998, 450,000
shares were issued and outstanding. All of such outstanding shares have been
validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(c), no shares of Common Stock or Preferred Stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company. Except as disclosed in the SEC Documents
or Schedule 3(c), as of the date hereof, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) there are no agreements or arrangements under
5
<PAGE> 6
which the Company or any of its subsidiaries is obligated to register the sale
of any of their securities under the 1933 Act (except the Registration Rights
Agreement). Except as disclosed in Schedule 3(c), there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Series B Preferred Shares or the Conversion
Shares as described in this Agreement. The Company has furnished to the Buyer
true and correct copies of the Company's Articles of Incorporation, as amended
and as in effect on the date hereof (the "ARTICLES OF INCORPORATION"), and the
Company's Bylaws, as in effect on the date hereof (the "Bylaws"), and the terms
of all securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Series B Preferred
Shares are duly authorized and, upon issuance in accordance with the terms
hereof, shall be (i) validly issued, fully paid and non-assessable, (ii) free
from all taxes, liens and charges with respect to the issue thereof and (iii)
entitled to the rights and preferences set forth in the Certificate of
Designation. Not less than 1,611,000 shares of Common Stock have been duly
authorized and reserved for issuance upon conversion of the Series B Preferred
Shares. Upon conversion in accordance with the Certificate of Designation, the
Conversion Shares will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock.
e. No Conflicts. Except as disclosed in Schedule
3(e), the execution, delivery and performance of this Agreement and the
Registration Rights Agreement by the Company, the performance by the Company of
its obligations under the Certificate of Designation and the consummation by the
Company of the transactions contemplated hereby and thereby will not (i) result
in a violation of the Articles of Incorporation, any Certificate of Designation
of any outstanding series of Preferred Stock of the Company or Bylaws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and the
rules and regulations of the principal market or exchange on which the Common
Stock is traded or listed) applicable to the Company or any of its subsidiaries
or by which any property or asset of the Company or any of its subsidiaries is
bound or affected. Except as disclosed in Schedule 3(e), neither the Company nor
its subsidiaries is in violation of any term of or in default under its Articles
of Incorporation, Certificate of Designation of any outstanding series of
Preferred Stock or Bylaws or their organizational charter or bylaws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the
Company and its subsidiaries is not being conducted, and shall not be conducted,
in violation of any law, ordinance or regulation of any governmental entity,
except for those violations that individually or in the aggregate would not have
a material adverse effect on the business, properties, operations, financial
condition, results of operations or prospects of the Company or any of its
subsidiaries. Except for filing the Certificate of Designation with the
Secretary of State of the State of Minnesota and except as specifically
contemplated by this Agreement and as
6
<PAGE> 7
required under the 1933 Act, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental or regulatory or self-regulatory agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement or perform its obligations under
the Certificate of Designation in accordance with the terms hereof or thereof.
Except as disclosed in Schedule 3(e), all consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. The Company is not in violation of the listing requirements of the
NASDAQ SmallCap Market. The Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing or to
delisting of the Common Stock by the NASDAQ SmallCap Market.
f. SEC Documents; Financial Statements. Since March
31, 1997, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"1934 ACT") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). The Company has delivered to each Buyer or its representative
true and complete copies of such SEC Documents as each Buyer or its
representative has requested from the Company. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto, or (ii) in the case
of unaudited interim statements, to the extent they may exclude footnotes or may
be condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results of
its operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyer which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they are
or were made, not misleading.
g. Absence of Certain Changes. Except as expressly
disclosed in Schedule 3(g) and the SEC Documents, since March 31, 1997 there has
been no material adverse change and no material adverse development in the
business, properties, operations, financial condition, results of operations or
prospects of the Company and its subsidiaries taken as a
7
<PAGE> 8
whole. The Company has not taken any steps, and does not currently expect to
take any steps, to seek protection pursuant to any bankruptcy law nor does the
Company or its subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or its subsidiaries or their respective directors or
officers, or the Common Stock, wherein an unfavorable decision, ruling or
finding would (i) have a material adverse effect on the transactions
contemplated hereby (ii) adversely affect the validity or enforceability of, or
the authority or ability of the Company to perform its obligations under, this
Agreement, the Registration Rights Agreement, or any of the documents
contemplated herein or (iii), except as expressly set forth in Schedule 3(h),
have a material adverse effect on the business, operations, properties,
financial condition, results of operations or prospects of the Company and its
subsidiaries taken as a whole.
i. Acknowledgment Regarding Buyers' Purchase of
Series B Preferred Shares. The Company acknowledges and agrees that each of the
Buyers is acting solely in the capacity of arm's length purchaser with respect
to this Agreement and the transactions contemplated hereby. The Company further
acknowledges that each Buyer is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any of the Buyers
or any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to such
Buyer's purchase of the Series B Preferred Shares or the Conversion Shares. The
Company further represents to each Buyer that the Company's decision to enter
into this Agreement has been based solely on the independent evaluation by the
Company and its representatives.
j. No General Solicitation. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D under the 1933 Act) in connection with the offer or sale of the
Series B Preferred Shares or the Conversion Shares.
k. No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of the Series B Preferred Shares or the Conversion Shares under the
1933 Act or cause this offering of Series B Preferred Shares and Conversion
Shares to be integrated with prior offerings by the Company for purposes of the
1933 Act or any applicable shareholder approval provisions, including, without
limitation, under the rules and regulations of the National Association of
Securities Dealers Automated Quotations ("NASDAQ").
l. Employee Relations. Neither the Company nor any of
its subsidiaries is involved in any union labor dispute nor, to the knowledge of
the Company or any
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of its subsidiaries, is any such dispute threatened. Except as set forth on
Schedule 3(l), none of the Company's or its subsidiaries' employees is a member
of a union, and the Company and its subsidiaries believe that their relations
with their employees are good.
m. Intellectual Property Rights. The Company and its
subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights (collectively "INTELLECTUAL PROPERTY
RIGHTS") necessary to conduct their respective businesses as now conducted.
Except as set forth on Schedule 3(m), none of the Intellectual Property Rights
or other intellectual property rights have expired or terminated, or are
expected to expire or terminate in the near future. The Company and its
subsidiaries do not have any knowledge of any event, fact or circumstance
relating to (i) any infringement by the Company or its subsidiaries of any
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets or other similar rights of others, or
of any such development of similar or identical trade secrets or technical
information by others or (ii) any person or entity now infringing any
Intellectual Property Rights or other similar rights or any such development of
similar or identical trade secrets or technical information owned or used by the
Company or any of its subsidiaries and, except as set forth on Schedule 3(m),
there is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its subsidiaries
regarding any trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and its
subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights.
n. Environmental Laws. The Company and its
subsidiaries (i) are in compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval, except where the failure to comply with such laws and regulations or
to receive or comply with such permits, licenses or approvals would not have a
material adverse effect on the business, properties, operations, financial
condition, results of operations or prospects of the Company and its
subsidiaries individually or taken as a whole.
o. Title. The Company and its subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as set forth in the SEC Documents and
except such as are described in Schedule 3(o) or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of
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<PAGE> 10
such property by the Company and its subsidiaries. Any real property and
facilities held under lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries.
p. Insurance. The Company and each of its
subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts is prudent and customary in
the businesses in which the Company and its subsidiaries are engaged. Neither
the Company nor any such subsidiary has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings, business or
operations of the Company and its subsidiaries, taken as a whole.
q. Regulatory Permits. The Company and its
subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit, except where the
failure to possess such certificates, authorizations and permits would not have
a material adverse effect on the business, properties, operations, financial
condition, results of operations or prospects of the Company or any of its
subsidiaries.
r. Internal Accounting Controls. The Company and each
of its subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company's board of directors and in relation
to the size and complexity of their respective businesses, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
s. No Materially Adverse Contracts, Etc. Neither the
Company nor any of its subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the reasonable judgment of the Company's officers has or is expected in
the future to have a material adverse effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries.
t. Tax Status. Except as set forth on Schedule 3(t),
the Company and each of its subsidiaries have made or filed all federal and
state income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the
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<PAGE> 11
extent that the Company and each of its subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and has set
aside on its books provision reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
u. Certain Transactions. Except as set forth on
Schedule 3(u) and except for arm's length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and other than the
grant of stock options disclosed on Schedule 3(c), none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
v. Dilutive Effect. The Company understands and
acknowledges that the number of Conversion Shares issuable upon conversion of
the Series B Preferred Shares will increase in certain circumstances. The
Company further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Series B Preferred Shares in accordance with this Agreement
and the Certificate of Designation is absolute and unconditional regardless of
the dilutive effect that such issuance may have on the ownership interests of
other shareholders of the Company.
w. S-3 Registration. The Company is currently
eligible to register securities in a secondary offering, including the resale of
Conversion Shares on a registration statement on Form S-3 under the 1933 Act.
4. COVENANTS AND AGREEMENTS.
a. Best Efforts. Each party shall use its best
efforts timely to satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with
respect to the Series B Preferred Shares and the Conversion Shares as required
under Regulation D and to provide a copy thereof to each Buyer promptly after
such filing. The Company shall, on or before the Closing Date, take such action
as the Company shall reasonably determine is necessary to qualify the Series B
Preferred Shares and the Conversion Shares for, or obtain exemption for the
Series B Preferred Shares and the Conversion Shares for, sale to the Buyers at
the Closing pursuant to this Agreement under applicable securities or "Blue Sky"
laws of the
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<PAGE> 12
states of the United States, and shall provide evidence of any such action so
taken to the Buyers on or prior to the Closing Date.
c. Reporting Status. Until the earlier of (i) six
months after the date as of which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion Shares without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto), or (ii) the date on which (A) the Investors shall have sold all the
Conversion Shares and (B) none of the Series B Preferred Shares is outstanding
(the "REGISTRATION PERIOD"), the Company shall file all reports required to be
filed with the SEC pursuant to the 1934 Act, and the Company (x) shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would otherwise
permit such termination and (y) will use its best efforts to maintain its
ability and eligibility to register securities on Form S-3.
d. Use of Proceeds. The Company will use the proceeds
from the sale of the Series B Preferred Shares for substantially the same
purposes and in substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send
the following to each Investor (as that term is defined in the Registration
Rights Agreement) during the Registration Period: (i) within one (1) day after
release thereof, copies of all press releases issued by the Company or any of
its subsidiaries and (ii) copies of any notices and other information made
available or given to the shareholders of the Company generally,
contemporaneously with the making available or giving thereof to the
shareholders.
f. Reservation of Shares. The Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than the number of shares of Common Stock needed to provide
for the issuance of the Conversion Shares upon conversion of the Series B
Preferred Shares in accordance with the terms of this Agreement and the
Certificate of Designation.
g. Listing. The Company shall promptly secure the
listing of the Conversion Shares upon the NASDAQ SmallCap Market (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, the listing of all Conversion Shares from time
to time issuable under the terms of this Agreement and the Certificate of
Designation on each national securities exchange and automated quotation system
(including the Nasdaq National Marketing System), if any, upon which shares of
Common Stock are then listed. The Company shall promptly provide to each Buyer
copies of any notices it receives from the NASDAQ SmallCap Market regarding the
continued eligibility of the Common Stock for listing on the NASDAQ SmallCap
Market, except to the extent that such notices would constitute material
non-public information which, according to applicable law, rule or regulation
should have been disclosed publicly by the Company but which has not been so
disclosed as of such date. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(g).
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<PAGE> 13
h. Expenses. Each of the Company and the Buyers shall
each pay its respective costs and expenses incurred by such party in connection
with the negotiation, investigation, preparation, execution, delivery and
performance of this Agreement and the Registration Rights Agreement Certificate
of Designation.
i. Additional Issuances of Securities.
(a) Right of First Refusal. For a period of 180
days from and after the Closing Date, if the Company shall desire to issue any
Common Stock or any security convertible, exchangeable or exercisable for Common
Stock or any other right to acquire any Common Stock pursuant to Section 4(2) of
the 1933 Act, an offering under Regulation D or Regulation S of the 1933 Act or
in any other private placement, in any such case with an acquisition price for
each share of Common Stock that is proposed to be less than the Average Market
Price (as defined in the Certificate of Designation) of the Common Stock on the
date of such issuance (the "DISCOUNTED SECURITIES"), exclusive of issuances of
Common Stock upon the Buyers' conversion of the Series B Preferred Shares (other
than pursuant to: (i) Company authorized stock option plans with employees or
directors of the Company; (ii) future equity financing whereby Discounted
Securities are issued to any person or entity which has or is proposed to have a
material business, technology or commercial relationship with the Company in
addition to any equity financing provided by such person or entity; (iii) the
right of first refusal of the placement agent referred to in Section 9(l) of
this Agreement, as provided in the engagement letter, dated as of March 16,
1998, between the Company and such placement agent; (iv) stock purchase warrants
issued as consideration for services rendered to the Company; and (v) issuances
of Discounted Securities as consideration for a merger, consolidation or sale of
assets), then the Company shall first comply with the terms of this Section
4(i).
(b) Notice Requirements. The Company shall notify,
or cause to be notified, the Buyers not less than ten (10) business days nor
more than twenty (20) business days prior to the time the Company intends to
consummate such issuance (the "ISSUANCE NOTICE"). The Issuance Notice shall set
forth all of the terms of such proposed issuance.
(c) Exercise of Right of First Refusal. The right
of first refusal provided for in this Section 4(i) may be exercised by the
Buyers by delivery of a written notice to the Company (the "EXERCISE NOTICE"),
within ten (10) business days following receipt of the Issuance Notice (the
"REFUSAL PERIOD"). The Exercise Notice shall state that the Buyers agree to
purchase all or any specified part of the proposed issuance of such Discounted
Securities on terms substantially equal to the terms set forth in the Issuance
Notice.
(d) Right to Issue Discounted Securities. After
expiration of the Refusal Period, if the provisions of this Section 4(i) have
been complied with in all respects by the Company and no Exercise Notice has
been given, or if given, the Buyers have not agreed to purchase all of the
securities set forth in the Issuance Notice, the Company shall have the right
for forty-five (45) calendar days following the termination of the Refusal
Period to issue such securities, or any portion thereof not being purchased by
the Buyers, specified in the Issuance Notice on the terms described in the
Issuance Notice without further notice to the Buyers, but
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<PAGE> 14
after such forty-five (45) calendar days, no such issuance may be made without
again giving notice to the Buyers and complying with all of the requirements of
this Section 4(i).
(e) The Company will not issue any Series B
Preferred Shares other than to the Buyers as contemplated hereby or as otherwise
contemplated in the Certificate of Designation.
j. Dilutive Effect. The Company understands and
acknowledges that the number of Conversion Shares issuable upon conversion of
the Series B Preferred Shares will increase in certain circumstances. The
Company further acknowledges and agrees that its obligation to issue Conversion
Shares upon conversion of the Series B Preferred Shares in accordance with this
Agreement and the Certificate of Designation is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company.
k. Disclosure. From and after the date hereof, the
Company will not provide to any Buyer any material non-public information which,
according to applicable law, rule or regulation should be disclosed publicly by
the Company but which has not been so disclosed.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent (in the form attached hereto as Exhibit E) to issue certificates,
or, at a Buyer's request, to electronically issue such shares (e.g., through
DWAC or DTC), registered in the name of each Buyer or its respective nominee(s),
for the Conversion Shares in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Series B Preferred Shares (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the
Conversion Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares, prior
to registration of the Conversion Shares under the 1933 Act) will be given by
the Company to its transfer agent and that the Series B Preferred Shares and the
Conversion Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement, the
Registration Rights Agreement and the Certificate of Designation. Nothing in
this Section 5 shall affect in any way each Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Series B Preferred
Shares or Conversion Shares. If a Buyer provides the Company with an opinion of
counsel addressed to the Company, reasonably satisfactory in form and substance
to the Company, that registration of a resale by such Buyer of any of the Series
B Preferred Shares or the Conversion Shares is not required under the 1933 Act,
the Company shall permit the transfer, and, in the case of the Conversion
Shares, promptly instruct its transfer agent to issue one or more certificates
in such name and in such denominations as specified by such Buyer. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated
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<PAGE> 15
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section 5, that the Buyers shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Series B Preferred Shares to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:
a. Such Buyer shall have executed this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
b. Such Buyer shall have delivered to the Company the
Purchase Price for the Series B Preferred Shares being purchased by such Buyer
at the Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.
c. The representations and warranties of such Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Series
B Preferred Shares at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
a. The Company shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to such Buyer.
b. The Certificate of Designation, shall have been
executed by the Company and filed with the Secretary of State of the State of
Minnesota, and a copy thereof certified by such Secretary of State shall have
been delivered to such Buyer.
c. The Common Stock shall be authorized for quotation
on the NASDAQ SmallCap Market, trading in the Common Stock issuable upon
conversion of the Series B Preferred Shares to be traded on the NASDAQ SmallCap
Market shall not have been
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suspended by the SEC or the NASDAQ SmallCap Market and all of the Conversion
Shares issuable upon conversion of the Series B Preferred Shares to be sold at
the Closing shall be listed upon the NASDAQ SmallCap Market.
d. The representations and warranties of the Company
shall be true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as to
materiality in Section 3 above, in which case such representations and
warranties shall be true and correct without further qualification) as of the
date when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date. Such Buyer shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by such Buyer
including, without limitation, an update as of the Closing Date regarding the
representation contained in Section 3(c) above.
e. Such Buyer shall have received the opinion of the
Company's counsel dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to such Buyer and in substantially the form of Exhibit C
attached hereto.
f. The Company shall have executed and delivered to
such Buyer the Stock Certificates (in such denominations as such Buyer shall
request) for the Series B Preferred Shares being purchased by such Buyer at the
Closing.
g. The Board of Directors of the Company shall have
adopted the resolutions in substantially the form of Exhibit D attached hereto.
h. As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Series B Preferred Shares, at least 1,611,000
shares of Common Stock.
i. The Irrevocable Transfer Agent Instructions, in
the form of Exhibit E attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
j. The transactions contemplated hereby shall not
violate any law, regulation or order then in effect and applicable to Buyers or
the Company.
8. INDEMNIFICATION.
In consideration of each Buyer's execution and delivery of
this Agreement and acquiring the Series B Preferred Shares and Conversion Shares
hereunder and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of Series B Preferred Shares and
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<PAGE> 17
Conversion Shares and all of their officers, directors, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "BUYER
INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Buyer Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "BUYER INDEMNIFIED
LIABILITIES"), incurred by any Buyer Indemnitee (and shall advance the same) as
a result of, or arising out of, or relating to (a) subject to Section 9(i), any
misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Certificate of Designation or the Registration
Rights Agreement or any other certificate, instrument or document contemplated
hereby or thereby, (b) any breach of any covenant, agreement or obligation of
the Company contained in this Agreement, the Certificate of Designation or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Buyer Indemnitee and arising out of or resulting
from the execution, delivery, performance or enforcement of this Agreement or
any other instrument, document or agreement executed pursuant hereto by any of
the Buyer Indemnitees, except to the extent the Buyer Indemnified Liabilities
are incurred as a result of (a) subject to Section 9(i), any misrepresentation
or breach of any representation or warranty made by the Buyers in this Agreement
or the Registration Rights Agreement or any other certificate, instrument or
document contemplated hereby or thereby or (b) any breach of any covenant,
agreement or obligation of the Buyers contained in this Agreement or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, provided that the Company shall only be
responsible for 50% of Buyer Indemnified Liabilities incurred by any Buyer
Indemnitee (and shall advance the same) as a result of, or arising out of, or
relating to this Section 8(c). To the extent that the foregoing undertaking by
the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Buyer
Indemnified Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of New York without
regard to the principles of conflict of laws.
b. Counterparts. This Agreement may be executed in
two or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
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d. Severability. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement
supersedes all other prior oral or written agreements between the Buyers, the
Company, their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement and the instruments and documents
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
if to the Company:
IntraNet Solutions, Inc.
9625 W. 76th Street
Suite 150
Eden Prairie, MN 55344
Telephone: 612-903-2003
Facsimile: 612-829-5424
Attention: President
with a copy to:
Maslon Edelman Borman & Brand, LLP
3300 Norwest Center
Minneapolis, Minnesota 55402
Telephone: 612-672-8200
Facsimile: 612-672-8397
Attention: William Mower, Esq.
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if to the Transfer Agent:
Norwest Bank Minnesota, National Association
161 North Concord Exchange
P.O. Box 738
South St. Paul, MN 55075-0738
and if to a Buyer, to its address and facsimile number on the
Schedule of Buyers, with copies to such Buyer's counsel as set forth on the
Schedule of Buyers. Each party shall provide five (5) days' prior written notice
to the other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Series B Preferred
Shares. The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Buyers, except pursuant to a
Major Transaction (as defined in Section 3(c) of the Certificate of Designation)
with respect to which the Company is in compliance with Section 3 of the
Certificate of Designation. A Buyer may assign some or all of its rights
hereunder without the consent of the Company, provided, however, that (i) any
such assignment shall not release such Buyer from its obligations hereunder
unless such obligations are assumed by such assignee and the Company has
consented to such assignment and assumption and (ii) no Buyer may assign its
rights hereunder in a manner that would cause the offering of Series B Preferred
Shares hereunder to be required to be registered under the 1933 Act.
h. No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. The representations and warranties of
the Company and the Buyers contained in Sections 3 and 2, respectively, shall
survive the Closing until two years after the Closing Date. The agreements and
covenants set forth in Sections 4, 5 and 9, and the indemnification provisions
set forth in Section 8, shall survive the Closing. Each Buyer shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.
j. Publicity. The Company and each Buyer shall have
the right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of any
Buyer, to make any press release or other public disclosure with respect to such
transactions as is required by applicable law and regulations (although each
Buyer shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof).
k. Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably
19
<PAGE> 20
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.
l. Placement Agent. The Company acknowledges that it
has engaged a placement agent in connection with the sale of the Series B
Preferred Shares, which placement agent may have formally or informally engaged
other agents on its behalf. The Company shall be responsible for the payment of
any placement agent's fees or broker's commissions relating to or arising out of
the transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.
m. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
20
<PAGE> 21
IN WITNESS WHEREOF, the Buyers and the Company have caused
this Securities Purchase Agreement to be duly executed as of the date first
written above.
COMPANY: BUYERS:
- -------- -------
INTRANET SOLUTIONS, INC. STARK INTERNATIONAL
By: /s/ Robert F. Olson By: /s/ Michael A. Roth
--------------------------- ------------------------------------
Name: Robert F. Olson Name: Michael A. Roth
Its: President Its: Managing Member,
Staro Asset Management, LLC,
Investment Manager
SHEPHERD INVESTMENTS
INTERNATIONAL, LTD.
By: /s/ Michael A. Roth
------------------------------------
Name: Michael A. Roth
Its: Managing Member,
Staro Asset Management, LLC,
Investment Manager
<PAGE> 22
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Number of Series
Investor Address and B Preferred Shares Investor's Advisors and Legal
Investor Name Facsimile Number Counsel Address
- ----------------------------- -------------------------- ------------------ -----------------------------
Stark International c/o Staro Asset Management 150 Eleazer Klein, Esq.
(Bermuda) 1500 West Market Street Schulte Roth Zabel LLP
Mequon, Wisconsin 53092 New York, NY 10022
Fax: (414) 241-1888 Fax: (212) 593-5955
Shepherd Investments c/o Staro Asset Management 150 Eleazer Klein, Esq.
International, Ltd. 1500 West Market Street Schulte Roth Zabel LLP
(British Virgin Islands) Mequon, Wisconsin 53092 New York, NY 10022
Fax: (414) 241-1888 Fax: (212) 593-5955
</TABLE>
<PAGE> 1
EXHIBIT 4.(3)
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of May 6,
1998, by and among IntraNet Solutions, Inc., a Minnesota corporation, with
headquarters located at 9625 West 76th Street, Suite 150, Eden Prairies, MN
55344 (the "COMPANY"), and the undersigned buyers (each, a "BUYER" and
collectively, the "BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers shares of the
Company's Series B Convertible Preferred Stock (the "SERIES B PREFERRED
SHARES"), which will be convertible into shares of the Company's common stock,
$.01 par value per share (the "COMMON STOCK") (as converted, the "CONVERSION
SHARES") in accordance with the terms of the Company's Certificate of
Designation (the "CERTIFICATE OF DESIGNATION"); and
B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means a Buyer and any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section
9.
b. "PERSON" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("RULE 415"), and the declaration or ordering of
<PAGE> 2
effectiveness of such Registration Statement(s) by the United States Securities
and Exchange Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means the Conversion Shares issued
or issuable upon conversion of the Series B Preferred Shares and any shares of
capital stock issued or issuable with respect to the Conversion Shares or the
Series B Preferred Shares as a result of any stock split, stock dividend,
recapitalization, exchange or similar event.
e. "REGISTRATION STATEMENT" means a registration statement of
the Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on
or prior to fifteen (15) business days after the date of issuance of the Series
B Preferred Shares (or, in the case of an underwritten offering at the option of
the Buyers pursuant to Section 2(b) hereof, twenty-five (25) business days after
the date of issuance of the Series B Preferred Shares), file with the SEC a
Registration Statement or Registration Statements (as is necessary) on Form S-3
(or, if such form is unavailable for such a registration, on such other form as
is available for such a registration, subject to the consent of each Buyer and
the provisions of Section 2(c), which consent will not be unreasonably
withheld), covering all of the Registrable Securities, which Registration
Statement(s) shall state that, in accordance with Rule 416 promulgated under the
1933 Act, such Registration Statement(s) also covers such indeterminate number
of additional shares of Common Stock as may become issuable upon conversion of
the Series B Preferred Shares (i) to prevent dilution resulting from stock
splits, stock dividends or similar transactions and (ii) by reason of changes in
the Conversion Price or Conversion Rate of the Series B Preferred Shares in
accordance with the terms thereof. Such Registration Statement shall initially
register for resale at least that number of shares of Common Stock equal to
1,611,000, subject to adjustment as provided in Section 3(b). Such registered
shares of Common Stock shall be allocated among the Investors pro rata based on
the total number of Registrable Securities issued or issuable as of each date
that a Registration Statement, as amended, relating to the resale of the
Registrable Securities is declared effective by the SEC. The Company shall use
its best efforts to have the Registration Statement declared effective by the
SEC within sixty (60) days after the issuance of the Series B Preferred Shares.
b. Counsel and Investment Bankers. Subject to Section 5
hereof, in connection with any offering pursuant to Section 2, the Buyers shall
have the right to select legal counsel and an investment banker or bankers and
manager or managers to administer their interest in the offering, at the sole
cost and expense of the Buyers, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company. The Company shall
reasonably cooperate with any such counsel and investment bankers.
-2-
<PAGE> 3
c. Eligibility for Form S-3. The Company represents, warrants
and covenants that it will meet the requirements for the use of Form S-3 for
registration of the sale by the Buyers and any other Investor of the Registrable
Securities on and after the fifteenth (15th) business day following the date of
issuance of any Series B Preferred Shares and the Company has filed and shall
file all reports required to be filed by the Company with the SEC in a timely
manner so as to obtain and maintain such eligibility for the use of Form S-3. In
the event that Form S-3 is not available for sale by the Investors of the
Registrable Securities, then the Company (i) with the consent of each Investor
pursuant to Section 2(a), shall register the sale of the Registrable Securities
on another appropriate form and (ii) the Company shall undertake to register the
Registrable Securities on Form S-3 as soon as such form is available, provided
that the Company shall maintain the effectiveness of the Registration Statement
then in effect until such time as a Registration Statement on Form S-3 covering
the Registrable Securities has been declared effective by the SEC.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a), the Company will use its best
efforts to effect the registration of the Registrable Securities in accordance
with the intended method of disposition thereof and, pursuant thereto, the
Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the fifteenth (15th) business day after the date of issuance of any Series B
Preferred Shares for the registration of Registrable Securities pursuant to
Section 2(a)) and use its best efforts to cause such Registration Statement(s)
relating to Registrable Securities to become effective as soon as possible after
such filing (but no later than ninety (90) days after the issuance of any Series
B Preferred Shares for the registration of Registrable Securities pursuant to
Section 2(a)), and keep the Registration Statement(s) effective pursuant to Rule
415 at all times until the earlier of (i) six months after the date as of which
the Investors may sell all of the Registrable Securities without restriction
pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto) or
(ii) the date on which (A) the Investors shall have sold all the Registrable
Securities and (B) none of the Series B Preferred Shares is outstanding (the
"REGISTRATION PERIOD"), which Registration Statement(s) (including any
amendments or supplements thereto and prospectuses contained therein) 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
light of the circumstances in which they were made, not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement(s) and the prospectus(es) used in connection with the
Registration Statement(s), which prospectus(es) are to be filed pursuant to Rule
424 promulgated under the 1933 Act, as may be necessary to keep the Registration
Statement(s) effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by the
Registration Statement(s) until such time
-3-
<PAGE> 4
as all of such Registrable Securities shall 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(s).
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement(s) and its
legal counsel without charge (i) promptly after the same is prepared and filed
with the SEC at least one copy of the Registration Statement and any amendment
thereto, including financial statements and schedules and all exhibits, the
prospectus(es) included in such Registration Statement(s) (including each
preliminary prospectus) and, with regards to the Registration Statement, any
correspondence by or on behalf of the Company to the SEC or the staff of the SEC
and any correspondence from the SEC or the staff of the SEC to the Company or
its representatives, (ii) upon the effectiveness of any Registration Statement,
ten (10) copies of the prospectus included in such Registration Statement and
all amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including any
preliminary prospectus, as such Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such Investor.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement(s)
under such other securities or "blue sky" laws of such jurisdictions in the
United States as any Investor reasonably requests, (ii) prepare and file in
those jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during 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 (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
each Investor who holds Registrable Securities of the receipt by the Company of
any notification with respect to the suspension of the registration or
qualification of any of the Registrable Securities for sale under the securities
or "blue sky" laws of any jurisdiction in the United States or its receipt of
actual notice of the initiation or threatening of any proceeding for such
purpose.
e. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor in writing of the happening of any
event as a result of which the prospectus included in a Registration Statement,
as then in effect, includes an untrue
-4-
<PAGE> 5
statement of a material fact or omission 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 promptly prepare a
supplement or amendment to the Registration Statement to correct such untrue
statement or omission, and deliver ten (10) copies of such supplement or
amendment to each Investor (or such other number of copies as such Investor may
reasonably request). The Company shall also promptly notify each Investor in
writing (i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and when a Registration Statement or any
post-effective amendment has become effective (notification of such
effectiveness shall be delivered to each Investor by facsimile on the same day
of such effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify each Investor who holds Registrable
Securities being sold (and, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
h. The Company shall permit each Investor and a single firm of
counsel, initially Schulte Roth & Zabel LLP or such other counsel as thereafter
designated as selling stockholders' counsel by the Investors who hold a majority
of the Registrable Securities being sold, to review and comment upon the
Registration Statement(s) and all amendments and supplements thereto at least
five (5) days prior to their filing with the SEC, and not file any document in a
form to which such counsel reasonably objects. The Company shall not submit a
request for acceleration of the effectiveness of a Registration Statement(s) or
any amendment or supplement thereto without the prior approval of such counsel,
which consent shall not be unreasonably withheld or delayed.
i. At the request of the Investors who hold a majority of the
Registrable Securities being sold, the Company shall furnish, on the date that
Registrable Securities are delivered to an underwriter, if any, for sale in
connection with the Registration Statement (i) if required by an underwriter, a
letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, and (ii) an opinion, dated as of such date, of
counsel representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to the underwriters and the Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one
-5-
<PAGE> 6
firm of attorneys and one firm of accountants or other agents retained by the
Investors, and (iv) one firm of attorneys retained by all such underwriters
(collectively, the "INSPECTORS") all pertinent financial and other records, and
pertinent corporate documents and properties of the Company (collectively, the
"RECORDS"), as shall be reasonably deemed necessary by each Inspector to enable
each Inspector to exercise its due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information which any
Inspector may reasonably request for purposes of such due diligence; provided,
however, that each Inspector shall hold in strict confidence and shall not make
any disclosure (except to an Investor) or use of any Record or other information
which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. Each
Investor agrees that it shall, upon learning that disclosure of such Records is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company, at
its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this or any other agreement. The
Company agrees that it shall, upon learning that disclosure of such information
concerning an Investor is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt written notice to
such Investor and allow such Investor, at the Investor's expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
l. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities covered
by the Registration Statement on the Nasdaq National Market System or the Nasdaq
SmallCap Market for such Registrable Securities and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc. ("NASD") as
such with respect to such Registrable Securities. The Company shall pay all fees
and expenses in connection with satisfying its obligation under this Section
3(l).
-6-
<PAGE> 7
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any, or
the Investors may request. Not later than the date on which any Registration
Statement registering the resale of Registrable Securities is declared
effective, the Company shall deliver to its transfer agent instructions,
accompanied by any reasonably required opinion of counsel, that permit sales of
unlegended securities in a timely fashion that complies with then mandated
securities settlement procedures for regular way market transactions.
n. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
o. The Company shall provide a CUSIP number, a transfer agent
and registrar of all such Registrable Securities not later than the effective
date of such Registration Statement.
p. If requested by the managing underwriters or an Investor,
the Company shall immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and with respect to
any other terms of the underwritten (or best efforts underwritten) offering of
the Registrable Securities to be sold in such offering; make all required
filings of such prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such prospectus supplement or
post-effective amendment; and supplement or make amendments to any Registration
Statement if requested by a shareholder or any underwriter of such Registrable
Securities.
q. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
r. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor in writing of the information the
-7-
<PAGE> 8
Company requires from each such Investor if such Investor elects to have any of
such Investor's Registrable Securities included in the Registration Statement.
It shall be a condition precedent to the obligations of the Company to complete
the registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor 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 such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request.
b. Each Investor by such Investor'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(s) hereunder, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
c. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(g)
or the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to the Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f) and, if so directed by the Company, such Investor shall
deliver to the Company (at the expense of the Company) or destroy all copies in
such Investor's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
d. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Investors entitled hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements, and (iii) agrees to pay its pro rata share of
all underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company, shall be paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
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<PAGE> 9
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who holds
such Registrable Securities, the directors, officers, partners, employees,
agents and each Person, if any, who controls any Investor within the meaning of
the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934
ACT"), and any underwriter (as defined in the 1933 Act) for the Investors, and
the directors and officers of, and each Person, if any, who controls, any such
underwriter within the meaning of the 1933 Act or the 1934 Act (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in
settlement or expenses, joint or several, (collectively, "CLAIMS") incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered
("BLUE SKY FILING"), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which the statements therein were made, 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 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (the matters in the
foregoing clauses (i) through (iii) 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 the Investors and each such
underwriter or controlling person, 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
or underwriter for such 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); (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
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<PAGE> 10
was timely made available by the Company pursuant to Section 3(c), and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a violation and such Indemnified
Person, notwithstanding such advice, used it; (iii) shall not be available to
the extent such Claim is based on a failure of the Investor to deliver or to
cause to be delivered the prospectus made available by the Company; and (iv)
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
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is 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 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are 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
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will 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) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Investors who hold two-thirds (2/3) of the Registrable Securities, which consent
shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Section 6(b) for only that amount of a Claim
or Indemnified Damages as does not exceed the net proceeds to such Investor 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 the Investors 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
underwriters, 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
expressly for inclusion in the Registration Statement.
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<PAGE> 11
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the 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 party and the Indemnified
Person or the Indemnified Party, as the case may be; 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 any
other party represented by such counsel in such proceeding. The Company shall
pay reasonable fees for only one separate legal counsel for the Investors, and
such legal counsel shall be selected by the Investors holding a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without, in the case of
the Investors, the written consent of the Investors who hold two-thirds (2/3) of
the Registrable Securities, and, in the case of any other indemnifying party,
its written consent, provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the consent of the Indemnified Party or Indemnified Person,
consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. 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.
e. 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 and when bills are received or Indemnified Damages
are incurred.
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<PAGE> 12
f. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) 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; (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (iii) 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 THE 1934 ACT.
With a view to making available to the Investors the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the investors to sell
securities of the Company to the public without registration ("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 in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor 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
1933 Act and the 1934 Act and (ii) such other information as may be reasonably
requested to permit the investors to sell such securities pursuant to Rule 144
without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assignable by the Investors to
any transferee of all or any portion of Registrable Securities if: (i) the
Investor agrees in writing with the transferee or
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<PAGE> 13
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; (v) such transfer
shall have been made in accordance with the applicable requirements of the
Securities Purchase Agreement; (vi) such transferee shall be an "accredited
investor" as that term is defined in Rule 501 of Regulation D promulgated under
the 1933 Act; and (vii) in the event the assignment occurs subsequent to the
date of effectiveness of the Registration Statement required to be filed
pursuant to Section 2(a), the transferee agrees to pay all reasonable expenses
of amending or supplementing such Registration Statement to reflect such
assignment.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions 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 Investors who hold two-thirds (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. 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
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days
after being sent by U.S. certified mail, return receipt requested; or (iv) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
if to the Company:
IntraNet Solutions, Inc.
9625 W. 76th Street, Suite 150
Eden Prairies, MN 55344
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<PAGE> 14
Telephone: 612-903-2003
Facsimile: 612-829-5424
Attention: President
with a copy to:
Maslon Edelman Borman & Brand, LLP
3300 Norwest Center
Minneapolis, Minnesota 55402
Telephone: 612-672-8200
Facsimile: 612-672-8397
Attention: William Mower, Esq.
and if to a Buyer, to its address and facsimile number on the
Schedule of Buyers attached hereto, with copies to such
Buyer's counsel as set forth on the Schedule of Buyers.
Each party shall provide five (5) days prior notice to the other party
of any change in address, phone number or facsimile number.
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 governed by and interpreted in
accordance with the laws of the State of New York without regard to the
principles of conflict of laws. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. This Agreement, the Certificate of Designation and the
Securities Purchase Agreement (including all schedules and exhibits thereto)
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. The aforementioned documents supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same
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<PAGE> 15
agreement. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
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<PAGE> 16
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
INTRANET SOLUTIONS, INC. STARK INTERNATIONAL
By: /s/ Robert F. Olson By: /s/ Michael A. Roth
---------------------------- ------------------------------
Name: Robert F. Olson Name: Michael A. Roth
Its: President Its: Managing Member,
Staro Asset Management,
LLC, Investment Manager
SHEPHERD INVESTMENTS
INTERNATIONAL, LTD.
By: /s/ Michael A. Roth
------------------------------
Name: Michael A. Roth
Its: Managing Member,
Staro Asset Management,
LLC, Investment Manager
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<PAGE> 17
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
INVESTOR'S LEGAL COUNSEL AND
INVESTOR NAME INVESTOR ADDRESS AND FACSIMILE NUMBER COUNSEL'S ADDRESS
- ----------------------------- ------------------------------------- ---------------------------------------
<S> <C> <C>
Stark International c/o Staro Asset Management Eleazer Klein, Esq.
1500 West Market Street Schulte Roth & Zabel LLP
Mequon, Wisconsin 53092 900 Third Avenue
Fax: (414) 241-1888 New York, New York 10022
Fax: (212) 593-5955
Shepherd Investments c/o Staro Asset Management Eleazer Klein, Esq.
International, Ltd. 1500 West Market Street Schulte Roth & Zabel LLP
Mequon, Wisconsin 53092 900 Third Avenue
Fax: (414) 241-1888 New York, New York 10022
Fax: (212) 593-5955
</TABLE>
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<PAGE> 1
EXHIBIT 5
June 18, 1998
IntraNet Solutions, Inc.
9625 West 76th Street, Suite 150
Minneapolis, Minnesota 55344
Gentlemen:
We have acted on behalf of IntraNet Solutions, Inc., a Minnesota
corporation (the "Company") in connection with the preparation of a Registration
Statement on Form S-3 (the "Registration Statement") to be filed by the Company
with the Securities and Exchange Commission on June 17, 1998 relating to the
registration under the Securities Act of 1933, as amended, of shares (the
"Shares") of the Company's Common Stock, $.01 par value, issued upon conversion
of the Series B Convertible Preferred Stock.
Upon examination of such corporate documents and records as we have
deemed necessary or advisable for the purposes hereof and including and in
reliance upon certain certificates by the Company, it is our opinion that:
1. The Company is a validly existing corporation in good standing under
the laws of the State of Minnesota.
2. The Shares have been duly authorized, and when issued as described
in the Registration Statement, will be validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the references to our firm under the heading "Legal
Matters" in the Registration Statement.
Very truly yours,
/s/ Maslon, Edelman, Borman & Brand, LLP
<PAGE> 1
EXHIBIT 23(2)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of IntraNet Solutions,
Inc. for the registration of shares of its common stock and to the incorporation
by reference therein of our report dated June 30, 1997, with respect to the
consolidated financial statements of IntraNet Solutions, Inc. included in its
Annual Report (Form 10-KSB) for the year ended March 31, 1997, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
June 18, 1998
<PAGE> 1
EXHIBIT 23(3)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated May 14, 1996 included in the Company's Annual Report on Form 10-KSB
for the year ended March 31, 1997 into this Registration Statement on Form S-3.
/s/ LUND KOEHLER COX & COMPANY, PLLP
Minneapolis, Minnesota
June 17, 1998
