<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 10, 1999
REGISTRATION NO. 333-77389
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTRANET SOLUTIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
MINNESOTA 7373 41-1652566
<S> <C> <C>
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation) classification code number) Identification Number)
</TABLE>
8091 WALLACE ROAD
MINNEAPOLIS, MINNESOTA 55344
(612) 903-2000
(Address and Telephone Number of Principal Executive Offices)
------------------------
ROBERT F. OLSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INTRANET SOLUTIONS, INC.
8091 WALLACE ROAD
MINNEAPOLIS, MINNESOTA 55344
(612) 903-2000
(Name, Address, and Telephone Number of Agent for Service)
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Copies to:
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<S> <C>
WILLIAM M. MOWER, ESQ. STEVEN C. KENNEDY, ESQ.
PHILIP J. TILTON, ESQ. FAEGRE & BENSON LLP
MASLON EDELMAN BORMAN & BRAND, LLP 2200 NORWEST CENTER
3300 NORWEST CENTER MINNEAPOLIS, MINNESOTA 55402
MINNEAPOLIS, MINNESOTA 55402 (612) 336-3000
(612) 672-8200 FAX (612) 336-3026
FAX (612) 672-8397
</TABLE>
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
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, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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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<CAPTION>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per share..... 5,290,000 shares $7.8906(2) $40,833,855 $11,351.81(3)
Common Stock, $0.01 par value per
share(4).................................. 115,000 shares $9.5625 $1,099,687 $305.71
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</TABLE>
(1) Includes 690,000 shares subject to an option granted to the Underwriters to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 of the Securities Act based upon a per share
average of the high and low prices of the Registrant's common stock on the
Nasdaq SmallCap Market on April 26, 1999.
(3) Previously paid.
(4) Represents shares added by this amendment. The projected maximum offering
price per share of $9.5625 is the average of the high and low prices of the
Registrant's common stock reported on the Nasdaq SmallCap Market for May 7,
1999.
------------------------
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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<PAGE> 2
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the Securities and Exchange Commission declares
our registration statement effective. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 10, 1999
PROSPECTUS
4,600,000 SHARES
INTRANET SOLUTIONS LOGO
COMMON STOCK
IntraNet Solutions, Inc. is offering 4,000,000 shares and the selling
shareholders are offering 600,000 shares. Our common stock is traded on the
Nasdaq SmallCap Market under the symbol "INRS." Application has been made to
have our common stock listed on the Nasdaq National Market under the symbol
"INRS" upon completion of this offering. On May 7, 1999, the last reported sale
price of our common stock was $9.25 per share.
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to IntraNet Solutions............ $ $
Proceeds, before expenses, to the selling shareholders...... $ $
</TABLE>
The underwriters have a 30-day option to purchase up to 690,000 additional
shares of common stock from us and the selling shareholders to cover
over-allotments, if any.
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INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
DAIN RAUSCHER WESSELS U.S. BANCORP PIPER JAFFRAY
a division of Dain Rauscher
Incorporated
, 1999
<PAGE> 3
INSIDE FRONT COVER GRAPHICS:
- - Caption: "Rapid, Secure Access and Management of Unstructured Business Data on
Intranets and Extranets."
- - Computer screen pictures and graphics depicting intranets.
- Computer screen picture depicting Intra.doc!'s intranet related screen.
- Graphic depicting Intra.doc! intranet applications, including:
manufacturing plant, distribution center, field reps and workgroup.
- - Graphic depicting a firewall, showing the secure separation of intranets and
extranets.
- - Graphics and computer screen picture depicting extranets.
- Graphic depicting Intra.doc! extranet applications, including: suppliers,
customers, outside contractors and business parties.
- Computer screen picture depicting Intra.doc!'s extranet related screen.
- - Product logos depicting Intra.doc! product capabilities, including: Archive
Replication, Document Management, Search Site, Customize Site and Subscribe to
Content.
<PAGE> 4
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. This prospectus is not an offer to sell, nor is
it seeking an offer to buy, these securities in any state where the offer or
sale is not permitted. The information in this prospectus is complete and
accurate as of the date on the front cover, but the information may have changed
since that date.
Intra.doc! and IntraNet Solutions are trademarks registered to IntraNet
Solutions, Inc., and we have applied for trademark registration for each of the
following additional marks: Document Refinery, Web Refinery and Web Vault. This
prospectus also contains trademarks of companies other than IntraNet Solutions.
-------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.............. 4
Risk Factors.................... 6
Forward-Looking Statements...... 13
Use of Proceeds................. 14
Dividend Policy................. 14
Price Range of Common Stock..... 14
Capitalization.................. 15
Dilution........................ 16
Selected Consolidated Financial
Data.......................... 17
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.................... 19
</TABLE>
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PAGE
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Business........................ 31
Management...................... 48
Principal and Selling
Shareholders.................. 53
Description of Securities....... 54
Shares Eligible for Future
Sale.......................... 56
Underwriting.................... 57
Where You Can Find More
Information................... 58
Legal Matters................... 59
Experts......................... 59
Index to Consolidated Financial
Statements.................... F-1
</TABLE>
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Except as otherwise stated, all information presented in this prospectus
assumes no exercise of the underwriters' over-allotment option.
3
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights only selected information contained elsewhere in
this prospectus. Before making an investment in IntraNet Solutions' common
stock, you should read the entire prospectus, including the Consolidated
Financial Statements and related Notes, all of which should be consulted when
reading this summary. This prospectus contains forward-looking statements. The
outcome of the events described in these forward-looking statements is subject
to risks and actual results could differ materially.
INTRANET SOLUTIONS, INC.
IntraNet Solutions is a leading provider of Web-based data and content
management solutions for intranets, extranets and the Internet. Our Intra.doc!
suite of products offers customers the ability to rapidly access, manage and
publish unstructured business data. According to The Delphi Group, over 85% of
an organization's internal information is unstructured business data, or data
contained in graphic, document or text format as opposed to structured data
typically stored in databases or data warehouses. Organizations require a broad
range of features to effectively manage this data and content in a Web
environment, including sophisticated security, rapid access, multiple version
control and continual updating of Web links, as well as e-commerce capabilities.
We address these complex needs by providing a comprehensive, Web-based solution
that performs key functions automatically, eliminates administrative bottlenecks
and continuously delivers the most current information to users.
Our Intra.doc! suite of products leverages the customer's existing Internet
infrastructure to enable the rapid and secure access and Web-publication of an
organization's unstructured business data on intranets, extranets and the
Internet. Intra.doc! enables organizations to capture sets of unstructured
business data, attach appropriate security and profiling information, known as
meta data, and dynamically publish and manage this information in a Web
environment without the need to manually reconfigure data sets. Our products
provide a comprehensive solution, based on open Web standards and Java server
architecture, with sophisticated security and searching capabilities. This
enterprise-scalable, cost-effective solution is quickly deployed, easily
maintained and may be configured to meet an organization's specific
requirements. In addition, our products provide e-commerce capabilities to
enable our customers to easily and cost-effectively sell data and content over
the Web.
The market for our products is growing quickly as organizations are rapidly
adopting intranets and extranets. CAP Ventures, a leading research organization,
estimates that spending on corporate intranets doubled in 1997 to $8.5 billion
and predicts an annual growth rate of 50% through the year 2000. In 1997, The
Delphi Group estimated that over 80% of desktops within Fortune 1000 companies
will be connected to an intranet by 1999. In addition, Forrester Research
estimates that more than 80% of Fortune 1000 companies plan to offer extranets
by the year 2000.
Our products provide a broad-based solution applicable across a wide
variety of industries that enables organizations to effectively utilize their
business-critical data and content. Since Intra.doc! was introduced in fiscal
1997, it has been adopted by over 200 businesses and government organizations
for use on over 300 intranet, extranet and Internet sites. Customer applications
of Intra.doc! have ranged from single workgroups to enterprise-wide solutions.
Our customers include organizations such as British Aerospace Airbus, Ltd.,
Cargill Incorporated, Ericsson Telecom AB, GE Capital Corporation and
Hewlett-Packard Company.
IntraNet Solutions was incorporated in Minnesota in 1989. In September
1998, we completed the sale of all businesses unrelated to our Intra.doc! suite
of products. Our executive offices are located at 8091 Wallace Road,
Minneapolis, Minnesota 55344; our telephone number is 612-903-2000; and our Web
site is located at http://www.intranetsol.com. Information contained on our Web
site is not part of this prospectus.
4
<PAGE> 6
THE OFFERING
Common stock offered by IntraNet
Solutions............................... 4,000,000 shares
Common stock offered by the selling
shareholders............................ 600,000 shares
Common stock to be outstanding after the
offering................................ 15,004,578 shares(1)
Use of Proceeds......................... Working capital and other general
corporate purposes. See "Use of
Proceeds."
Nasdaq SmallCap Market and proposed
Nasdaq National Market symbol........... INRS
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
The amounts accompanying the line items "revenues," "cost of revenues" and
"gross profit" below relate solely to Intra.doc! product licenses and associated
services and exclude amounts attributable to our hardware integration and
support business, the sale of which was completed in September 1998.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1998 1999
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<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues(2)................................................. $ 914 $ 2,973 $ 8,429
Cost of revenues(2)......................................... 244 570 1,665
Gross profit(2)............................................. 670 2,403 6,764
Operating expenses.......................................... 5,114 6,743 8,587
Net loss(3)................................................. $(3,748) $(3,655) $ (854)
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
------------------------
ACTUAL AS ADJUSTED(4)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents........................................ $1,951 $36,018
Working capital............................................. 4,288 38,355
Total assets................................................ 7,300 41,367
Preferred stock(3).......................................... 334 --
Shareholders' equity........................................ 5,076 39,143
</TABLE>
- -------------------------
(1) Based on the number of shares outstanding as of March 31, 1999, and includes
101,078 shares issuable upon the automatic conversion of outstanding shares
of Series A convertible preferred stock upon completion of this offering and
100,000 shares included in this offering that are issuable upon the exercise
of outstanding stock options. This number does not include 1,823,015 shares
issuable upon the exercise of other options then outstanding, with a
weighted average exercise price of $4.34 per share; 1,286,114 shares
issuable upon the exercise of warrants, with a weighted average exercise
price of $4.26 per share; and 1,052,566 shares reserved for issuance in
connection with future stock options and other awards under the 1994-1997
Stock Option Plan and the 1997 Director Stock Option Plan. See
"Capitalization" and Note 9 of Notes to Consolidated Financial Statements.
(2) Excludes the following amounts related to our hardware integration and
support business, the sale of which was completed in September 1998:
revenues of $15,277 in 1997, $16,477 in 1998 and $5,630 in 1999; cost of
revenues of $11,895 in 1997, $12,883 in 1998 and $4,601 in 1999; and gross
profit of $4,053 in 1997, $5,997 in 1998 and $7,792 in 1999.
(3) The information set forth above excludes the effect of dividends
attributable to our Series A and Series B convertible preferred stock. Such
dividends, $1,665 in 1998 and $718 in 1999, reflect the aggregate of cash
dividends paid and the value associated with the discount conversion feature
provided with each series of preferred stock. Pursuant to the terms of the
issued and outstanding shares of Series A convertible preferred stock, each
share will be converted into shares of common stock upon the completion of
this offering. No shares of Series B convertible preferred stock are
outstanding.
(4) The as adjusted amounts reflect the sale by IntraNet Solutions of 4,000,000
shares of common stock in this offering, after deducting the underwriting
discount and estimated offering expenses and the issuance of 100,000 shares
of common stock included in this offering, which shares are issuable to a
selling shareholder upon the exercise of stock options at an exercise price
of $0.20 per share. See "Use of Proceeds" and "Capitalization."
5
<PAGE> 7
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to invest in shares of our common stock. If
any of the following risks actually occur, our business, operating results and
financial condition could be materially adversely affected. This could cause the
trading price of our common stock to decline, and you may lose part or all of
your investment.
This prospectus also contains certain forward-looking statements that
involve risks and uncertainties. These statements relate to our future plans,
objectives, expectations and intentions. These statements may be identified by
the use of words such as "believes," "expects," "may," "will," "could,"
"should," "seeks," "pro forma," "as adjusted" or "anticipates," and similar
expressions. Our actual results could differ materially from those discussed in
these statements. Factors that could contribute to these differences include
those discussed below and elsewhere in this prospectus.
WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO EVALUATE OUR PROSPECTS.
We recorded our first sale of Intra.doc! to customers in fiscal 1997.
Accordingly, we have only a limited operating history in our current product
line on which you can base your evaluation of our business and prospects. In
addition, our prospects must be considered in light of the risks and
uncertainties encountered by companies in an early stage of development in new
and rapidly evolving markets. Many of these risks are discussed under the
subheadings below.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY MAKE IT DIFFICULT TO PREDICT OUR
FUTURE PERFORMANCE.
Our revenues and operating results are difficult to predict and may
fluctuate significantly from quarter to quarter. If our quarterly revenues or
operating results fall below the expectations of investors or securities
analysts, the price of our common stock could fall substantially. A large part
of our sales typically occur in the last month of a quarter. If these sales were
delayed from one quarter to the next for any reason, our operating results could
fluctuate dramatically. In addition, certain of our products have long sales
cycles, making the timing of sales difficult to predict. Furthermore, our
infrastructure costs are generally fixed. As a result, modest fluctuations in
revenues between quarters may cause large fluctuations in operating results.
These factors all tend to make the timing of revenues unpredictable and may lead
to high period-to-period fluctuations in operating results.
Our quarterly revenues and operating results may fluctuate for several
additional reasons, many of which are outside of our control, including the
following:
- demand for our products and services;
- the timing of new product introductions and sales of our products and
services;
- unexpected delays in introducing new products and services;
- increased expenses, whether related to sales and marketing, research and
development or administration;
- changes in the rapidly evolving market for data and content management
solutions;
6
<PAGE> 8
- the mix of revenues from product licenses and services, as well as the
mix of products licensed;
- the mix of services provided and whether services are provided by our
staff or third-party contractors;
- the mix of domestic and international sales;
- costs related to possible acquisitions of technology or businesses;
- general economic conditions; and
- public announcements by our competitors.
WE MAY NOT BE PROFITABLE IN THE FUTURE.
Since fiscal 1995, we have not experienced consecutive profitable quarters
and have not been profitable on an annual basis. Our revenues may not grow in
future periods, may not grow at past rates and we may not sustain our recent
quarterly profitability. If we do not sustain our recent quarterly
profitability, the market price of our stock may fall. Our ability to sustain
our recent profitable operations depends upon many factors beyond our direct
control. These factors include, but are not limited to:
- the demand for our products;
- our ability to quickly introduce new products;
- the level of product and price competition;
- our ability to control costs; and
- general economic conditions.
THE INTENSE COMPETITION IN OUR INDUSTRY MAY REDUCE OUR FUTURE SALES AND PROFITS.
The market for our products is highly competitive and is likely to become
more competitive. We may not be able to compete successfully in our chosen
marketplace, which may have a material adverse effect on our business, operating
results and financial condition. Additional competition may cause pricing
pressure, reduced sales and margins, or prevent our products from gaining and
sustaining market acceptance. Many of our current and potential competitors have
greater name recognition, access to larger customer bases, and substantially
more resources than we have. Competitors with greater resources than ours may be
able to respond more quickly than we can to new opportunities, changing
technology, product standards or customer requirements.
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH.
Any failure to properly manage our growth may have a material adverse
effect on our business, operating results and financial condition. The rapid
growth that we have experienced places significant challenges on our management,
administrative and operational resources. To properly manage this growth, we
must, among other things, implement and improve additional and existing
administrative, financial and operational systems, procedures and controls on a
timely basis. We will also need to expand our finance, administrative and
operations staff. We may not be able to complete the improvements to our
systems,
7
<PAGE> 9
procedures and controls necessary to support our future operations in a timely
manner. Management may not be able to hire, train, integrate, retain, motivate
and manage required personnel and may not be able to successfully identify,
manage and exploit existing and potential market opportunities. In connection
with our expansion, we plan to increase our operating expenses to expand our
sales and marketing operations, develop new distribution channels, fund greater
levels of research and development, broaden services and support and improve
operational and financial systems. Our failure to generate additional revenue
commensurate with an increase in operating expenses during any fiscal period
could have a material adverse effect on our financial results for that period.
WE DEPEND ON THE INTEGRATION AND CONTINUED SERVICE OF OUR KEY PERSONNEL.
We are a small company and depend greatly on the knowledge and experience
of our senior management team, many of whom have only recently joined us, and
other key personnel. If we fail to quickly integrate our team or lose any of
these key personnel our business, operating results and financial condition
could be materially adversely affected. We must hire additional employees to
meet our business plan and alleviate the negative effect that the loss of a
senior manager could have on us. Our success will depend in part on our ability
to attract and retain additional personnel with the highly specialized expertise
necessary to engineer, design and support our products and services. Like other
software companies, we face intense competition for qualified personnel. We may
not be able to attract or retain such personnel.
OUR SUCCESS DEPENDS ON OUR ABILITY TO EXPAND OUR SALES FORCE AND DISTRIBUTION
CHANNELS.
To increase our market share and revenues, we must increase the size of our
sales force and the number of our distribution channel partners. Our failure to
do so may have a material adverse effect on our business, operating results and
financial condition. There is intense competition for sales personnel in our
business, and we cannot be sure that we will be successful in attracting,
integrating, motivating and retaining new sales personnel. Our existing or
future distribution channel partners, primarily resellers, may choose to devote
greater resources to marketing and supporting the products of other companies.
In addition, we will need to resolve potential conflicts among our sales force
and distribution channel partners.
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON SALES OF OUR INTRA.DOC! PRODUCT
LINE FOR OUR REVENUES.
We currently derive all of our revenues from product licenses and services
associated with our Intra.doc! software products. If we do not continue to
increase revenues related to our existing products or generate revenues from new
products and services, our business, operating results and financial condition
may be materially adversely affected. We will continue to depend on revenues
related to new and enhanced versions of our Intra.doc! product line for the
foreseeable future. Our success will largely depend on our ability to increase
sales from existing Intra.doc! products and generate sales from product
enhancements and new products. We cannot be certain that we will be successful
in upgrading and marketing our existing products or that we will be successful
in developing and marketing new products and services. The market for our
products is highly competitive and subject to rapid technological change.
Technological advances could make our Intra.doc! products less attractive to
customers and adversely affect our business. In addition, complex software
product development involves certain inherent risks, including risks that errors
may be found
8
<PAGE> 10
in a product enhancement or new product after its release, even after extensive
testing, and the risk that discovered errors may not be corrected in a timely
manner.
WE MAY REQUIRE ADDITIONAL FINANCING.
If we cannot raise funds as needed on acceptable terms, we may be unable to
develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures or anticipated requirements, all of which may
have a material adverse effect on our business, operating results and financial
condition. We expect the net proceeds from this offering, together with our
current resources, to meet our capital requirements for at least the next 12
months. After that time, we may need to raise additional funds. We cannot be
certain that we will be able to do so on favorable terms, if at all. Further, if
we issue equity securities, our shareholders may experience additional dilution.
THE YEAR 2000 MAY ADVERSELY AFFECT OUR PRODUCTS AND INTERNAL SYSTEMS.
We are subject to potential Year 2000 problems affecting our products, our
internal systems and the systems of our suppliers, any of which may have a
material adverse effect on our business, operating results and financial
condition.
Our products may be adversely affected by the Year 2000 as a result of
undetected errors or defects. Known or unknown errors or defects in our products
related to the Year 2000 could result in delay or loss of revenue, diversion of
development resources, damage to our reputation, or increased service and
warranty costs, any of which may materially adversely affect our business,
operating results, or financial condition.
If our suppliers, vendors, major distributors or partners fail to correct
their Year 2000 problems, such failure could result in an interruption in, or
failure of, our normal business activities or operations. In addition, our
internal systems include both information technology, or IT, and non-IT systems.
We may experience material unanticipated problems and costs caused by undetected
errors or defects in the technology used in our internal IT and non-IT systems.
We have not yet completed the development of a contingency plan to address
situations that may result if we are unable to achieve Year 2000 compliance of
our critical operations. The cost of developing and implementing such a plan may
itself be material.
THE YEAR 2000 MAY ADVERSELY AFFECT PURCHASES OF OUR PRODUCTS.
Our current or future customers may incur significant expense to achieve
Year 2000 compliance. If our customers are not Year 2000 compliant they may
expend material costs to remedy problems or they may face litigation expense. In
either case, Year 2000 issues could reduce or eliminate customers' budgets for
purchases of our products. Even those customers who currently believe they are
Year 2000 compliant may defer purchases of our products until after January 1,
2000 in order to reassess their own compliance or to assess the compliance of
our products. Delays in purchases of our products as a result of the Year 2000
could have a material adverse effect on our business, operating results and
financial condition.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETY TECHNOLOGY.
If we are unable to protect our intellectual property, or incur significant
expense in doing so, our business, operating results and financial condition may
be materially adversely
9
<PAGE> 11
affected. Any steps we take to protect our intellectual property may be
inadequate, time consuming and expensive. We currently have no patents or
pending patent applications. Without significant patent or copyright protection,
we may be vulnerable to competitors who develop functionally equivalent
products. We may also be subject to claims that our current products infringe on
the intellectual property rights of others. Any such claim may have a material
adverse effect on our business, operating results and financial condition.
We anticipate that software product developers will be increasingly subject
to infringement claims due to growth in the number of products and competitors
in our industry, and the overlap in functionality of products in different
industries. Any infringement claim, regardless of its merit, could be
time-consuming, expensive to defend, or require us to enter into royalty or
licensing agreements. Such royalty or licensing agreements may not be available
on commercially favorable terms, or at all. We are not currently involved in any
intellectual property litigation.
We rely on trade secret protection, confidentiality procedures and
contractual provisions to protect our proprietary information. Despite our
attempts to protect our confidential and proprietary information, others may
gain access to this information. Alternatively, other companies may
independently develop substantially equivalent information. IntraNet Solutions
has been issued trademarks for the Intra.doc! mark and the IntraNet Solutions
mark and has applied for trademark registration for the following marks:
Document Refinery, Web Refinery and Web Vault.
We are not certain whether any trademarks that have been applied for will
be issued. In the absence of trademark protection, we may be unable to take
advantage of the brand name recognition we are attempting to build. In addition,
even if all trademarks applied for are issued, we cannot be sure that such
trademarks will prove valuable to us.
WE COULD BE SUBJECT TO PRODUCT LIABILITY CLAIMS IF OUR CUSTOMERS' DATA IS
DAMAGED THROUGH THE USE OF OUR PRODUCTS.
If software errors or design defects in our products cause damage to
customers' data and our agreements do not protect us from related product
liability claims, our business, operating results and financial condition may be
materially adversely affected. Our software products are complex and
sophisticated and may contain design defects or software errors that are
difficult to detect and correct. Errors, bugs or viruses may result in the loss
of market acceptance or the loss of customer data. Our agreements with customers
that attempt to limit our exposure to product liability claims may not be
enforceable in certain jurisdictions where we operate.
SIGNIFICANT FLUCTUATION IN THE MARKET PRICE OF OUR COMMON STOCK COULD RESULT IN
SECURITIES LITIGATION AGAINST US.
In the past, securities class action litigation has been brought against
publicly held companies following periods of volatility in the price of their
securities. If we were subject to such litigation due to volatility in our stock
price, we may incur substantial costs. Such litigation could divert the
attention of our senior management away from our business, which could have a
material adverse effect on our business, operating results and financial
condition.
10
<PAGE> 12
The market price of our common stock has fluctuated significantly in the
past and may do so in the future. The market price of our common stock may be
affected by each of the following factors, many of which are outside of our
control:
- variations in quarterly operating results;
- changes in estimates by securities analysts;
- changes in market valuations of companies in our industry;
- announcements by us of significant events, such as major sales,
acquisitions of businesses or losses of major customers;
- additions or departures of key personnel; and
- sales of our equity securities.
OUR PERFORMANCE WILL DEPEND ON THE GROWTH AND ACCEPTANCE OF THE INTERNET.
Our products are designed to be used with the Internet and private
intranets and extranets. If the use of these methods of electronic communication
does not grow, our business, operating results and financial condition may be
materially adversely affected. Continued growth in the use of the Internet will
require ongoing and widespread interest in its capabilities for communication
and commerce. Its growth will also require maintenance and expansion of the
infrastructure supporting its use and the development of performance
improvements, such as high speed modems. The Internet infrastructure may not be
able to support the demands placed on it by continued growth. The ongoing
development of corporate intranets depends on continuation of the trend toward
network-based computing and on the willingness of businesses to reengineer the
processes used to create, store, manage and distribute their data. All of these
factors are outside of our control.
OUR EXISTING SHAREHOLDERS WILL EXERCISE SIGNIFICANT CONTROL OVER INTRANET
SOLUTIONS.
Robert F. Olson, our President and Chief Executive Officer, will hold
approximately 22% of our outstanding common stock after the offering and the
sale of all 500,000 shares being offered by Mr. Olson. Accordingly, Mr. Olson
will be able to exercise significant control over the affairs of IntraNet
Solutions. Additionally, our directors and executive officers will beneficially
own approximately 26% of our common stock upon the completion of this offering.
These persons will effectively control IntraNet Solutions and be able to direct
its affairs, including approval of the acquisition or disposition of assets,
future issuances of common stock or other securities and the authorization of
dividends on our common stock. Our directors and executive officers could use
their stock ownership to delay, defer or prevent a change in control of IntraNet
Solutions, depriving shareholders of the opportunity to sell their stock at a
price in excess of the prevailing market price.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE.
The sale, or availability for sale, of substantial quantities of our common
stock may have the effect of depressing its market price by potentially
introducing a large number of sellers into an already volatile market. In
addition, the sale of these shares could impair our ability to raise capital
through the sale of additional equity securities. Following the completion of
this offering approximately 15,005,000 shares of our common stock will be
outstanding, approximately 10,900,000 of which will be freely tradable. Another
4,100,000 shares will be
11
<PAGE> 13
eligible for sale to the public under Rule 144 of the Securities Act of 1933. We
have outstanding warrants to purchase up to an aggregate of 1,286,114 shares of
common stock, of which approximately 1,200,000 shares may be resold pursuant to
currently effective registration statements. After the exercise of stock options
for 100,000 shares, which shares are included in this offering, there will be
1,823,015 shares subject to outstanding options and 1,052,566 additional shares
available for new grants under our employee stock option plan.
Our directors and officers have executed lock-up agreements that limit
their ability to sell our common stock. These individuals have agreed not to
sell or otherwise dispose of an aggregate of approximately 4,000,000 shares of
our common stock for a period of at least 180 days after the date of this
prospectus without the written approval of the underwriters. When the lock-up
agreements expire, these shares will become eligible for sale, subject to the
volume, manner of sale and notice requirements of Rule 144.
MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THIS OFFERING.
We have not designated any of the net proceeds anticipated from this
offering for specific uses. Consequently, management will have considerable
discretion in the use of all remaining net proceeds from the offering. You will
not have the ability to evaluate the economic, financial or other information on
which we base our decisions on how to use the proceeds.
INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE
OF THEIR INVESTMENT.
The price of shares included in this offering is expected to be
substantially higher than the book value per share of the shares of common stock
outstanding after completion of the offering. If you purchase common stock in
this offering, you will experience immediate dilution of approximately $6.64 per
share, measured by the excess of an assumed public offering price of $9.25 per
share over the pro forma book value following this offering.
WE CAN ISSUE SHARES OF PREFERRED STOCK WITHOUT SHAREHOLDER APPROVAL, WHICH COULD
ADVERSELY AFFECT THE RIGHTS OF COMMON SHAREHOLDERS.
Our Articles of Incorporation permit us to establish the rights,
privileges, preferences and restrictions, including voting rights, of unissued
shares of our capital stock and to issue such shares without approval from our
shareholders. The rights of holders of our common stock may suffer as a result
of the rights granted to holders of preferred stock that may be issued in the
future. In addition, we could issue preferred stock to prevent a change in
control of IntraNet Solutions, depriving shareholders of an opportunity to sell
their stock at a price in excess of the prevailing market price.
CERTAIN PROVISIONS OF MINNESOTA LAW MAY MAKE A TAKEOVER OF INTRANET SOLUTIONS
DIFFICULT, DEPRIVING SHAREHOLDERS OF OPPORTUNITIES TO SELL SHARES AT
ABOVE-MARKET PRICES.
Certain provisions of Minnesota law may have the effect of discouraging
attempts to acquire IntraNet Solutions without the approval of our Board of
Directors. Consequently, our shareholders may lose opportunities to sell their
stock for a price in excess of the prevailing market price.
12
<PAGE> 14
FORWARD-LOOKING STATEMENTS
The information contained in this prospectus contains forward-looking
statements that involve a number of risks and uncertainties. Forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "could," "should," "seeks," "pro forma,"
"as adjusted" or "anticipates," or other variations thereof, including their use
in the negative, or by discussions of strategies, plans or intentions. Such
statements include but are not limited to statements under the caption
"Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this prospectus. A number of factors could cause our results to
differ materially from those anticipated by such forward-looking statements,
including those discussed under "Risk Factors."
In addition, such forward-looking statements necessarily depend on
assumptions and estimates that may prove to be incorrect. Although we believe
the assumptions and estimates reflected in such forward-looking statements are
reasonable, we cannot guarantee that our plans, intentions or expectations will
be achieved. The information contained in this prospectus, including the section
discussing risk factors, identifies important factors that could cause such
differences.
The cautionary statements made in this prospectus are intended to be
applicable to all related forward-looking statements wherever they appear in
this prospectus. We assume no obligation to update such forward-looking
statements or to update the reasons that actual results could differ materially
from those anticipated in such forward-looking statements.
13
<PAGE> 15
USE OF PROCEEDS
Based on an assumed offering price of $9.25 per share, we estimate that the
net proceeds to IntraNet Solutions from the sale of the 4,000,000 shares of
common stock offered by us in this offering will be approximately $34.0 million
after deducting underwriting discounts and commissions and estimated offering
expenses, all of which are payable by IntraNet Solutions. If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
from this offering will be $39.2 million. We anticipate that the net proceeds
will be used for working capital and general corporate purposes. We may also use
a portion of the net proceeds to acquire or invest in businesses, technologies,
product lines or service offerings that are complementary to our business. We
have no present plans, understandings or commitments in this regard. As a
result, we will have significant discretion as to the use of the net proceeds.
Pending such use, we intend to invest the net proceeds in short-term, interest-
bearing, investment-grade securities.
We will not receive any proceeds from the sale of common stock by the
selling shareholders.
DIVIDEND POLICY
We have not paid cash dividends on our common stock for several years. In
addition, the agreement relating to our revolving line of credit prohibits the
payment of dividends on our capital stock. We anticipate that all of our
earnings, if any, will be retained for development of our business and we do not
anticipate paying any cash dividends in the foreseeable future.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq SmallCap Market under the symbol
INRS. The following table presents for the periods indicated, the range of high
and low closing sale prices for our common stock as reported on the Nasdaq
SmallCap Market.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1998:
First Quarter............................................... $5.00 $3.38
Second Quarter.............................................. 8.38 4.38
Third Quarter............................................... 8.25 3.63
Fourth Quarter.............................................. 7.13 5.13
FISCAL YEAR ENDED MARCH 31, 1999:
First Quarter............................................... 7.13 4.56
Second Quarter.............................................. 5.50 2.75
Third Quarter............................................... 6.06 3.00
Fourth Quarter.............................................. 8.25 4.81
FISCAL YEAR ENDING MARCH 31, 2000:
First Quarter (through May 7, 1999)......................... 10.50 7.78
</TABLE>
On May 7, 1999, the last reported sale price of our common stock was $9.25
per share. We had 121 shareholders of record and an estimated 1,500 beneficial
owners of our common stock as of March 31, 1999.
14
<PAGE> 16
CAPITALIZATION
The following table presents the capitalization of IntraNet Solutions as of
March 31, 1999 and as adjusted to reflect the conversion of all outstanding
shares of Series A convertible preferred stock into shares of common stock upon
the closing of the offering, the issuance of 100,000 shares included in this
offering, which shares are issuable to a selling shareholder upon the exercise
of stock options at an exercise price of $0.20 per share, and the sale of
4,000,000 shares of common stock offered by IntraNet Solutions in this offering
at an assumed public offering price of $9.25 per share and the application of
the estimated net proceeds from the sale of those shares. The information
presented below should be read in conjunction with the Consolidated Financial
Statements and related Notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations, net of current maturities......... $ 84 $ 84
Shareholders' equity:
Capital stock, $0.01 par value, 25,000,000 shares
authorized; 3,959,455 undesignated
Series A convertible preferred stock, $0.01 par
value, $5.00 stated value, 1,000,000 shares
designated; 75,000 shares issued and
outstanding....................................... 334 --
Series B convertible preferred stock, $0.01 par
value, $10,000 stated value, 350 shares
designated; no shares issued and outstanding...... -- --
Common stock, $0.01 par value, 20,040,195 shares
designated, 10,803,500 shares issued and
outstanding (15,004,578 shares as adjusted(1)).... 108 150
Additional paid-in capital............................. 15,296 49,655
Accumulated deficit.................................... (10,637) (10,637)
Unearned compensation.................................. (25) (25)
-------- --------
Total shareholders' equity.......................... 5,076 39,143
-------- --------
Total capitalization.............................. $ 5,160 $ 39,227
======== ========
</TABLE>
- -------------------------
(1) Excludes options outstanding on March 31, 1999 to purchase 1,823,015 shares
of our common stock at a weighted average exercise price of $4.34 per share,
warrants outstanding on March 31, 1999 to purchase 1,286,114 shares of our
common stock at a weighted average exercise price of $4.26, and an
additional 1,052,566 shares of common stock reserved for issuance in
connection with future stock options and other awards under the 1994-1997
Stock Option Plan and the 1997 Director Stock Option Plan. Includes an
assumed 101,078 shares issuable upon conversion of the 75,000 shares of
Series A convertible preferred stock outstanding at March 31, 1999, which
will be automatically converted into shares of common stock upon completion
of this offering. Shares of Series A convertible preferred stock are
convertible into shares of common stock at the rate of 75% of market value,
subject to minimum and maximum conversion prices of $1.00 and $3.71 per
share, respectively. The amount set forth above assumes the application of
the maximum conversion price of $3.71 per share. See Note 9 of Notes to
Consolidated Financial Statements included in this prospectus.
15
<PAGE> 17
DILUTION
The pro forma net tangible book value of our common stock as of March 31,
1999 was $5.1 million, or $0.46 per share. Pro forma net tangible book value per
share represents the amount of our total tangible assets less total liabilities,
divided by the number of shares of common stock outstanding after giving effect
to the conversion of all shares of Series A convertible preferred stock into
common stock and the issuance to a selling shareholder of 100,000 shares
included in this offering upon the exercise of stock options at an exercise
price of $0.20 per share. After giving effect to our issuance and sale of
4,000,000 shares of common stock in this offering at an assumed offering price
of $9.25 per share and after deducting estimated underwriting discounts and
commissions and offering expenses, our pro forma net tangible book value as of
March 31, 1999 would have been $39.1 million, or $2.61 per share. This
represents an immediate increase in pro forma net tangible book value of $2.15
per share to existing shareholders and an immediate dilution of $6.64 per share
to new investors purchasing shares of common stock in the offering. The
following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share............................ $9.25
Pro forma net tangible book value per share as of March
31, 1999............................................... $0.46
Increase per share attributable to new investors.......... 2.15
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.61
-----
Dilution per share to new investors......................... $6.64
=====
</TABLE>
The table above assumes no exercise of any stock options or warrants
outstanding as of March 31, 1999. As of March 31, 1999, there were options
outstanding to purchase 1,823,015 shares of our common stock at a weighted
average exercise price of $4.34 per share (excluding options held by a selling
shareholder to purchase 100,000 shares, the exercise of which is given pro forma
effect in the amounts appearing above) and warrants outstanding to purchase
1,286,114 of our common stock at a weighted average exercise price of $4.26. To
the extent that any of these options or warrants are exercised, there will be
further dilution to new investors. See "Capitalization."
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data presented below as of and for each
of the fiscal years in the five-year period ended March 31, 1999 have been
derived from our Consolidated Financial Statements. The Selected Consolidated
Financial Data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and the related Notes included in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Product licenses................... $ -- $ -- $ 886 $ 2,563 $ 6,827
Services........................... -- -- 28 410 1,602
Hardware integration and support... 9,754 12,721 15,277 16,477 5,629
--------- --------- --------- --------- ---------
Total revenues....................... 9,754 12,721 16,191 19,450 14,058
Cost of revenues:
Product licenses................... -- -- 230 285 662
Services........................... -- -- 14 285 1,003
Hardware integration and support... 7,230 9,595 11,894 12,883 4,601
--------- --------- --------- --------- ---------
Total cost of revenues............... 7,230 9,595 12,138 13,453 6,266
--------- --------- --------- --------- ---------
Gross profit......................... 2,524 3,126 4,053 5,997 7,792
--------- --------- --------- --------- ---------
Operating expenses:
Sales and marketing................ 1,182 1,497 2,014 3,131 4,316
General and administrative......... 827 1,092 1,984 2,369 2,929
Research and development........... 338 480 1,116 1,243 1,342
--------- --------- --------- --------- ---------
Total operating expenses............. 2,347 3,069 5,114 6,743 8,587
--------- --------- --------- --------- ---------
Income (loss) from operations........ 177 57 (1,061) (746) (795)
Other income (expense):
Gain on sale of hardware
integration unit................ -- -- -- -- 517
Interest expense, net.............. (57) (126) (128) (332) (55)
Income tax benefit (expense)....... (64) 21 -- -- --
--------- --------- --------- --------- ---------
Income (loss) from continuing
operations......................... 56 (48) (1,189) (1,078) (333)
Discontinued operations:
Loss on sale of distribution
group........................... -- -- -- -- (111)
Income (loss) from operations of
distribution group.............. 16 (200) (2,559) (2,577) (410)
--------- --------- --------- --------- ---------
Net income (loss).................... 72 (248) (3,748) (3,655) (854)
Preferred stock dividends and
accretion.......................... -- -- -- (1,665) (718)
--------- --------- --------- --------- ---------
Income (loss) attributable to common
shareholders....................... $ 72 $ (248) $(3,748) $(5,320) $(1,572)
========= ========= ========= ========= =========
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------
1995 1996 1997 1998 1999
----- ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Earnings per share -- basic and diluted:
Income (loss) from continuing
operations............................. $0.01 $(0.01) $(0.19) $(0.14) $(0.03)
===== ====== ====== ====== ======
Net income (loss)......................... $0.01 $(0.04) $(0.58) $(0.47) $(0.09)
===== ====== ====== ====== ======
Income (loss) attributable to common
shareholders........................... $0.01 $(0.04) $(0.58) $(0.68) $(0.17)
===== ====== ====== ====== ======
Weighted average shares -- basic and
diluted................................... 8,637 5,762 6,418 7,844 9,509
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents............... $ 3 $ 2 $ 122 $ 995 $1,951
Working capital (deficit).......... (130) (1,135) (1,960) 165 4,288
Total assets....................... 3,058 4,538 7,103 8,456 7,300
Long-term obligations, net of
current maturities.............. 377 195 828 198 84
Total shareholders' equity
(deficit)....................... 408 (21) (73) 1,668 5,076
</TABLE>
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and our Consolidated Financial Statements
and related Notes included elsewhere in this prospectus. The discussion in this
prospectus contains forward-looking statements that involve risks and
uncertainties, such as statements of our plans, objectives, expectations and
intentions. The cautionary statements made in this prospectus should be read as
being applicable to all related forward-looking statements wherever they appear
in this prospectus. Our actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include those discussed in "Risk Factors," as well as those discussed elsewhere
in this prospectus.
OVERVIEW
IntraNet Solutions is a leading provider of Web-based data and content
management solutions for intranets, extranets and the Internet. The company
responsible for developing our current business was founded in 1990. In July
1996, it merged with and into a publicly traded corporation, which was organized
under Minnesota law in November 1989. The name of the entity surviving this
merger was changed to IntraNet Solutions, Inc. Following the merger, our
business included intranet data and content management software, on-demand
publishing and hardware integration services.
Our experience in assisting organizations in managing their documents and
other unstructured data led us to identify the need for a comprehensive solution
for accessing, managing and publishing data and content in a Web environment. In
fiscal 1997, we launched our first Web-based software product currently known as
Intra.doc!. We incorporated a Java server architecture with Intra.doc! Version
3.0 in January 1998 and began shipping Intra.doc! Version 3.5, which provided an
enhanced enterprise-scaleable solution, in September 1998. In order to focus our
resources exclusively on developing and marketing Web-based data and content
management solutions, we have disposed of our other businesses. In mid-1998, we
completed the final sale of substantially all of our on-demand publishing
assets, and we sold our hardware integration operations in late 1998. Since
October 1998, we have focused exclusively on developing and marketing Web-based
solutions for accessing, managing and publishing data and content. Accordingly,
certain reclassifications have been made to the categories of revenues and cost
of revenues presented in our 1997 and 1998 financial statements to conform with
the presentation used in the 1999 financial statements. These reclassifications
had no effect on losses from continuing operations or net losses as previously
reported.
We currently derive all of our revenues from licenses of our Intra.doc!
suite of products and related services. Revenues are recognized on product
licenses when a purchase order has been received, the product has been shipped
and no significant obligations remain related to implementation. Services
revenues consist of fees from consulting and maintenance. Consulting services
include needs assessment, software integration, security analysis, application
development and training. We bill consulting fees either on a time and materials
basis or on a fixed price schedule. Our clients typically purchase annual
maintenance agreements, and we price maintenance agreements based on a
percentage of the product license fee. Clients purchasing maintenance agreements
receive product upgrades, Web-based technical support and telephone hot-line
support. We recognize revenues from maintenance agreements ratably over the term
of the agreement, typically one year.
19
<PAGE> 21
Cost of revenues consists of technology royalties, costs to manufacture,
package and distribute our products and related documentation, as well as
personnel and other expenses related to providing services. Sales and marketing
expenses consist primarily of employee salaries, commissions, and costs
associated with marketing programs such as advertising, public relations and
trade shows. Research and development expenses consist primarily of salaries and
related costs associated with the development of new products, the enhancement
of existing products and the performance of quality assurance and documentation
activities. General and administrative expenses consist primarily of salaries
and other personnel-related costs for executive, financial, human resources,
information services and other administrative personnel, as well as legal,
accounting and insurance costs. Losses from discontinued operations consist
primarily of losses on the operations of our former on-demand publishing
distribution group and losses on the write-down and sale of its assets.
Since our inception, we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our sales and
marketing, research and development and services departments, and to establish
an administrative organization. As a result, we had an accumulated deficit of
$10.6 million at March 31, 1999. We anticipate that our operating expenses will
increase substantially in future quarters as we increase sales and marketing
operations, develop new distribution channels, fund greater levels of research
and development, broaden services and improve operational and financial systems.
In addition, our limited operating history makes it difficult for us to predict
future operating results. We cannot be certain that we will achieve or sustain
revenue growth or profitability.
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards, SFAS, No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. Under that
accounting standard, software development costs may be capitalized once the
technological feasibility of the project is established. The amount of software
development costs that may be capitalized is subject to limitations based on the
net realizable value of the potential product. To date, the period between
achieving technological feasibility of our products and the general availability
of the products has been short. As a result, software development costs
qualifying for capitalization have been immaterial. Accordingly, we have not
capitalized any software development costs and have instead charged all such
costs to research and development expenses.
We had 67 full-time employees at March 31, 1999, down from 107 at March 31,
1998 and 121 at March 31, 1997. This decrease is primarily due to the sale of
the hardware integration and on-demand publishing businesses and the resulting
transfer of related employees. If we achieve our business plan, we will incur
substantial growth, which will place a significant demand on our management,
administrative and operational resources. In order to manage growth effectively,
we must implement and improve our operational systems, procedures and controls
on a timely basis. We expect that future expansion will continue to challenge
our ability to hire, train, motivate and manage our employees. Competition is
intense for highly qualified sales and marketing, research and development,
services and management personnel. If our total revenue does not increase
relative to our operating expenses, our management systems do not expand to meet
increasing demands, we fail to attract, assimilate and retain qualified
personnel, or we otherwise fail to manage our expansion effectively, our
business, operating results and financial condition may be materially adversely
affected.
20
<PAGE> 22
RESULTS OF OPERATIONS -- FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL
YEAR ENDED MARCH 31, 1998
REVENUES
Total revenues decreased by $5.4 million, or 28%, to $14.1 million for the
year ended March 31, 1999 from $19.5 million for the year ended March 31, 1998.
This decrease related primarily to the sale of our hardware integration
business, partially offset by increased revenues for product licenses of
Intra.doc! software.
Product Licenses. Revenues for product licenses, which related entirely to
Intra.doc! software, increased by $4.2 million, or 162%, to $6.8 million for the
year ended March 31, 1999 from $2.6 million for the year ended March 31, 1998.
The growth in revenues for product licenses was attributable to the expansion of
our customer base and increased sales to existing customers.
Services. Revenues for services, which related entirely to services
associated with Intra.doc! software, increased by $1.2 million, or 293%, to $1.6
million for the year ended March 31, 1999 from $409,000 for the year ended March
31, 1998. The increase in revenues for services was primarily attributable to a
larger installed base of products.
Hardware Integration and Support. Revenues for hardware integration and
support decreased by $10.9 million, or 66%, to $5.6 million for the year ended
March 31, 1999 from $16.5 million for the year ended March 31, 1998. The
decrease in revenues for hardware integration was due to the sale of the
hardware integration business during the quarter ended September 30, 1998.
COST OF REVENUES AND GROSS PROFIT
Total cost of revenues decreased by $7.2 million, or 53%, to $6.3 million
for the year ended March 31, 1999 from $13.5 million for the year ended March
31, 1998. Total cost of revenues as a percentage of total revenues was 45% in
1999 compared to 69% in 1998. Gross profit increased by $1.8 million, or 30%, to
$7.8 million for the year ended March 31, 1999 from $6.0 million for the year
ended March 31, 1998. Total gross profit as a percentage of total revenues was
55% in 1999 compared to 31% in 1998. The increase in gross profit was primarily
attributable to a shift in product mix from hardware integration and support to
product licenses and services related to Intra.doc! software.
Product Licenses. Cost of revenues for product licenses, which related
entirely to Intra.doc! software, increased by $378,000, or 133%, to $663,000 for
the year ended March 31, 1999 from $285,000 for the year ended March 31, 1998.
Gross profit as a percentage of revenues for product licenses was 90% for the
year ended March 31, 1999 compared to 89% for the year ended March 31, 1998.
Services. Cost of revenues for services, which related entirely to services
associated with Intra.doc! software, increased by $718,000, or 252%, to $1.0
million for the year ended March 31, 1999 from $285,000 for the year ended March
31, 1998. Gross profit as a percentage of revenues for services was 37% for the
year ended March 31, 1999 compared to 30% for the year ended March 31, 1998. The
increase in gross profit as a percentage of revenues for services was primarily
due to higher-margin maintenance contracts representing a greater portion of
revenues for services in 1999 than in 1998.
21
<PAGE> 23
Hardware Integration and Support. Cost of revenues for hardware integration
and support decreased by $8.3 million, or 64%, to $4.6 million for the year
ended March 31, 1999 from $12.9 million for the year ended March 31, 1998. The
decrease in cost of revenues for hardware integration and support was due to the
sale of the hardware integration and support business during the quarter ended
September 30, 1998. Gross profit as a percentage of hardware integration
revenues was 18% for the year ended March 31, 1999 compared to 22% for the year
ended March 31, 1998. The reduction in gross profit as a percentage of hardware
integration and support revenues was primarily attributable to larger hardware
integration projects with lower margins as well as to increased competition.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased by $1.2
million, or 39%, to $4.3 million for the year ended March 31, 1999 from $3.1
million for the year ended March 31, 1998. Sales and marketing expenses as a
percentage of total revenues were 31% in 1999 compared to 16% in 1998. Sales and
marketing expenses increased as a percentage of total revenues primarily due to
decreased revenues for hardware integration and support, combined with increased
staffing and marketing expenses for advertising, public relations and trade
shows supporting our Intra.doc! suite of products. The increase was partially
offset by decreased sales and marketing expenses related to hardware integration
and support programs.
General and Administrative. General and administrative expenses increased
by $560,000, or 23%, to $2.9 million for the year ended March 31, 1999 from $2.4
million for the year ended March 31, 1998. General and administrative expenses
as a percentage of total revenues were 21% in 1999 compared to 12% in 1998.
General and administrative expenses increased primarily due to increased
personnel expenses, including hiring expenses, and increased expenses for
professional services.
Research and Development. Research and development expense increased by
$99,000, or 8%, to $1.3 million for the year ended March 31, 1999 from $1.2
million for the year ended March 31, 1998. Research and development expenses as
a percentage of total revenue were 10% in 1999 compared to 6% in 1998. The
increase in research and development expenses was primarily due to increases in
staffing and related costs required to support our continued emphasis on product
enhancements, partially offset by decreased expenses related to our hardware
integration operations.
OTHER INCOME (EXPENSE)
Other income was $462,000 for the year ended March 31, 1999 compared to
other expense of $332,000 for the year ended March 31, 1998. Other income in
1999 included a gain of $517,000 on the sale of the assets of our hardware
integration business unit, partially offset by net interest expense. Other
expense in 1998 consisted of interest expense on our revolving line of credit.
DISCONTINUED OPERATIONS
Total losses on discontinued operations decreased by $2.2 million, or 85%,
to $410,000 for the year ended March 31, 1999 from $2.6 million for the year
ended March 31, 1998. The decrease in total losses on discontinued operations
was primarily because 1999 included only a partial year of losses on
discontinued operations while 1998 included a full year. The loss in 1998 also
includes an adjustment of $750,000 to fully amortize goodwill associated with
the
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<PAGE> 24
acquisition of a discontinued facility and a write-down of certain other assets
to their estimated net realizable value.
RESULTS OF OPERATIONS -- FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL
YEAR ENDED MARCH 31, 1997
REVENUES
Total revenues increased by $3.3 million, or 20%, to $19.5 million for the
year ended March 31, 1998 from $16.2 million for the year ended March 31, 1997.
Revenues increased in all product lines.
Product Licenses. Revenues for product licenses, which related entirely to
Intra.doc! software, increased by $1.7 million, or 192%, to $2.6 million for the
year ended March 31, 1998 from $886,000 for the year ended March 31, 1997. The
growth in revenues for product licenses was attributable to the expansion of our
customer base and increased sales to existing customers.
Services. Revenues for services, which related entirely to services
associated with Intra.doc! software, were $409,000 for the year ended March 31,
1998 compared to $28,000 for the year ended March 31, 1997. The increase in
services revenues was attributable primarily to a greater base of installed
products in 1998.
Hardware Integration and Support. Revenues for hardware integration and
support increased by $1.2 million, or 8%, to $16.5 million for the year ended
March 31, 1998 from $15.3 million for the year ended March 31, 1997. The
increase in hardware integration revenues was primarily due to the expansion of
our customer base and increased sales to existing customers.
COST OF REVENUES AND GROSS PROFIT
Total cost of revenues increased by $1.4 million, or 12%, to $13.5 million
for the year ended March 31, 1998 from $12.1 million for the year ended March
31, 1997. Total cost of revenues as a percentage of total revenues was 69% in
1998 compared to 75% in 1997. Gross profit increased by $1.9 million, or 46%, to
$6.0 million for the year ended March 31, 1998 from $4.1 million for the year
ended March 31, 1997. Total gross profit as a percentage of total revenues was
31% in 1998 compared to 25% in 1997. The increase in gross profit was primarily
attributable to increased revenues in all product lines.
Product Licenses. Cost of revenues for product licenses, which related
entirely to Intra.doc! software, increased by $55,000, or 24%, to $285,000 for
the year ended March 31, 1998 from $230,000 for the year ended March 31, 1997.
Gross profit as a percentage of product license revenues was 89% for the year
ended March 31, 1999, compared to 74% for the year ended March 31, 1998. The
increase in gross profit as a percentage of revenues was primarily attributable
to reduced royalty rates on licensed technology incorporated in our Intra.doc!
software.
Services. Cost of revenues for services, which related entirely to services
associated with Intra.doc! software, was $285,000 for the year ended March 31,
1998 compared to $14,000 for the year ended March 31, 1997. Gross profit as a
percentage of revenues for services was 30% for the year ended March 31, 1998.
The increase in cost of revenues for services was primarily due to a greater
base of installed products in 1998.
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<PAGE> 25
Hardware Integration and Support. Cost of revenues for hardware integration
and support increased by $1.0 million, or 8%, to $12.9 million for the year
ended March 31, 1998 from $11.9 million for the year ended March 31, 1997. Gross
profit as a percentage of hardware integration and support revenues was 22% for
the year ended March 31, 1998 compared to 22% for the year ended March 31, 1997.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased by $1.1
million, or 55%, to $3.1 million for the year ended March 31, 1998 from $2.0
million for the year ended March 31, 1997. Sales and marketing expenses as a
percentage of total revenues were 16% in 1998 compared to 12% in 1997. The
increase in sales and marketing expenses as a percentage of total revenues was
primarily due to increases in staffing and marketing expenses for advertising,
public relations and trade shows supporting our Intra.doc! suite of products.
General and Administrative. General and administrative expenses increased
$385,000, or 19%, to $2.4 million for the year ended March 31, 1998 from $2.0
million for the year ended March 31, 1997. General and administrative expenses
as a percentage of total revenues were 12% in 1998 compared to 12% in 1997. The
increase in general and administrative expenses corresponded with the increase
in revenues for the period.
Research and Development. Research and development expenses increased by
$127,000, or 12%, to $1.2 million for the year ended March 31,1998 from $1.1
million for the year ended March 31, 1997. Research and development expenses as
a percentage of total revenue were 6% in 1998 compared to 7% in 1997.
QUARTERLY RESULTS
The following tables present unaudited consolidated statements of
operations data both in absolute dollars and as a percentage of total revenues
for each of our last eight quarters. This data has been derived from unaudited
consolidated financial statements that have been prepared on the same basis as
the annual audited consolidated financial statements and, in our opinion,
include all normal recurring adjustments necessary for a fair presentation of
such information. These unaudited quarterly results should be read in
conjunction with the Consolidated Financial Statements and related Notes
appearing elsewhere in this prospectus. The consolidated results of operations
for any quarter are not necessarily indicative of the results for any future
period. Certain reclassifications have been made to the categories of revenues
and cost of revenues presented in our 1997 and 1998 financial statements to
conform with the presentation used in the 1999 financial statements. These
reclassifications had no effect on losses from continuing operations and net
losses previously reported.
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues:
Product licenses...................... $ 204 $ 545 $ 653 $ 1,161 $ 776 $1,509 $2,044 $2,498
Services.............................. 57 63 91 199 225 285 500 592
Hardware integration and support...... 4,296 4,392 4,270 3,519 3,215 2,414 -- --
------ ------- ------- ------- ------- ------ ------ ------
Total revenues.......................... 4,557 5,000 5,014 4,879 4,216 4,208 2,544 3,090
------ ------- ------- ------- ------- ------ ------ ------
Cost of revenues:
Product licenses...................... 48 59 58 120 94 115 199 254
Services.............................. 36 37 82 130 142 180 317 364
Hardware integration and support...... 3,339 3,571 3,241 2,732 2,570 2,031 -- --
------ ------- ------- ------- ------- ------ ------ ------
Total cost of revenues.................. 3,423 3,667 3,381 2,982 2,806 2,326 516 618
------ ------- ------- ------- ------- ------ ------ ------
Gross Profit............................ 1,134 1,333 1,633 1,897 1,410 1,882 2,028 2,472
------ ------- ------- ------- ------- ------ ------ ------
Operating expenses:
Sales and marketing................... 588 750 777 1,016 937 1,109 1,114 1,156
General and administrative............ 564 611 581 613 651 656 689 933
Research and development.............. 305 332 306 300 285 344 346 367
------ ------- ------- ------- ------- ------ ------ ------
Total operating expenses................ 1,457 1,693 1,664 1,929 1,873 2,109 2,149 2,456
------ ------- ------- ------- ------- ------ ------ ------
Income (loss) from operations........... (323) (360) (31) (32) (463) (227) (121) 16
Other income (expense):
Gain on sale of hardware integration
unit................................ -- -- -- -- -- 517 -- --
Interest income (expense), net........ (93) (103) (91) (45) (31) (19) (11) 6
------ ------- ------- ------- ------- ------ ------ ------
Income (loss) from continuing
operations............................ (416) (463) (122) (77) (494) 271 (132) 22
Discontinued operations:
Loss on sale of distribution group.... -- -- -- -- (111) -- -- --
Loss from operations of distribution
group............................... (436) (515) (474) (1,152) (410) -- -- --
------ ------- ------- ------- ------- ------ ------ ------
Net income (loss)....................... (852) (978) (596) (1,229) (1,015) 271 (132) 22
Preferred stock dividends and
accretion............................. -- 980 640 45 603 29 80 6
------ ------- ------- ------- ------- ------ ------ ------
Income (loss) attributable to common
shareholders.......................... $ (852) $(1,958) $(1,236) $(1,274) $(1,618) $ 242 $ (212) $ 16
====== ======= ======= ======= ======= ====== ====== ======
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Product licenses...................... 4.5% 10.9% 13.0% 23.8% 18.4% 35.9% 80.3% 80.8%
Services.............................. 1.3 1.3 1.8 4.1 5.3 6.8 19.7 19.2
Hardware integration and support...... 94.2 87.8 85.2 72.1 76.3 57.3 -- --
------ ------- ------- ------- ------- ------ ------ ------
Total revenues.......................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------- ------- ------- ------- ------ ------ ------
Cost of revenues:
Product licenses...................... 1.1 1.2 1.2 2.5 2.2 2.7 7.8 8.2
Services.............................. 0.8 0.7 1.6 2.7 3.4 4.3 12.5 11.8
Hardware integration and support...... 73.3 71.4 64.6 56.0 61.0 48.3 -- --
------ ------- ------- ------- ------- ------ ------ ------
Total cost of revenues.................. 75.2 73.3 67.4 61.2 66.6 55.3 20.3 20.0
------ ------- ------- ------- ------- ------ ------ ------
Gross profit............................ 24.8 26.7 32.6 38.8 33.4 44.7 79.7 80.0
------ ------- ------- ------- ------- ------ ------ ------
Operating expenses:
Sales and marketing................... 12.9 15.0 15.5 20.8 22.2 26.4 43.8 37.4
General and administrative............ 12.4 12.2 11.6 12.6 15.4 15.6 27.1 30.2
Research and development.............. 6.7 6.6 6.1 6.1 6.8 8.2 13.6 11.9
------ ------- ------- ------- ------- ------ ------ ------
Total operating expenses................ 32.0 33.8 33.2 39.5 44.4 50.2 84.5 79.5
------ ------- ------- ------- ------- ------ ------ ------
Income (loss) from operations........... (7.2) (7.1) (0.6) (0.7) (11.0) (5.5) (4.8) 0.5
Other income (expense):
Gain on sale of hardware integration
unit................................ -- -- -- -- -- 12.3 -- --
Interest income (expense), net........ (2.0) (2.1) (1.8) (0.9) (0.7) (0.5) (0.4) 0.2
------ ------- ------- ------- ------- ------ ------ ------
Income (loss) from continuing
operations............................ (9.2) (9.2) (2.4) (1.6) (11.7) 6.3 (5.2) 0.7
Discontinued Operations:
Loss on sale of distribution group.... -- -- -- -- (2.6) -- -- --
Loss from operations of distribution
group............................... (9.6) (10.3) (9.5) (23.6) (9.7) -- -- --
------ ------- ------- ------- ------- ------ ------ ------
Net income (loss)....................... (18.8) (19.5) (11.9) (25.2) (24.0) 6.3 (5.2) 0.7
Preferred stock dividends and
accretion............................. -- 19.6 12.8 0.9 14.3 0.7 3.1 0.2
------ ------- ------- ------- ------- ------ ------ ------
Income (loss) attributable to common
shareholders.......................... (18.8)% (39.1)% (24.7)% (26.1)% (38.3)% 5.6% (8.3)% 0.5%
====== ======= ======= ======= ======= ====== ====== ======
</TABLE>
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<PAGE> 27
Revenues. Revenues for product licenses and services, which are related
entirely to Intra.doc! software, have increased in each of the quarters since
its release, except for the quarter ended June 30, 1998. We implemented a
reorganization of our sales department during the quarter ended June 30, 1998,
which temporarily diverted the focus of the sales department, leading to reduced
sales in the quarter. Version 3.5 of our Intra.doc! software was launched during
the quarter ended September 30, 1998. Version 3.5 included significant
improvements in the enterprise-scalability features of our Intra.doc! software.
The launch of Version 3.5, combined with the renewed efforts of the reorganized
sales department, generated a significant increase in revenues for product
licenses in the quarter ended September 30, 1998.
Cost of Revenues and Gross Profit. Cost of revenues for product licenses
and services, which are related entirely to Intra.doc! software, have increased
in each of the quarters since its release, except for the quarter ended June 30,
1998. The decrease in cost of revenues from the quarter ended March 31, 1998
corresponds with the decrease in revenues experienced during the same period.
Total gross profit as a percentage of total revenues has generally increased, on
a quarter to quarter basis, from June 30, 1997 to September 30, 1998 as our
product mix has shifted away from hardware integration and support to Intra.doc!
product licenses and services. Total gross profits as a percentage of total
revenues were sharply higher in the two most recent quarters relative to the six
previous quarters because revenues in the two most recent quarters related
exclusively to Intra.doc! products and services.
As a result of our limited operating history, we cannot forecast operating
expenses based on historical results. Accordingly, we base our expenses in part
on projections of future revenues. Most of these expenses are fixed in the short
term, and we may not be able to quickly reduce spending if revenues are lower
than we have projected. Our ability to forecast accurately our quarterly
revenues is limited due to the sales cycle of our software products, which makes
it difficult to predict the quarter in which license sales will occur, and the
variability of client demand for professional services. We expect our business,
operating results and financial condition to be materially adversely affected if
revenues do not meet projections. We expect our revenues and operating results
may vary significantly from quarter to quarter. A number of factors are likely
to cause these variations, including:
- demand for our products and services;
- the timing of new product introductions and sales of our products and
services;
- unexpected delays in introducing new products and services;
- increased expenses, whether related to sales and marketing, research and
development or administration;
- changes in the rapidly evolving market for data and content management
solutions;
- the mix of revenues from product licenses and services, as well as the
mix of products licensed;
- the mix of services provided and whether services are provided by our
staff or third-party contractors;
- the mix of domestic and international sales;
- costs related to possible acquisitions of technology or businesses;
- general economic conditions; and
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<PAGE> 28
- public announcements by our competitors.
Accordingly, we believe that quarter-to-quarter comparisons of our
operating results are not necessarily meaningful. Investors should not rely on
the results of one quarter as an indication of future performance.
We plan to increase our operating expenses to expand sales and marketing
operations, develop new distribution channels, fund greater levels of research
and development, broaden services and support and improve operational and
financial systems. If our revenues do not increase along with these expenses,
our business, operating results and financial condition in a given quarter may
be materially adversely affected.
NET OPERATING LOSS CARRYFORWARDS
As of March 31, 1999, we had net operating loss carryforwards of
approximately $7.9 million. The net operating loss carryforwards will expire at
various dates beginning in 2011, if not utilized. The Tax Reform Act of 1986
imposes substantial restrictions on the utilization of net operating losses and
tax credits in the event of an "ownership change" of a corporation. Our ability
to utilize net operating loss carryforwards on an annual basis will be limited
as a result of "ownership changes" in connection with the sale of equity
securities. We have provided a full valuation allowance on the deferred tax
asset because of the uncertainty regarding its realization. Our accounting for
deferred taxes involves the evaluation of a number of factors concerning the
realizability of our deferred tax assets. In concluding that a full valuation
allowance was required, management considered such factors as our history of
operating losses, potential future losses and the nature of our deferred tax
assets. See Note 11 to the Consolidated Financial Statements included in this
prospectus.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations and satisfied our capital expenditure
requirements primarily through revolving working capital and term loans from
banking institutions, private placements of debt and equity securities and
proceeds from the sale of assets related to prior lines of business. Cash used
in operating activities was $4.9 million in 1997, $3.7 million in 1998 and $1.4
million in 1999. The $1.4 million of cash used in operating activities for the
year ended March 31, 1999 includes a decrease in accounts receivable of
approximately $1.1 million from March 31, 1998. This decrease was largely
attributable to the reduction of receivables related to the hardware integration
unit that was sold in September 1998.
To date, we have invested our capital expenditures primarily in property
and equipment, consisting largely of computer hardware and software. Capital
expenditures for the year ended March 31, 1997, 1998 and 1999 were approximately
$285,000, $372,000 and $365,000, respectively. We have also entered into capital
and operating leases for facilities and equipment. We expect that our capital
expenditures will increase as our employee base grows. At March 31, 1999, we did
not have any material commitments for capital expenditures.
As of March 31, 1999, we had $2.0 million in cash and cash equivalents and
$4.3 million in working capital. Net cash provided by financing activities was
$4.1 million in 1997, $4.1 million in 1998 and $1.4 million in 1999. We have a
$2.25 million revolving line of credit with Diversified Business Credit, Inc.
that bears interest at the bank's prime rate plus 2.0%. As of March 31, 1999,
$422,000 was outstanding under the revolving line of credit and was
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<PAGE> 29
due on demand. This line of credit is secured by substantially all of our
assets. As of March 31, 1999, we were in compliance with all financial covenants
and restrictions related to the line of credit.
We currently believe that the net proceeds of this offering, together with
cash and cash equivalents on hand and commercial credit facilities, will be
sufficient to meet our working capital requirements for at least the next 12
months. After that time, we may require additional funds to support our working
capital requirements or for other purposes and may seek to raise such additional
funds through public or private equity financings or from other sources. We
cannot be certain that additional financing will be available on terms favorable
to us, or on any terms, or that any additional financing will not be dilutive.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
We adopted the American Institute Certified Public Accountants' Statement
of Position, or SOP, 97-2, Software Revenue Recognition, and SOP 98-4, Deferral
of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition,
as of April 1, 1998. SOP 97-2 and SOP 98-4 provide guidance for recognizing
revenue on software transactions and supersede SOP 91-1 Software Revenue
Recognition. The adoption of SOP 97-2 and SOP 98-4 did not have a material
effect on our operating results.
In December 1998, the American Institute of Certified Public Accountants
issued SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition With
Respect to Certain Transactions. SOP 98-9 amends SOP 98-4 to extend the deferral
of the application of certain passages of SOP 97-2 provided by SOP 98-4 through
fiscal years beginning on or before March 15, 1999. All other provisions of SOP
98-9 are effective for transactions entered into during fiscal years beginning
after March 15, 1999. We believe that the adoption of SOP 98-9 will not have a
material effect on our consolidated financial statements.
In February 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. SOP 98-1 establishes the accounting for costs of
software products developed or purchased for internal use, including when such
costs should be capitalized. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. We do not expect that SOP 98-1
will have a material effect on our consolidated financial statements.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
was issued in June 1998. We are not required to adopt SFAS No 133 until April 1,
2000. We believe the adoption of SFAS No. 133 will not have a material effect on
our consolidated financial statements.
YEAR 2000 COMPLIANCE
The "Year 2000 issue" refers generally to the problems that some software
may have in determining the correct century. For example, software with
date-sensitive functions that are not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in system failures
or the creation of erroneous data.
We have adopted a Year 2000 readiness program for the current versions of
our products. Our program includes Year 2000 readiness assessment and
implementation of solutions to potential readiness issues. Solutions include
remediation, upgrading and replacement of
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<PAGE> 30
certain product versions, as well as validation testing, and contingency
planning. We continue to respond to customer questions about prior versions of
our products on a case-by-case basis.
We have completed all phases of our Year 2000 readiness program, except for
contingency planning, for the current versions of all of our products. As a
result, the current versions of each of our products are Year 2000 compliant,
when configured and used in accordance with the related documentation, and
provided that the underlying operating system of the host machine and any other
software used with or in the host machine or our products are also Year 2000
compliant.
We have tested software obtained from third parties that is incorporated
into our products, and are seeking assurances from our vendors that licensed
software is Year 2000 compliant. Despite our testing, testing by current and
potential clients and assurances from developers of products incorporated into
our products, our products may contain undetected errors or defects associated
with Year 2000 date functions. Known or unknown errors or defects in our
products could result in delayed or lost revenues, diversion of development
resources, damage to our reputation or increased service and warranty costs, any
of which may have a material adverse affect on our business, operating results
and financial condition. Some commentators have predicted significant litigation
regarding Year 2000 compliance issues, and we are aware of such lawsuits against
other software vendors. Because of the unprecedented nature of such litigation,
it is uncertain whether or to what extent this may affect us.
Our internal systems include both our information technology, or IT, and
non-IT systems. We have completed an assessment of our material internal IT
systems, including both our own software products and third-party software and
hardware technology. We have also initiated an assessment of our non-IT systems.
We expect to complete testing and any required remediation of our IT systems in
1999. To the extent that we are not able to test the technology provided by
third-party vendors, we are seeking assurances from the vendors that their
systems are Year 2000 compliant. Although we are not currently aware of any
material operational issues or costs associated with preparing our internal IT
and non-IT systems for the Year 2000, we may experience material unanticipated
problems and costs caused by undetected errors or defects in the technology used
in our internal IT and non-IT systems.
We do not currently have complete information concerning the Year 2000
compliance status of all of our customers. Our current and potential clients may
incur significant expenses to achieve Year 2000 compliance. If our clients are
not Year 2000 compliant, they may experience material costs to remedy problems,
or they may face litigation costs. In either case, Year 2000 issues could reduce
or eliminate funds that current or potential customers would otherwise have had
for purchases of our products and services. Moreover, the information technology
personnel of our customers and potential customers may be required to focus
substantial efforts on addressing the Year 2000 issues of their own companies,
leaving them unable to evaluate or acquire new technology such as our products.
In addition, customers who currently believe they are Year 2000 compliant may
defer purchases of our products until after January 1, 2000 in order to reassess
their own compliance or to assess the compliance of our products. As a result,
our business, operating results and financial condition may be materially
adversely affected.
We have funded our Year 2000 program from available cash and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We may incur additional costs related to the Year 2000 program
for administrative personnel to manage the project, outside contractor
assistance, technical support for our products, product
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<PAGE> 31
engineering and customer satisfaction. We may experience material problems and
costs associated with Year 2000 compliance that may materially adversely affect
our business, operating results and financial condition.
We have not yet completed development of a contingency plan to address
situations that may result if we are unable to achieve Year 2000 readiness of
our critical operations. The cost of developing and implementing such a plan may
itself be material. We are also subject to external forces that might generally
affect industry and commerce, such as utility or transportation company Year
2000 compliance failures and related service interruptions.
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BUSINESS
OVERVIEW
IntraNet Solutions is a leading provider of Web-based data and content
management solutions for intranets, extranets and the Internet. Our Intra.doc!
suite of products offers customers the ability to leverage their existing
Internet infrastructure to rapidly access, manage and publish unstructured
business data, or data contained in graphic, document or text format as opposed
to structured data typically stored in databases or data warehouses. We address
the complex data and content management needs of an organization by providing a
comprehensive, Web-based solution that performs key functions automatically,
eliminates administrative bottlenecks and continuously delivers the most current
information to users.
Intra.doc! enables organizations to capture sets of unstructured business
data, attach appropriate security and profiling information, known as meta data,
and dynamically publish and manage this information in a Web environment without
the need to manually reconfigure data sets. Our solution is based on open Web
standards and Java server architecture and provides sophisticated security and
searching capabilities. This enterprise-scalable, cost-effective solution is
quickly deployed, easily maintained and may be configured to meet an
organization's specific requirements. In addition, our products provide
e-commerce capabilities to enable our customers to easily and cost effectively
sell data and content over the Web.
Our products provide a broad-based solution applicable across a wide
variety of industries that enables organizations to effectively utilize their
business-critical data and content. Since Intra.doc! was introduced in fiscal
1997, it has been adopted by over 200 businesses and government organizations
for use on over 300 intranet, extranet and Internet sites. Customer applications
of Intra.doc! have ranged from single workgroups to enterprise-wide solutions.
Our customers include organizations such as British Aerospace Airbus, Ltd.,
Cargill Incorporated, Ericsson Telecom AB, GE Capital Corporation and
Hewlett-Packard Company.
INDUSTRY BACKGROUND
Explosive Growth of the Internet
The emergence and acceptance of the Internet and the World Wide Web has
fundamentally changed the way that businesses communicate, obtain information,
purchase goods and transact business. International Data Corporation, or IDC,
estimates that the number of Internet users worldwide will grow from
approximately 147 million in 1999 to 320 million in 2002. Within the United
States, shipments of web browsers are expected to grow from 10 million units in
1997 to over 124 million units in 2002, according to IDC. In addition, an IDC
report estimates that Internet-centric software specifically designed for Web
technology, which accounted for less than $1.0 billion in revenue in 1996, will
exceed $12.0 billion in revenue by 2000 due to the aggressive corporate adoption
of Web technology.
Rapid Adoption of Corporate Intranets and Extranets
Corporations are employing intranets and extranets in order to capitalize
on their investments in Web-based infrastructure by sharing computing resources
and facilitating communication among employees. Intranets typically refer to
secure Web-based networks dedicated to an organization's employees, while
extranets extend such networks beyond an
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organization's "internal walls" to include suppliers, vendors, partners,
customers and other businesses. Intranets and extranets utilize common Internet
protocols and Web browsers to share information and efficiently communicate
among users in the secure environment of a private network.
Organizations are rapidly adopting intranets and extranets. CAP Ventures, a
leading research organization, estimates that spending on corporate intranets
doubled in 1997 to $8.5 billion and predicts an annual growth rate of 50%
through the year 2000. In 1997, The Delphi Group estimated that over 80% of
desktops within Fortune 1000 companies will be connected to an intranet by the
year 1999. In addition, Forrester Research estimates that more than 80% of
Fortune 1000 companies plan to offer extranets by the year 2000. IDC estimates
that the number of installed Web and Internet servers, which are necessary to
support intranets and extranets, will grow from approximately 6.3 million in
1998 to nearly 12.0 million in the year 2002.
Intranets provide multiple users the potential to securely and efficiently
access a wealth of data and up-to-date information in a wide variety of formats,
such as CAD files, engineering schematics, design specifications, audio and
video clips, graphics and traditional documents. Intranet usage has evolved
beyond document access and internal distribution of information to enable
organizations to streamline, automate and increase the productivity of everyday
business processes in a wide variety of applications. For example, engineering
and manufacturing departments are using intranets for ISO certification,
technical manual publication and quality assurance processes. Intranets also
allow human resource departments to make real-time changes to policies and
procedures, perform full-text searches of resumes and facilitate reimbursement
of employee expenses. Similarly, at the corporate management level, the
effective use of intranets enables managers to have rapid and secure access to
relevant business data, leading to expeditious and well-informed decisions.
Extranets expand intranet applications to enable organizations to
selectively share business-critical data with suppliers, vendors, partners,
customers and other businesses. Extranet applications are increasingly being
used to increase sales, cut costs and improve customer service and support.
Organizations are making large investments in these applications to create
meaningful and attractively presented content that conveys important information
to selected recipients. Extranets also provide a platform for content-enabled
e-commerce, allowing businesses to efficiently sell data and content through the
execution of business transactions over the Internet. We believe this feature
will become increasingly important given the projected growth in the number of
customers who can be reached over the Internet. Forrester Research estimates
that revenue generated by Internet commerce will exceed $320 billion by 2002.
Need for Comprehensive Web-based Data and Content Management Solutions
Organizations are facing many difficult challenges in utilizing their
intranets and extranets to manage unstructured business data in a Web
environment. Unstructured business data is data stored in graphic, document or
text format as opposed to structured data typically stored in databases or data
warehouses. According to The Delphi Group, over 85% of an organization's
internal information is unstructured business data. This data may be paper-based
or in outdated versions of various software applications and includes all types
of information, such as contracts and personnel records, product catalogs and
marketing materials and design specifications and regulatory documentation. Any
Web-based solution in this area must meet a wide range of needs by converting
data into a standard format and by providing sophisticated security, access and
version control, dynamic updating of data and
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automatic updating of Web links. It is critical that the integrity of the data
and content on an organization's intranet or extranet is constantly maintained
so that users are always utilizing the most current information. In addition,
any solution must provide scalability that allows it to effectively manage the
business-critical information for organizations with thousands of documents and
thousands of users who are often at dispersed locations. Most existing solutions
require significant human resources to address this complex range of problems.
This increase in administrative needs has created delays in accessing, managing
and publishing information. Organizations are seeking a fast, efficient and
comprehensive means of utilizing their data and content in a Web environment.
Two alternative approaches have typically been used by organizations
attempting to address the problem of dynamically accessing, managing and
publishing data and content in a Web environment: in-house solutions and
traditional document management products.
In-house solutions are custom applications that are developed by an
organization's information systems personnel using software and hardware tools
from a variety of vendors. These solutions require significant resources for
custom development, evaluation, implementation and integration of disparate
technologies and platforms. Consequently, these efforts are often plagued by
long development cycles, difficult deployment, high ongoing maintenance costs
and limited functionality and scalability due to software and hardware
incompatibility issues. Many organizations utilizing in-house solutions do not
have the technical expertise or the resources to fully migrate their existing
legacy data to an intranet or extranet. In-house solutions are commonly
constrained by "Webmaster bottlenecks," in which the person or group responsible
for the updating of data and information may become overwhelmed by the
continuous manual coding and recoding required to make ongoing revisions to the
vast amounts of information managed on the organization's intranet and extranet.
In addition, many corporate intranets and extranets supported by in-house
solutions are unreliable and frequently suffer extended periods of downtime due
to various problems, such as browser incompatibility.
Traditional document management products were originally developed for
client-server environments to address a different problem from the one
organizations are now seeking to address through a Web-based solution. These
monolithic applications were designed for the management of document creation
and retention in a client-server environment and not for the ease of access,
distribution and version control that is possible in a Web environment. The
client-server architecture of these systems is geared towards a personal
computer, or PC, environment that is not Web-based and requires proprietary
software installation on the PC of each individual user. Completion of software
updates is often a lengthy process as the update must be made on every PC in the
system. Traditional document management systems generally offer features
designed to meet specific document management problems such as document creation
and editing. Many organizations have attempted to modify these client-server
applications to function in a Web environment. This retrofitting is usually
expensive and time consuming and often degrades performance while creating
systems that are difficult to manage because they are operating outside of their
intended environment. These problems are often compounded as an organization
grows and attempts to scale a retrofitted document management product to meet
its increased needs.
Another drawback to both in-house solutions and traditional document
management products is that they do not fully enable e-commerce of an
organization's data and content. E-commerce has typically focused on sales of
hardgoods such as books and clothing that are purchased over the Web and mailed
separately to the consumer. Organizations are now seeking to sell data and
content, or softgoods, directly on the Web. This can include research,
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articles, drawings and designs, technical manuals or product catalogs that are
purchased and delivered over the Web for immediate consumption. Most in-house
solutions and retrofitted traditional document management products do not permit
businesses to take full advantage of these e-commerce opportunities. The
limitations of many of these solutions and products stem from their inability to
give multiple customers simultaneous access to the same content while providing
for flexible payment methods. In contrast, e-commerce applications that have a
completely Web-based architecture are able to more successfully leverage
valuable content by simultaneously publishing it to multiple customers.
Web-based applications also provide numerous payment methods such as payment per
click, time-based payment and self-subscription by customers.
The accelerated adoption of intranets and extranets as a primary
communication channel is driving organizations to seek new Web-based solutions
that will enable them to capitalize on their intranets and extranets to develop,
maintain and leverage relationships with employees, customers and others.
Web-based data and content management solutions provide a cost-effective and
rapid means of disseminating information to global organizations. An effective
data and content management solution must get the appropriate information to the
right end user, in a usable format and in a cost-effective manner, to assist in
decision-making and improve service response. The inability of organizations to
effectively leverage their existing Internet infrastructure presents a
significant opportunity for a company that can offer a cost-effective and
comprehensive solution that gives organizations the ability to easily access,
manage, publish and maintain business-critical data.
OUR SOLUTION
Our solution is Intra.doc!, a suite of Web-based software products that
gives organizations a cost-effective and comprehensive means to access, manage,
publish and maintain unstructured business data and content through intranets,
extranets or the Internet. Intra.doc! allows customers to rapidly access, manage
and publish this data in a secure Web environment that leverages their existing
Internet infrastructure. This solution is quickly deployed, easily maintained
and may be configured to fit an organization's specific requirements. The
Web-based architecture of Intra.doc! makes it scalable for geographically
diverse enterprises while its modularity permits significant add-on
functionality, including content-enabled e-commerce opportunities.
Our solution has the following key benefits:
Comprehensive Solution. Intra.doc! provides a comprehensive solution to
data and content management needs. Our Web-based architecture utilizes the
customer's existing Internet infrastructure and provides a full range of data
and content management services without requiring customization. Our modular
technology allows customers to configure Intra.doc! to meet their individual
requirements. This modularity has also allowed us to rapidly develop new
features to meet our customers' evolving needs, such as e-commerce capabilities.
Intra.doc! also has central enterprise-level security that integrates with the
customer's existing security framework in most cases. Intra.doc! enables
organizations to centrally manage data and content on their intranets, extranets
or the Internet, regardless of the number or distance between locations of the
servers supporting those systems. Attachment of meta data and security
information, authentication and replication of data, as well as updating, all
have the capacity to occur automatically without the need to reconfigure
documents, thereby dramatically reducing administration by eliminating a number
of data handlers.
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Scalable and Dynamic. Intra.doc! can manage the data and content of
organizations ranging from a small workgroup to an organization with tens of
thousands of users. Our solution is Web-server based, which gives Intra.doc!
significant expansion potential as to the amount and type of data and content it
can manage. As the volume of data and content increases, it is distributed
across multiple Intra.doc! repositories that can be simultaneously accessed by
users. The use of multiple repositories enhances an organization's intranet and
extranet performance by optimizing the workload and system requirements placed
upon individual servers. Performance is also enhanced by Intra.doc!'s dynamic
management functions, including the ability to selectively retrieve, archive and
replicate content on an intranet, extranet or Internet site while performing
mass revisions of meta data. This allows users to quickly complete complex
reorganizations or consolidations of data and content. The Web environment of
Intra.doc! provides enhanced speed and dynamic performance while minimizing
costs and administration.
Easy to Install and Use. Our Intra.doc! solution has many features that
make it easy to install and use. The Intra.doc! Management System is an
out-of-the box solution that can be quickly deployed, often in a matter of days.
The Intra.doc! Management System and most of our modules are installed on the
customers' servers, not on the individual PCs of the customers' employees. This
effectively eliminates most of the time-consuming installation and maintenance
efforts mandated by the majority of traditional and in-house document management
systems. Many customers have implemented Intra.doc! without any third-party
consulting assistance. In addition, our component level architecture allows
customers to configure the Intra.doc! user interface to create a unique "look
and feel" to their intranet or extranet site. Once installed, Intra.doc!
delivers Web-browser based data and content access, management and publication
to individual users. This allows Intra.doc! to be utilized by all types of users
in organizations across diverse industries. Our automated solution enables users
to perform system administration, minimizing the involvement of information
systems departments.
Open and Flexible. Intra.doc! is designed to integrate with the existing
infrastructure of an intranet, extranet or the Internet. Our solution
dynamically accesses, manages and publishes most data types, from CAD files and
graphics to audio and video clips to traditional documents. The Web-based
architecture of Intra.doc! gives users the freedom to utilize data and content
much more quickly and creatively than traditional solutions. Intra.doc!'s
modularity also allows for easy configuration. This is all accomplished in a
secure environment that interacts with the organization's existing security
framework.
STRATEGY
Our objective is to enhance our position as a leading provider of Web-based
data and content management solutions for organizations ranging from small
workgroups to complex multinational enterprises. Key strategies to achieving
this objective include:
Expand Product Leadership. We believe that the Intra.doc! suite of products
is the leading Web-based solution for data and content management across
intranets, extranets and the Internet. We believe that both users of data and
content and managers making information systems purchasing decisions prefer our
solution to available alternatives because it is easier to deploy, more
cost-effective, offers faster and more dynamic management of data and content
and contains sophisticated security mechanisms while utilizing an open Web-
based architecture. Intra.doc! can also be used by organizations of nearly any
size due to its scalability and can be adopted to a wide range of data and
content management needs because
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of its modular design. We will continue to develop both new features for our
existing suite of products and new products to enable our customers to further
leverage their intranets and extranets.
Aggressively Penetrate Our Market. We plan to aggressively penetrate the
data and content management solutions market through the following avenues:
- Expand Direct Sales Channels. We will continue to expand our direct sales
force and sales support network to increase the rate of customer adoption
of our products in both the United States and internationally. We intend
to build world-class direct sales channels by adding high-quality direct
sales personnel and devoting increased resources to telemarketing and
pre-sales support services.
- Develop Indirect Sales Channels. To increase the distribution and
visibility of our products, we will continue to develop our indirect
channels through strategic alliances with resellers, value-added
resellers, or VARs, original equipment manufacturers, or OEMs, key
systems integrators and other channel partners in both domestic and
international markets. We believe that a multi-channel sales effort will
broaden customer awareness of our products and will allow us to more
rapidly reach a greater number of customers.
- Increase Penetration of Existing Customers. We intend to expand sales to
existing customers by increasing the add-on feature sets offered to
existing workgroups, by adding new workgroup applications within existing
customers and by using multiple workgroup applications within an
organization as a platform to launch an enterprise-wide solution. The
cost-effectiveness of Intra.doc! allows us to gain entry into an
organization at the workgroup level while the scalability of our solution
and the ease with which it can be deployed allows existing customers to
quickly and efficiently increase the breadth of their Intra.doc! use.
Continue to Build Brand Awareness. We will continue to promote the
Intra.doc! brand as synonymous with comprehensive, cost-effective, Web-based
solutions for data and content management. In order to accelerate the acceptance
and penetration of our brand, we will engage in an active public relations
program, participate in trade shows and conferences and advertise our products
through traditional and on-line media channels and our Web site. These efforts
will focus on leveraging our reputation with existing customers and product
leadership to drive brand awareness in the data and content management market.
Continue to Invest in Technology. We believe that the technical features of
Intra.doc!, including its open Web-based architecture, its
enterprise-scalability and the modularity of its feature sets, distinguish our
products in the market. We believe that our customers purchase our products
based on their performance characteristics. We feel that this reputation for
performance will facilitate the acceptance of enhancements and additional
products into our markets. In order to maintain our technological leadership, we
will continue to invest in research and development. We intend to focus our
research and development efforts on both enhancements to our existing solution
and the development of new products as the demands of our market evolve.
Expand Services Offerings. We have established successful relationships
with our customers by serving as a consultant in the development of their data
and content management systems. We are expanding our services capabilities in
order to extend our range of services and more completely address areas such as
business strategy, project management
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and application development. We believe that providing high-quality services
will strengthen our customer relationships and enhance our product development
efforts.
PRODUCTS
Intra.doc! Management System. Our core application, the Intra.doc!
Management System, provides a cost-effective, powerful and comprehensive
solution for accessing, managing and publishing data and content across
intranets, extranets and the Internet. This system is based upon open Web
standards and utilizes an organization's existing Internet infrastructure.
Intra.doc! is quickly deployed and provides sophisticated security mechanisms
that integrate with most mechanisms already in place within our customers'
organizations. Most types of unstructured data can be accessed, managed and
published by Intra.doc!, from CAD files and engineering schematics to audio and
video clips to graphics and traditional documents. The Intra.doc! Management
System and most of our modules are installed on the customers' servers, not on
the individual PCs of the customers' employees.
Intra.doc! captures unstructured business data and attaches meta data,
which organizes and stores this data in Intra.doc! repositories for easy
identification, access and Web-publication. This process automatically converts
data and content to Web-based formats, which are then dynamically published to a
secure Web site on an intranet, extranet or the Internet. When users revise or
add data and content to Intra.doc!, our system dynamically updates and manages
the Web site while maintaining the native file. Each piece of data has its own
secure Web address, or URL, so it can be utilized by both an organization's
intranet users and, if desired, shared with customers, suppliers and partners on
an extranet or Internet site.
Individual users can search for data and content within Intra.doc! using
the leading Web browsers. Users submit sophisticated full-text or multiple-field
searches using stored meta data contained in one or more Intra.doc!
repositories. Once users receive a results list, they can easily navigate
through data from multiple sources using hyperlinks, copy text and graphics,
zoom and enhance the view, find words within text, print the data or download
the data in its native format.
Intra.doc! provides sophisticated security mechanisms utilizing an
organization's existing security framework. Intra.doc! integrates with
frameworks such as Windows NT domains and Lightweight Directory Access Protocol,
or LDAP, directories by mapping to these security systems. This enables systems
administrators to secure data and content and control access while using an
enterprise-level security standard. Security can be assigned to workgroups,
users, collections of data or individual Web pages. This flexibility allows
Intra.doc! to secure data and content for specific projects or for certain
groups quickly and efficiently. Users maintain a single log on and password to
access data and content no matter how many levels of security are added within
their workgroup or across their enterprise.
The Web-based architecture of Intra.doc! enables easy installation of our
system. This architecture also simplifies administrative functions. Through a
Web browser, systems administrators can create Intra.doc! users and groups, set
security options, create folders and configure publishing parameters. Intra.doc!
also allows systems administrators to format and control data and content on the
Web site. The automatic nature of many Intra.doc! management and publication
functions eliminates manual steps in these processes and minimizes the number of
data handlers. This increases efficiency and accuracy and makes Intra.doc! a
dynamic tool that provides the most current business-critical information.
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INTRA.DOC! PRODUCT MODULES
The Intra.doc! Management System is available in various product
configurations for both workgroups and enterprises. Organizations may also
select from a variety of additional product modules, as described below.
[GRAPHIC DEPICTING PRODUCTS]
Intra.doc! Softgoods E-Commerce Solution. Intra.doc! Softgoods E-Commerce
Solution allows organizations to leverage their existing Internet infrastructure
into content-enabled e-commerce opportunities. This solution gives organizations
revenue creation ability by efficiently monitoring, distributing and charging
for data and content offered to customers, suppliers or partners over an
intranet, extranet or the Internet. Our Softgoods module allows organizations to
further evolve their business models by e-commerce enabling all content on an
Intra.doc! system for charge back, sale or self-subscription. The ease with
which Intra.doc! Web-publishes and updates data and content creates a valuable
resource for those who can benefit from an organization's information. Our
Softgoods module allows this resource to be directly translated into revenue for
our customers.
Intra.doc! Archiver/Replicator. Intra.doc! Archiver/Replicator facilitates
the easy movement of data among Intra.doc! server sites across an enterprise.
The Archiver/Replicator moves both native data and Web-based data while
accessing and organizing this information based on the attached meta data. The
Replicator allows duplicate data to be made available to other user groups and
to be automatically and easily transferred among intranet, extranet and Internet
servers. This feature allows organizations to move data both within the firewall
and outside the firewall for customer or supplier use and for use with our
Softgoods module. The Replicator can automatically export data and content from
one Web site and import it to another to provide synchronized Web-publishing
between Intra.doc! sites. The Archiver allows users to export a bundle of data
for off-line storage and subsequently import and manage that bundle at any time,
exactly as it was before export. Import mapping allows mass
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substitution of meta data so that groups of information can be simultaneously
imported and reorganized or consolidated.
Intra.doc! Legacy. Intra.doc! Legacy automatically scans and converts an
organization's paper-based legacy data and content into Web-ready files, which
allows access, management and publication of these files in Intra.doc!. Our
Legacy module can both scan in the image and capture product bar codes and other
important meta data to streamline data conversion and organization into one easy
process. Intra.doc! Legacy uses both Adobe Capture and Kofax Ascent Capture
scanning technology to provide users with a single, compact, fully searchable
file that replicates the original data and content.
Intra.doc! Enterprise Search. Intra.doc! Enterprise Search permits users to
perform sophisticated full-text or multiple field searches across all of an
organization's Intra.doc! repositories. Enterprise-level security allows users
to search for information across the organization while ensuring that they
access only the data and content that they are authorized to view and modify.
Searches using the Enterprise Search module can be accomplished quickly by all
types of personnel because they are managed through the user's Web browser.
Additional Product Modules. Additional Intra.doc! product modules include
the following:
- Intra.doc! Developer's Kit allows our customers to easily configure
Intra.doc! to create their own "look and feel."
- Intra.doc! ODMA Extensions provide users with the ability to manage and
Web-publish data directly from any ODMA compliant application, such as
Microsoft Word, WordPerfect and Adobe FrameMaker.
- Intra.doc! Forms enables one or multiple users to electronically complete
and manage forms in a Web environment.
- Intra.doc! PDF Watermark allows data to be dynamically watermarked with
specific comments or instructions.
- Intra.doc! AutoCAD Conversion permits native AutoCAD engineering drawings
to be accessed, managed and published in a Web-based format.
- Intra.doc! TIFF Conversion allows tag image file format, or TIFF, files
to be checked into Intra.doc! and then Web-published as multiple-page PDF
files.
- Intra.doc! Report Parsing captures mainframe reports, organizes them by
parsing meta data and batch-loads this information into an Intra.doc!
repository.
- Intra.doc! CD Publisher allows organizations to publish data and content
directly from the Web to CD-ROM for use by individuals without Web
access.
- Intradoc.net Hosting Service provides a complete range of Intra.doc! data
and content management services administered by our staff through a
secure Web site.
PRICING
Our pricing is based on the number of servers and contributors rather than
the number of users. Pricing currently ranges from $18,000 to $85,000 per server
for the Intra.doc! Management System, with add-on modules ranging from $2,500 to
$25,000 per server.
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Applications of Intra.doc! typically encompass multiple servers. For an
additional annual maintenance fee, we provide customers with maintenance and
support packages, including hotline support and product updates, to help them
obtain the maximum benefit of Intra.doc!.
SERVICES
Our services organization provides solution-focused services that enable
our customers to realize the potential of our products in an open network
computing environment. We act as a business partner to our customers by
providing a broad spectrum of services, including needs assessment, software
integration, security analysis, application development and training. These
services are offered for fees, the amount of which depends on the nature and
scope of the project. We are currently focusing on expanding our consulting
services to increase our breadth of experience and geographic coverage.
TECHNOLOGY
We believe our advanced technology provides our customers with a
comprehensive solution for rapidly accessing, managing and Web-publishing
business-critical data and content across intranets, extranets and the Internet
in less time, at lower cost and with better results than existing alternatives.
PRODUCT ARCHITECTURE
We believe that we have developed a unique and comprehensive architecture
for meeting the technical demands of applications designed for data and content
management through intranets, extranets and the Internet. By emphasizing a
Web-based data and content management architecture that provides profiling, or
meta data, capabilities and is designed for extremely scalable and
high-performance delivery, Intra.doc! provides an efficient architecture for
organizations to build and deploy Web-publishing applications quickly and
cost-effectively. We believe this architecture also provides a strong foundation
on which we can deliver future products.
Web-based Solution. Our products are designed to seamlessly and efficiently
interface with Web browsers, eliminating the need to install additional client
software. Intra.doc! is a server-based system written in Java, enabling it to
function in both the Windows NT and UNIX environments. On the front end,
Intra.doc! is client-side neutral and utilizes HTML interfaces that are
compatible with the leading Web browsers. Once the browser has been launched,
users can search for data and content utilizing Verity's search engine, navigate
to a Web page and view data and content via a standard browser, a plug-in or
another viewing application. In addition, each piece of data and content is
automatically fully indexed allowing for full-text searching through the Web
browser. Intra.doc! also enables users to check out data and content for editing
and check it back in to dynamically update the Intra.doc! repository and the Web
site. As Web architecture continues to evolve, our architecture strategy is to
continue to develop Intra.doc! as a Web-based solution that integrates
seamlessly with an organization's existing intranet, extranet and Internet
infrastructure.
Data and Content Storage and Management. Intra.doc! stores data and
content, including text and graphics, in its native format in a repository and
enables access and management control features for this information. Utilizing a
server-based architecture, Intra.doc! can access and manage vast amounts of
unstructured data and content across a large number of intranet, extranet and
Internet users in a geographically dispersed
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environment. Depending upon the needs of the organization, this storage can take
place on a single server for less intensive workgroup applications or across a
large number of servers for enterprise-wide solutions, affording efficient
scalability. As a data and content manager, Intra.doc! enables standard library
services such as check-in, check-out, version control and data history.
Intra.doc! enables users to rapidly and securely access data and content while
providing management functions.
Document conversion for Web-publishing. Once a document or graphic has been
created or edited, Intra.doc! dynamically attaches meta data and automatically
converts the document to a Web-based format. This capability allows users to
build Web pages quickly and efficiently and provides search capabilities to
allow dynamic utilization of Web content.
Intra.doc! is a multi-tiered, server-based system that is written in Java.
The server layer contains all system processing logic and handles functions such
as document conversion and connection to the relational database. This
relational database is used to store all document profile information in the
Intra.doc! repository. Published content is stored directly on the Web server
and all file transfers are via hypertext transfer protocol, or HTTP. File access
does not have to be processed with a common gateway interface, or CGI, script,
thereby reducing retrieval time. A security plug-in is used on the server to
reduce security complexity and speed processing.
The ability to use standard HTTP provides a number of significant
advantages such as the transfer of data and content through firewalls while
using standard compression, encryption and certificate servers. HTTP allows
organizations to keep their firewall configurations simple and secure. The
following diagram details Intra.doc!'s system architecture.
[GRAPHIC DEPICTING ARCHITECTURE]
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The architecture of Intra.doc! embodies the following concepts that make it
an enterprise-scalable system that is easily deployable and can be utilized by a
wide range of customers:
- Ease of use and administration. Our Intra.doc! products feature quick
installation, often in a matter of days, ease-of-use for individual users
and simple maintenance procedures for administrators.
- Ease of integration. From inception, our products have been built on open
Web standards enabling seamless integration into existing corporate
environments. Our component architecture allows customers the ability to
integrate immediately with other system components. For example, our
compatibility with Windows NT domains and LDAP security frameworks allows
our customers to efficiently integrate NT or LDAP central security with
Intra.doc! to control and secure access to the data and content in the
Intra.doc! repository without duplicating their efforts.
- Scalability. Our customers' business-critical data and content needs
continue to expand and evolve. Our understanding of the scaling of a
customer's future data and content management needs as volume and
bandwidth increase across an enterprise ensures that our customers'
information investments are protected and that they can continue to grow
with Intra.doc!
- Flexibility. With our open Web standards, multi-platform Java-based
solution, we offer customers the flexibility to solve information
management problems and address future needs utilizing their existing
Internet infrastructure.
We believe Intra.doc! is a comprehensive solution for organizations that
require Web-based data and content management solutions across intranets,
extranets and the Internet. We believe that by fostering the creation and
adoption of an open Web-based standard for data and content management utilizing
intranets and extranets, we will be able to maintain and extend our technology
leadership.
RESEARCH AND DEVELOPMENT
We have made substantial investments in research and development through
both internal development and technology acquisitions. We expect to develop most
of our technology enhancements internally while continuing to evaluate
externally developed technologies for integration into our Intra.doc! product
line.
The majority of our research and development activity has been directed
towards developing feature extensions to our Intra.doc! suite of products. Our
goal is to add features that allow our customers to leverage their data and
content to expand their services and create content-based revenue opportunities.
To this end, we intend to enhance the custom content delivery capabilities of
Intra.doc! and allow data and content to be built dynamically from multiple
sources. In addition, we will focus on expanding the range of data sets
Intra.doc! is capable of managing.
In order to continue to provide product leadership in the data and content
management market, we intend to make major product releases each year.
Intra.doc! Version 4.0 is scheduled for release in the second half of 1999. The
success of new introductions is dependent on several factors, including timely
completion and market introduction, differentiation of new products and
enhancements from those of our competitors and market acceptance of new products
and enhancements.
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Our research and development expenditures for fiscal 1997, 1998 and 1999
were approximately $1.1 million, $1.2 million and $1.3 million. We expect that
we will continue to commit significant resources to research and development in
the future. All research and development costs have been expensed as incurred.
The market for our products is characterized by rapid technological change,
frequent new product introductions and enhancements, evolving industry standards
and rapidly changing customer requirements. The introduction of products
incorporating new technologies and the emergence of new industry standards could
render existing products obsolete and unmarketable. Our future success will
depend in part on our ability to anticipate changes, enhance our current
products, develop and introduce new products that keep pace with technological
advancements and address the increasingly sophisticated needs of our customers.
We may not be successful in developing and marketing new products and
enhancements that respond to competitive and technological developments and
changing customer needs.
CUSTOMERS
Our customer base has grown to well over 200 customers representing a
diverse group of industries. Our customers range from small manufacturing firms
to Fortune 500 companies. Selected customers using Intra.doc! include:
AEROSPACE AND AIRLINE
AlliedSignal
Britannia Airways
British Aerospace Airbus
The Sabre Group
BANKING AND FINANCE
Cargill
Dean Witter Reynolds
Fidelity
GE Capital
ING Barings
KPMG Peat Marwick
U.S. Bancorp Piper Jaffray
CONSUMER
Carlson Companies
Dayton Hudson
Land O'Lakes
OfficeMax
Revlon
GAS AND UTILITIES
Central Iowa Power
Natural Gas Company of
Trinidad & Tobago
Sierra Pacific Power
Wisconsin Electric Power
GOVERNMENT AND EDUCATION
County of San Mateo, CA
Lawrence Livermore National Labs
Los Alamos National Labs
Minnesota Department of Transportation
Swiss Highway Authority
University of California
University of Minnesota
HEALTH CARE
Allina Health System
Guidant
Tufts Health Care
United Health Group
Wellmark Blue Cross Blue Shield of Iowa
MANUFACTURING
Eaton
Ecolab
Fisher Controls
Honeywell
Maytag
Toro
Toyota USA
TRW
Zilog
TECHNOLOGY
Data General
Ericsson
Fujitsu
GE Information Services
GTE Internetworking
Hewlett-Packard
IBM
Lucent Technologies
Rockwell Collins
Siemens Microelectronics
Sony
St. Paul Software
Synopsys
Xerox
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<PAGE> 45
CUSTOMER PROFILES
Large Retail Organization. A large retail organization sought to streamline
the dissemination of information to its suppliers. The retailer's system
published and mailed to suppliers approximately one thousand paper-based
documents containing the retailer's supplier procedures and requirements. Paper
publication of these documents was inefficient and expensive as it involved 48
different departments across three separate operating companies, each with its
own supplier procedures and requirements. Accordingly, the retailer needed a
solution that would allow it to publish the documents on an extranet. Unable to
find a suitable packaged application, the retailer spent considerable resources
creating an in-house solution consisting of an extranet-based content retrieval
system with a manual document conversion process. The labor-intensive updating
and Web conversion process required extensive revision time and necessitated
frequent distribution of paper addendums. The retailer also needed to publish
the documents more frequently, but doing so with the in-house solution was cost
prohibitive.
To eliminate the time-consuming conversion process of the in-house
solution, the retailer installed Intra.doc!, which automatically converts
documents into a Web format. Updating is now a dynamic process as individual
departments simply revise documents and store them in Intra.doc! for automatic
publication. Intra.doc! allows the documents to be published more frequently
with greater accuracy while significantly reducing the costs of administration.
The retailer now also utilizes Intra.doc! in other areas of its business as a
means to publish sales, inventory and statistical reports on the Web in order to
make them available to clients.
International Manufacturing Company. A manufacturer of process control
valves and regulators sought to utilize its existing intranet to more
effectively distribute data and content within the organization. The
manufacturer's system required administrators to manually create HTML pages and
generate links to thousands of engineering designs and specifications for
delivery to 14 manufacturing plants around the world. As the manufacturer's
intranet grew, this process required increasing human and technical resources to
properly maintain the HTML pages and links. Accordingly, the manufacturer
required a Web-based architecture that could provide on-line data and content
publishing, create a data index for searching on the Web and allow content
contributors to Web-publish documents using a browser. The manufacturer also
needed the system to handle the multiple data types utilized in the
manufacturer's business and translate them into a Web format. Additional
requirements included workgroup-level security and ease of administration as
limited technical resources were available to support the intranet site.
After installing Intra.doc!, the manufacturer was able to significantly
reduce the time required to disseminate its business-critical information from
up to two weeks under the prior system to less than one day. According to the
manufacturer, it rapidly realized a complete recovery of its investment within a
single department by eliminating over 1.5 million sets of documents annually
that would have otherwise been manually distributed. The manufacturer is
currently converting all of its microfiche documents, including over 100 reports
of up to 80,000 pages, into a Web format and storing them on Intra.doc! for
on-line delivery and updating.
Leading Technology Company. A semiconductor manufacturer sought to replace
its manual revision management process. The manufacturer had an active database
of 20,000 pieces of internal data and content consisting of engineering
drawings, design records and manufacturing and testing specifications. The
manufacturer's original revision management process required administrators to
manually handle between 300 to 400 change notices a
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<PAGE> 46
month. This process required a minimum of one week to generate a paper-based
change notice, obtain the necessary internal approvals, and send the entire
change notice to document control. Accordingly, the manufacturer needed a
solution that would automate this process, make documents accessible on its
intranet and provide cost-effective implementation and training. Representatives
from the major functional areas of the organization identified several required
features, including revision control, the capability of managing different
native file types, easy administration, flexible security and workflow
management.
The semiconductor manufacturer installed Intra.doc! as the revision
management system for its entire organization. Intra.doc!'s Web-based
capabilities allowed creation of an unlimited number of meta data fields,
enabling sophisticated searching of its high volume of change notices. The
flexibility of Intra.doc!'s Web-based architecture allowed the manufacturer to
configure its revision management system to its specifications so that it could
immediately utilize Intra.doc!'s data and content management functions. An
internal user group easily installed Intra.doc! without third-party consultants
and is now performing ongoing system administration. The manufacturer estimates
that Intra.doc! cost significantly less than developing an in-house solution or
purchasing a client-server document management product.
SALES AND MARKETING
We market and sell our products using a combination of direct and indirect
distribution channels. Our primary distribution channel is our direct sales
force, which targets mid- and large-size organizations. Our sales approach
typically includes a technical systems evaluation performed by our pre-sales
personnel, followed by demonstrations of our products' capabilities and direct
negotiations with our sales staff. In addition, we have an internal
telemarketing operation that is responsible for customer prospecting, lead
generation and follow-up. These activities identify and develop leads for
further sales efforts by our direct sales force. As of March 31, 1999, we had 22
direct sales and sales support personnel in the United States while our
international direct sales and sales support organization consisted of six
persons. Our goal is to increase both the number and geographic scope of our
direct sales force.
We also use indirect sales channels to increase the distribution and
visibility of our products through strategic alliances with resellers, VARs,
OEMs, key systems integrators and other channel partners in both domestic and
international markets. None of our distribution partners have exclusive
distribution rights.
We use a variety of marketing programs to build market awareness of our
brand name and our products, as well as to attract potential customers to our
products. A broad mix of programs is used to accomplish these goals, including
market research, product and strategy updates with industry analysts, public
relations activities, direct mail and relationship marketing programs, seminars,
trade shows, speaking engagements, Web site marketing and joint marketing
programs. Our marketing organization produces marketing materials in support of
sales to prospective customers that include brochures, data sheets, white
papers, presentations and demonstrations. Our joint marketing and distribution
partners include Adobe Systems, Inc., Microsoft Corporation, Sun Microsystems,
Inc. and Verity, Inc. In addition, our Intra.doc! suite of products incorporates
Adobe and Verity technology. Verity also sells our products using its own direct
sales force pursuant to a non-exclusive reseller agreement.
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<PAGE> 47
COMPETITION
The market for Web-based data and content management solutions is intensely
competitive, subject to rapid technological change and significantly affected by
new product introduction and other market activities of industry participants.
We expect competition to persist and intensify in the future. We have two
primary sources of competition: in-house solutions created by potential
customers and traditional document management products. In-house solutions are
developed by potential customers' internal information systems departments using
software and hardware tools from a variety of vendors. Traditional document
management products include those offered by companies such as PC DOCS Group
International Inc., which has entered into an agreement to be acquired by
Hummingbird Communications Ltd., Documentum, Inc. and Open Text Corporation. In
addition, companies participating in the market for Internet site management may
provide future competition to us if they move into broad-based data and content
management.
Many of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do and thus
may be able to respond more quickly to new or changing opportunities,
technologies and customer requirements. Also, many current and potential
competitors have greater name recognition and access to larger customer bases
than we have. Such competitors may be able to undertake more extensive
promotional activities and offer more attractive terms to purchasers than we
can. In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
enhance their products. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share.
Competition in our market could materially and adversely affect our ability
to obtain revenues from software license fees from new or existing customers on
terms favorable to us. Further, competitive pressures may require us to reduce
the price of our software. In either case, there can be no assurance that we
will be able to compete successfully with existing or new competitors or that
competition will not have a material adverse effect on our business, operating
results and financial condition.
PROPRIETARY RIGHTS
We rely on a combination of copyright, trade secret, trademark,
confidentiality procedures and contractual provisions to protect our proprietary
rights. Our software, documentation and other written materials are provided
limited protection by United States and international copyright laws. We license
our products in object code format for limited use by customers. We treat the
source code for our products as a trade secret and we require all employees and
third-parties who need access to the source code to sign non-disclosure
agreements. We have registered the trademarks IntraNet Solutions and Intra.doc!
in the United States and Canada.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software exists, software piracy can be expected to be a persistent problem.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. However, the laws of many countries do not protect our proprietary
rights to as great an extent as do the
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<PAGE> 48
laws of the United States. Any litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on our business,
operating results and financial condition. Our efforts to protect our
proprietary rights may not be adequate or our competitors may independently
develop similar technology. Any failure by us to meaningfully protect our
property could have a material adverse effect on our business, operating results
and financial condition.
We have not been notified that our products infringe the proprietary rights
of third parties. However, there can be no assurance that third parties will not
claim infringement with respect to our current or future products. We expect
that developers of Web-based data and content management products will
increasingly be subject to infringement claims as the number of products and
competitors in our market grows and as the functionality of products in
different segments of the software industry increasingly overlaps. Any claims,
with or without merit, could be time consuming to defend, result in costly
litigation, divert management's attention and resources, cause product shipment
delays or require us to enter into royalty or licensing agreements. Royalty or
licensing agreements, if required, may not be available on terms acceptable to
us or at all. A successful claim of product infringement against us and our
failure or inability to license the infringed technology or develop or license
technology with comparable functionality could have a material adverse effect on
our business, operating results and financial condition.
EMPLOYEES
As of March 31, 1999, we had 67 employees. Our future success will depend
in part on our ability to attract, retain, integrate and motivate highly
qualified sales, technical and management personnel, for whom competition is
intense. From time to time we also employ independent contractors to support our
services, product development, sales and marketing departments. Our employees
are not represented by any collective bargaining unit, and we have never
experienced a work stoppage. We believe our relations with our employees are
good.
FACILITIES
IntraNet Solutions is headquartered in Minneapolis, Minnesota, where we
lease approximately 15,000 square feet pursuant to a seven-year lease expiring
in 2005.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
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<PAGE> 49
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL
The following table sets forth certain information with respect to each of
the executive officers, directors and other key personnel of IntraNet Solutions,
as of the date of this prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert F. Olson...................... 43 President, Chief Executive Officer and
Chairman of the Board
Gregg A. Waldon...................... 38 Chief Financial Officer, Treasurer,
Secretary and Director
Katherine W. Bloomfield.............. 46 Vice President, Consulting Services
George Daum.......................... 43 Vice President, Sales
Patricia H. Fukasawa................. 43 Vice President, Training and Administration
Vernon J. Hanzlik.................... 41 Vice President, Strategic Development
Frank A. Radichel.................... 49 Vice President, Research and Development
Daniel P. Ryan....................... 40 Vice President, Marketing
Ronald E. Eibensteiner*.............. 46 Director
Kenneth H. Holec*.................... 43 Director
Steven C. Waldron*................... 50 Director
</TABLE>
- -------------------------
* Member of Audit Committee and Compensation Committee
ROBERT F. OLSON founded our business and has served as President, Chief
Executive Officer and Chairman of the Board of IntraNet Solutions and its
predecessor company since 1990. From 1987 to 1990, he served as the General
Manager of the Greatway Communications Division of Anderberg-Lund Printing
Company, an electronic publishing sales and service organization. Prior to that
time, Mr. Olson held management and marketing positions in several electronic
publishing service organizations.
GREGG A. WALDON has served as our Chief Financial Officer, Treasurer and
Secretary, and as a director, since April 1999. From 1992 to April 1999, he held
various financial management positions with GalaGen Inc., a publicly traded
biopharmaceutical company, where he served as Chief Financial Officer since
November 1994. Prior to that time, Mr. Waldon was employed by
PricewaterhouseCoopers LLP.
KATHERINE W. BLOOMFIELD has served as our Vice President, Consulting
Services since October 1998. From June 1997 to October 1998, she was a
consultant with PricewaterhouseCoopers LLP specializing in data warehousing and
the Internet. From August 1994 to June 1997, Ms. Bloomfield was a director of
professional services for Apertus Technologies Incorporated, a developer of
systems integration software. From 1992 to July 1994, she was a Project Leader
for Siemens AG, a multinational electronics company.
GEORGE DAUM has served as our Vice President, Sales since March 1998. From
July 1997 through March 1998, he served as Vice President of Worldwide Channels
of Structural Dynamics Research Corporation, or SDRC, a developer of engineering
and manufacturing software. From December 1995 to July 1997, Mr. Daum served as
Vice President of Operations of CAMAX Manufacturing Technologies, a developer of
manufacturing software owned by SDRC. From November 1993 to December 1995, Mr.
Daum served as Vice President of Sales for CAMAX.
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<PAGE> 50
PATRICIA H. FUKASAWA has served as our Vice President, Training and
Administration since July 1996 . She has been employed by IntraNet Solutions and
its predecessor company since 1990 in various marketing positions. Prior to that
time, Ms. Fukasawa held various technical support positions with Honeywell Inc.,
a multinational technology products company, and Control Data Corporation, a
computer hardware manufacturer.
VERNON J. HANZLIK has served as our Vice President, Strategic Development
since April 1999. He has been employed by IntraNet Solutions and its predecessor
company since 1991 and served as Vice President, Product Marketing from June
1996 to April 1999. Prior to that time, Mr. Hanzlik held marketing and
application consulting positions with Lee Data Corporation, a computer hardware
manufacturer.
FRANK A. RADICHEL has served as our Vice President, Research and
Development since March 1995. From 1990 to March 1995, he served as CALS Project
Leader and Technical Architect for Alliant TechSystems Inc., a manufacturer of
aerospace and defense technologies. Prior to that time, Mr. Radichel held
various positions in the Test Equipment Design Department of Honeywell Inc.
DANIEL P. RYAN has served as our Vice President, Marketing since April
1999. From September 1997 to April 1999, he served as Vice President of
Marketing for Foglight Software, Inc., a developer of enterprise performance
management solutions. From March 1995 to September 1997, Mr. Ryan served as
Director of Marketing for Compact Devices Inc., a developer of Internet
application software. Prior to that time, Mr. Ryan was employed by Sync Research
Inc., a developer of wide-area network access solutions, as its Director of
Corporate Marketing.
RONALD E. EIBENSTEINER has served as a director of IntraNet Solutions since
March 1996. He has been President of Wyncrest Capital, Inc., a venture capital
firm that he founded, since 1990. Mr. Eibensteiner is a director of OneLink
Communications, Inc., a company that specializes in transforming raw
telecommunications data into visual business intelligence.
KENNETH H. HOLEC has served as a director of IntraNet Solutions since
February 1998. He has been President and Chief Executive Officer of ShowCase
Corporation, a supplier of data warehousing systems, since November 1993. From
1985 to 1993, Mr. Holec served as President and Chief Executive Officer of
Lawson Associates, Inc., a developer of financial and human resource management
software products.
STEVEN A. WALDRON has served as a director of IntraNet Solutions since
February 1998. He has been President and Chief Executive Officer of St. Paul
Software, Inc., a provider of e-commerce software and transaction processing
services, since November 1997. From 1992 to March 1995, he was president of
Innovex, Inc., a diversified technology company. Prior to that time, Mr. Waldron
served as President and Chief Executive Officer of Norstan, Inc., a supplier of
telecommunications hardware and software, which he co-founded.
COMMITTEES OF THE BOARD OF DIRECTORS AND DIRECTOR COMPENSATION
Board Committees. The Board of Directors maintains an Audit Committee
composed of Messrs. Eibensteiner, Holec and Waldron. The Audit Committee
recommends to the Board of Directors the appointment of independent auditors,
reviews and approves the scope of the annual audit and any non-audit services
performed by the independent auditors, reviews the findings and recommendations
of the independent auditors and periodically reviews and approves major
accounting policies and significant internal accounting control procedures.
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<PAGE> 51
The Board of Directors also maintains a Compensation Committee comprised of
Messrs. Eibensteiner, Holec and Waldron. The Compensation Committee reviews and
recommends compensation of officers and directors, administers stock option
plans and reviews major personnel matters.
Director Compensation. Members of the Board of Directors who are not
employees of IntraNet Solutions are eligible to receive stock option grants
under the 1997 Director Stock Option Plan. No options were granted under the
plan in the fiscal year ended March 31, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between our Compensation Committee and
any member of any other company's board of directors or compensation committee,
nor has any such relationship existed in the past.
EXECUTIVE COMPENSATION
The following table presents the compensation for each of the last three
fiscal years of the Chief Executive Officer and the other executive officer of
IntraNet Solutions who received salary and bonuses in excess of $100,000 for the
fiscal year ended March 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ------------------
FISCAL ----------------- COMMON STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION(1)
- --------------------------- ------ -------- ------ ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Robert F. Olson........... 1999 $168,175 $ -- -- $13,067
President and Chief 1998 155,000 -- -- 10,492
Executive Officer 1997 141,793 -- -- 10,492
Jeffrey J. Sjobeck(2)..... 1999 106,720 -- -- --
Chief Financial Officer, 1998 100,000 -- 10,000 --
Treasurer and Secretary 1997 82,291 2,100 12,500 --
</TABLE>
- -------------------------
(1) Represents matching contributions by us under our 401(k) Savings Incentive
Plan and term life and disability insurance premiums.
(2) Mr. Sjobeck resigned on April 2, 1999.
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<PAGE> 52
AGGREGATED FISCAL 1999 YEAR-END OPTION VALUES
The following table presents information about options held by the
executive officers named in the Summary Compensation Table and the value of
those options as of March 31, 1999.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT MARCH 31, 1999 MARCH 31, 1999(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert F. Olson................. -- -- $ -- $ --
Jeffrey J. Sjobeck.............. 61,929 30,529(2) 376,716 166,628(2)
</TABLE>
- -------------------------
(1) Based on a value of $8.25, the per share closing price of our common stock
on the Nasdaq SmallCap Market on March 31, 1999, net of the option exercise
price.
(2) As a result of Mr. Sjobeck's resignation in April 1999, these options will
not become exercisable and will be returned to the available option pool
under the 1994-1997 Stock Option and Compensation Plan.
EMPLOYMENT AGREEMENTS
In July 1996, we entered into a three-year employment agreement with Robert
F. Olson, our President and Chief Executive Officer. Mr. Olson receives an
annual base salary of $155,000, subject to annual increases, and has the
opportunity to earn performance-related bonuses. Pursuant to this agreement, Mr.
Olson has agreed not to compete with us for a two-year period after any
termination of employment. In the event of his termination without cause, Mr.
Olson will be entitled to receive severance compensation equal to the greater of
six months of his then current base salary or the balance of the compensation
due and owing to him under his employment agreement.
In April 1999, we entered into a two-year employment agreement with Gregg
A. Waldon, our Chief Financial Officer, Treasurer and Secretary. Mr. Waldon
receives a minimum base salary of $125,000, subject to annual increases, plus
annual performance bonuses of up to $40,000. Mr. Waldon has agreed not to
compete with us during his employment and for a period of nine months following
his termination from employment. In the event of a change in control or his
termination of employment without cause, Mr. Waldon will receive severance pay
equal to 180 days of his then current base salary.
BENEFIT PLANS
1994-1997 Stock Option and Compensation Plan. We adopted and our
shareholders have approved the 1994-1997 Stock Option and Compensation Plan for
our officers, directors other than outside directors, employees and certain key
consultants and advisors. The purpose of the plan is to enhance shareholder
value and to advance our interests by furnishing a variety of economic
incentives designed to attract, retain and motivate those persons eligible for
incentives under the plan. Incentives under the plan consist of opportunities to
purchase or receive our shares of common stock, monetary payments or both.
The plan is administered by a stock option committee consisting of Messrs.
Eibensteiner, Holec and Waldron. The committee has complete and final authority
with respect to the interpretation and administration of the plan. Eligibility
for incentives under the plan is determined by the committee with respect to
both individuals and groups based on a variety of criteria, including, but not
limited to, pay grade, job performance, job responsibility, length of service
and various other factors that the committee may deem appropriate at the time of
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<PAGE> 53
granting any incentives. To date, we have made grants of incentives to 66 of our
current employees have been made in the form of non-qualified stock options.
Incentives under the plan may be granted in any combination of the
following forms, as determined by the committee:
- incentive stock options;
- non-statutory or non-qualified stock options;
- stock appreciation rights;
- stock awards;
- restricted stock awards;
- performance shares; and
- cash awards.
Prices and expiration dates of, and material conditions to, the granting of
options under the plan are determined by the committee based on our assessment
of employment, tax and other financial factors affecting us from time to time.
Incentives granted under the plan generally are not transferable. Subject to
certain adjustments, the maximum number of shares of common stock that may be
issued under the plan is 2,500,000. Generally, an optionee may pay the exercise
price to exercise a stock option in the form of cash or the surrender of shares
of common stock. Options granted under the plan may be exercisable for up to ten
years from the date of grant, if the optionee ceases to be employed by us for
any reason, the options generally expire six months after the date of
termination of employment.
1997 Director Stock Option Plan. We adopted, and our shareholders have
approved, the 1997 Director Stock Option Plan. The plan allows the Board of
Directors to grant stock options to members of the Board of Directors who are
not our employees. The exercise price of any option granted under the plan is
equal to the fair market value of our common stock on the grant date. The term
of an option granted under the plan may not exceed ten years from the date of
grant.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our Articles of Incorporation limit the liability of our directors for
monetary damages arising from a breach of their fiduciary duty as directors,
except to the extent otherwise required by the Minnesota Business Corporation
Act. This limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our Bylaws provide that we shall indemnify our directors and officers to
the fullest extent permitted by Minnesota law, including any circumstances in
which indemnification is otherwise discretionary under Minnesota law.
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<PAGE> 54
PRINCIPAL AND SELLING SHAREHOLDERS
The following table presents information regarding beneficial ownership of
our common stock as of March 31, 1999, held by each person known by us to be the
beneficial owner of more than 5% of our common stock, each executive officer
named in the Summary Compensation Table, each director, each selling shareholder
and all executive officers and directors as a group. The table also presents the
same information as adjusted to reflect the sale of shares offered hereby and
the conversion of all outstanding shares of Series A convertible preferred stock
into shares of common stock upon completion of this offering. In accordance with
the rules of the SEC, beneficial ownership includes the shares issuable pursuant
to stock options that are exercisable within 60 days of March 31, 1999. Shares
issuable pursuant to stock options are considered outstanding for computing the
percentage of the person holding the options but are not considered outstanding
for computing the percentage of any other person. The number of shares of common
stock outstanding after this offering includes the 4,000,000 shares of common
stock being offered for sale by us in this offering and the exercise of options
to purchase 100,000 shares of common stock and the sale of those shares in this
offering by a selling shareholder. The percentage of beneficial ownership for
the following table is based on 10,803,500 shares of common stock outstanding as
of March 31, 1999 and 15,004,578 shares of common stock outstanding after the
completion of this offering, assuming conversion of all outstanding shares of
Series A convertible preferred stock into common stock, and assuming no exercise
of the underwriters' over-allotment option. Unless otherwise indicated, the
address for each listed shareholder is: c/o IntraNet Solutions, Inc., 8091
Wallace Road, Minneapolis, Minnesota 55344. To our knowledge, except as
indicated in the footnotes to this table, the persons named in the table have
sole voting and investment power with respect to all shares of common stock.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO THE OFFERING SHARES AFTER THE OFFERING
---------------------- BEING ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ------------------------------------ --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
Robert F. Olson(1)............... 3,816,632 35.0% 500,000 3,316,632 22.2%
Jeffrey J. Sjobeck(2)............ 61,929 * -- 61,929 *
Ronald E. Eibensteiner(3)........ 464,660 4.3 -- 464,660 3.1
Kenneth H. Holec(4).............. 10,000 * -- 10,000 *
Steven C. Waldron(4)............. 10,000 * -- 10,000 *
Vernon J. Hanzlik(4)............. 250,591 2.2 100,000 150,591 *
Perkins Capital Management,
Inc.(5)........................ 952,635 8.7 -- 952,635 6.4
All directors and executive officers
as a group (5 persons)(6)...... 4,301,292 39.4 500,000 3,801,292 25.5
</TABLE>
- -------------------------
* Less than 1% of currently outstanding common stock.
(1) Includes 35,714 shares owned by Mr. Olson's spouse, 50,000 shares issuable
upon exercise of a warrant held by Mr. Olson and 84,619 shares issuable upon
exercise of a warrant owned by a trust for the benefit of Mr. Olson's minor
children.
(2) Includes 61,929 shares issuable upon exercise of options owned by Mr.
Sjobeck.
(3) Includes 316,588 shares owned by an investment fund owned and managed by Mr.
Eibensteiner and 137,072 shares issuable upon exercise of options and
warrants owned by Mr. Eibensteiner.
(4) Represents shares issuable upon exercise of options.
(5) Ownership is based on information contained in a Schedule 13G filed with the
SEC on February 11, 1999. Includes 520,716 shares issuable upon exercise of
options and warrants owned by Perkins Capital Management, Inc. The address
for this shareholder is: 730 East Lake Street, Wayzata, Minnesota 55391.
(6) Includes the shares issuable upon exercise of the options and warrants
described in the footnotes above.
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<PAGE> 55
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 25,000,000 shares, of which
20,040,195 shares have been designated as common stock, 1,000,350 shares have
been designated as preferred stock and 3,959,455 shares remain undesignated.
COMMON STOCK
As of March 31, 1999, there were 10,904,578 shares of common stock
outstanding and held by 121 shareholders of record and approximately 1,500
beneficial owners, after giving effect to the conversion of all outstanding
shares of Series A convertible preferred stock into shares of common stock upon
the closing of the offering. Based upon the number of shares outstanding as of
March 31, 1999 and giving effect to the issuance of the shares of common stock
being offered by us and the issuance of 100,000 shares included in the offering,
which shares are issuable to a selling shareholder upon the exercise of stock
options, there will be 15,004,578 shares of common stock outstanding upon the
closing of the offering.
Holders of shares of common stock are entitled to one vote for each share
held of record on all matters on which shareholders are entitled or permitted to
vote. There is no cumulative voting for the election of directors. Subject to
the prior rights of holders of preferred stock, the holders of common stock are
entitled to receive dividends when and as declared by the Board of Directors out
of funds legally available for dividends. Upon a liquidation, our creditors and
holders of our preferred stock with preferential liquidation rights will be paid
before any distribution to holders of our common stock. The holders of our
common stock would be entitled to receive a pro rata amount per share of any
excess distribution. Holders of common stock have no preemptive or subscription
rights. There are no conversion rights, redemption rights, sinking fund
provisions or fixed dividend rights with respect to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon completion of this offering will be
fully paid and nonassessable.
Our directors and executive officers as a group beneficially own
approximately 39% of our outstanding common stock. Upon the completion of the
offering, and giving effect to the conversion of currently outstanding shares of
Series A convertible preferred stock into shares of common stock, such persons
will beneficially own approximately 26% of the outstanding shares. Accordingly,
such persons will continue to be able to control our affairs, including, without
limitation, the sale of our equity or debt securities, the appointment of
officers, the determination of officers' compensation and the determination as
to whether to register outstanding securities.
PREFERRED STOCK
We have authorized two series of preferred stock. These consist of
1,000,000 shares of Series A convertible preferred stock and 350 shares of
Series B convertible preferred stock. As of March 31, 1999, there were 75,000
shares of Series A convertible preferred stock outstanding, all of which will be
automatically converted into an aggregate of 101,078 shares of common stock upon
the closing of the offering, assuming the application of the maximum conversion
price of $3.71 per share. No shares of Series B convertible preferred stock are
currently outstanding.
Our Board of Directors has authority to fix the rights, preferences,
privileges and restrictions, including voting rights, of our unissued shares of
capital stock and to issue stock
54
<PAGE> 56
without any further vote or action by the shareholders. The rights 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.
We have no current plans to issue any additional shares of preferred stock.
However, the issuance of preferred stock or of rights to purchase preferred
stock could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, a majority
of our outstanding common stock.
WARRANTS
As of March 31, 1999, there were warrants outstanding to purchase up to
1,286,114 shares of our common stock at exercise prices ranging from $2.32 to
$8.00 per share. These warrants contain anti-dilution provisions providing for
adjustments to the exercise price and the number of shares of common stock
underlying these warrants upon the occurrence of specified events, including any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction.
REGISTRATION RIGHTS
Certain current and former members of our Board of Directors possess
incidental registration rights with respect to an aggregate of approximately
3,400,000 shares of our common stock. Each of these persons has waived such
registration rights with respect to this offering.
POTENTIAL ANTI-TAKEOVER EFFECT OF MINNESOTA LAW
We are governed by the provisions of Sections 302A.671 and 302A.673 of the
Minnesota Business Corporation Act, which are anti-takeover laws. In general,
Section 302A.671 provides that the shares of a corporation acquired in a
"control share acquisition" have no voting rights unless voting rights are
approved in a prescribed manner. A "control share acquisition" is an
acquisition, directly or indirectly, of beneficial ownership of shares that
would, when added to all other shares beneficially owned by the acquiring
person, entitle the acquiring person to have voting power of 20% of more in the
election of directors. In general, Section 302A.673 prohibits a publicly held
Minnesota corporation from engaging in a "business combination" with an
"interested shareholder" for a period of four years after the date of the
transaction in which the person became an interested shareholder, unless the
business combination is approved in a prescribed manner. "Business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested shareholder. An "interested shareholder" is a person
who is the beneficial owner, directly or indirectly, of 10% or more of the
corporation's voting stock, or an affiliate or associate of the corporation and,
at any time within four years prior to the date in question, was the beneficial
owner, directly or indirectly, of 10% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A., is the transfer agent and registrar for our
common stock.
55
<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, and after giving effect to the conversion
of all Series A convertible preferred stock into shares of common stock and the
issuance of 100,000 shares included in the offering to a selling shareholder
upon the exercise of outstanding options, 15,004,578 shares of common stock will
be outstanding. Of this amount, approximately 10,900,000 shares will be freely
tradable on the public market without restriction or further registration under
the Securities Act, by persons who are not deemed to be our affiliates or acting
as underwriters as those terms are defined in the Securities Act. The
approximately 4,100,000 remaining shares of common stock are subject to the
resale limitations of Rule 144 of the Securities Act. Sales of these securities
must be registered under the Securities Act or made in accordance with an
exemption from registration, such as Rule 144.
Rule 144 provides that if at least one year has elapsed since shares of
common stock that constitute "restricted securities" were last acquired from us
or our affiliates, the holder is generally entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the shares of common stock then outstanding or the reported average weekly
trading volume of the common stock during the four calendar weeks immediately
preceding the date on which notice of the sale is sent to the SEC. Sales under
Rule 144 are subject to certain manner of sale restrictions, notice requirements
and availability of current public information concerning us. Rule 144 also
applies the previously described limitations to unregistered sales of our common
stock by our affiliates. A person who is not our affiliate during the three
months preceding the sale, generally may sell shares without regard to the
volume limitations, manner of sale provision, notice requirements or the
availability of public information concerning us, provided that at least two
years have elapsed since the shares were last acquired from us or our
affiliates.
56
<PAGE> 58
UNDERWRITING
The underwriters named below, acting through their representatives, Dain
Rauscher Wessels, a division of Dain Rauscher Incorporated, and U.S. Bancorp
Piper Jaffray Inc., have severally agreed, subject to the terms and conditions
of the underwriting agreement, to purchase from us and the selling shareholders
the number of shares of common stock listed opposite their names below. The
underwriters are committed to purchase and pay for all such shares if any are
purchased, subject to the conditions stated in the underwriting agreement.
<TABLE>
<CAPTION>
NAME OF UNDERWRITER NUMBER OF SHARES
------------------- ----------------
<S> <C>
Dain Rauscher Wessels.......................................
U.S. Bancorp Piper Jaffray Inc. ............................
---------
Total..................................................
=========
</TABLE>
The representatives have advised us and the selling shareholders that the
underwriters propose to offer the shares of common stock to the public at the
offering price set forth on the cover page of this prospectus and to certain
dealers at such price less a concession of not in excess of $ per share, of
which $ may be reallowed to other dealers. After the public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the representatives. No such reduction will change the amount of proceeds to
be received by us and the selling shareholders as set forth on the cover page of
this prospectus.
The underwriting agreement contains covenants of indemnity among the
underwriters, us, and the selling shareholders against civil liabilities,
including liabilities under the Securities Act and liabilities arising from
breaches of representations and warranties contained in the underwriting
agreement.
We have granted to the underwriters an option to purchase up to 600,000
additional shares of common stock. The selling shareholders have granted the
underwriters on option to purchase up to 90,000 additional shares of common
stock. These options may be exercised at any time up to 30 days after the date
of this prospectus. The option entitles the underwriters to purchase the
additional shares of common stock at the same price per share as the 4,600,000
shares being sold in this offering. If the underwriters exercise the option,
each of the underwriters must purchase approximately the same percentage of
additional shares from us and the selling shareholders that they purchased in
the primary offering. If purchased, the additional shares will be sold by us and
the selling shareholders in approximately the same percentage of additional
shares as the shares included in the primary offering. If purchased, the
additional shares will be sold by the underwriters on the same terms as those on
which the 4,600,000 shares are being sold.
The price of the shares of common stock purchased by the underwriters will
be the public offering price set forth on the cover page of the prospectus less
the following underwriting discounts and commissions, to be paid by us and the
selling shareholders.
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
By IntraNet Solutions..................... $ $ $
By the selling shareholders............... $ $ $
</TABLE>
We will also pay the total expenses of this offering.
57
<PAGE> 59
Our officers and directors have agreed not to sell, transfer, grant any
third party the right to purchase, or otherwise dispose of any shares of common
stock or other securities that they own or acquire, other than shares of common
stock acquired in open market transactions, for a period of 180 days after the
date of this prospectus without the prior written consent of the underwriters.
This 180-day period is known as the lock-up period. The representatives may,
without notice and in their sole discretion allow any officer or director to
dispose of common stock or other securities prior to the expiration of the
lock-up period. There are however, currently no agreements between the
underwriters and any of our officers or directors allowing such sales.
In addition, we have agreed that we will not issue, sell, offer to sell, or
otherwise dispose of any shares of our common stock or other securities during
the lock-up period without the prior consent of the underwriters. This agreement
does not include shares of common stock or other securities issued pursuant to
employee stock option plans, employee stock purchase plans, or common stock or
other securities outstanding on the date of this prospectus. However, we have
agreed that employee stock options issued during the lock-up period to our
officers and directors may not be exercised prior to the expiration of the
lock-up period. Any shares of common stock issued to our officers and directors
during the lock-up period pursuant to the exercise of stock options or other
securities outstanding on the date of this prospectus shall bear a restrictive
legend restricting the transfer of such shares during the lock-up period.
The underwriters have advised us that in connection with this offering,
certain persons participating in this offering may engage in transactions that
may have the effect of stabilizing or maintaining the market price of the common
stock at a level above that which might otherwise prevail in the open market.
These transactions may include stabilizing bids, syndicate covering transactions
and the imposition of penalty bids. A "stabilizing bid" is a bid for or the
purchase of common stock on behalf of the underwriters for the purpose of
preventing or retarding a decline in the market price of the common stock. A
"syndicate covering transaction" is the bid for or the purchase of the common
stock on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with the offering
if the common stock originally sold by such underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The representatives have advised us that such transactions may be affected on
the Nasdaq SmallCap Market, Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act
of 1934 requiring us to file reports, proxy statements and other information
with the SEC. These reports, proxy statements and other information filed by us
can be inspected and copied at the public reference facilities maintained by the
SEC at 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549, and at the
SEC's regional offices at 7 World Trade Center, Suite 1300, New York, New York
10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of these materials can also be obtained from the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public
58
<PAGE> 60
reference facilities. The SEC also makes our filings publicly available on the
Internet. The SEC's Web site is located at http://www.sec.gov.
We have filed a registration statement on Form S-1 with the SEC under the
Securities Act of 1933 with respect to the shares of common stock offered by
this prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement and its exhibits and schedules. We have omitted certain items in
accordance with the rules and regulations of the SEC. For further information
with respect to us and the common stock offered by this prospectus, please
reference the registration statement and its exhibits and schedules. Statements
contained in this prospectus regarding the contents of any contract or any other
document to which the prospectus makes reference are not necessarily complete.
In each instance, we advise you to refer to the copy of the contract or other
document filed as an exhibit to the registration statement. Each such statement
is qualified in all respects by this reference. Copies of the registration
statement, and its exhibits and schedules, may be inspected without charge at
the public reference facilities maintained by the SEC or obtained at prescribed
rates from the Public Reference Section of the SEC at the above addresses. The
registration statement can also be accessed through the SEC's Web site.
LEGAL MATTERS
The legality of the issuance of the shares offered hereby will be passed
upon for us and the selling shareholders by Maslon Edelman Borman & Brand, LLP,
Minneapolis, Minnesota. Certain legal matters will be passed upon for the
underwriters by Faegre & Benson LLP, Minneapolis, Minnesota.
EXPERTS
Our consolidated financial statements as of March 31, 1999 and March 31,
1998 and for the years then ended included in this prospectus have been audited
by Grant Thornton LLP, independent certified public accountants, as indicated in
their report thereon, and are included herein in reliance upon the authority of
said firm as experts in giving said report. Our consolidated financial
statements for the year ended March 31, 1997 were audited by Ernst & Young LLP,
independent auditors, as indicated in their report thereon, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
59
<PAGE> 61
INTRANET SOLUTIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants -- Grant F-2
Thornton LLP..............................................
Report of Independent Accountants -- Ernst & Young LLP...... F-3
Consolidated Balance Sheets as of March 31, 1998 and F-4
1999......................................................
Consolidated Statements of Operations for the years ended F-5
March 31, 1997, 1998 and 1999.............................
Consolidated Statements of Shareholders' Equity (Deficit) F-6
for the years ended March 31, 1997, 1998 and 1999.........
Consolidated Statements of Cash Flows for the years ended F-7
March 31, 1997, 1998 and 1999.............................
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 62
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
IntraNet Solutions, Inc.
We have audited the accompanying consolidated balance sheets of IntraNet
Solutions, Inc. and subsidiaries as of March 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for each of the two years in the period ended March 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IntraNet
Solutions, Inc. and subsidiaries as of March 31, 1999 and 1998 and the
consolidated results of their operations and their consolidated cash flows for
each of the two years in the period ended March 31, 1999 in conformity with
generally accepted accounting principles.
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
April 14, 1999
F-2
<PAGE> 63
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
IntraNet Solutions, Inc.
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows of IntraNet Solutions, Inc. and
subsidiaries for the year ended March 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Since the date of completion of our audit of the accompanying consolidated
financial statements and initial issuance of our report thereon dated June 30,
1997, which report contained an explanatory paragraph regarding the Company's
ability to continue as a going concern, the Company, as discussed in Note 9, has
completed an issuance of its preferred stock and the exercise of stock options
and warrants resulting in net proceeds of $5,151,867 and $4,225,421 in 1998 and
1999, respectively. Therefore, the conditions that raised substantial doubt
about whether the Company will continue as a going concern no longer exist.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, IntraNet Solutions, Inc. and
subsidiaries' consolidated results of operations and cash flows for the year
ended March 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
June 30, 1997,
except for Note 9, as to which the date is
April 28, 1999
F-3
<PAGE> 64
INTRANET SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1998 1999
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................. $ 994,526 $ 1,950,893
Accounts receivable, net............................. 4,925,301 3,615,273
Current maturities of notes receivable............... 61,793 113,959
Inventories.......................................... 233,121 52,001
Prepaid royalties.................................... 308,424 391,579
Prepaid expenses and other current assets............ 232,048 304,323
----------- ------------
Total current assets......................... 6,755,213 6,428,028
Notes receivable, net of current maturities............ 215,910 105,448
Property and equipment, net............................ 776,088 766,509
Net assets of discontinued operations.................. 709,128 --
----------- ------------
$ 8,456,339 $ 7,299,985
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Revolving credit facility............................ $ 2,246,122 $ 421,685
Current maturities of long-term obligations.......... 663,631 177,631
Accounts payable..................................... 2,906,293 447,446
Deferred revenues.................................... 210,110 534,735
Commissions payable.................................. 166,325 230,228
Accrued expenses..................................... 397,461 327,882
----------- ------------
Total current liabilities.................... 6,589,942 2,139,607
Long-term obligations, net of current maturities....... 198,465 84,492
----------- ------------
Total liabilities............................ 6,788,407 2,224,099
----------- ------------
Commitments and contingencies.......................... -- --
Shareholders' equity (deficit):
Capital stock, $0.01 par value, 25,000,000 shares
authorized, 3,959,455 shares undesignated
Series A convertible preferred stock, $0.01 par
value, $5.00 stated value, 1,000,000 shares
designated, 450,000 and 75,000 shares issued and
outstanding at March 31, 1998 and 1999.......... 2,003,844 333,969
Series B convertible preferred stock, $0.01 par
value, $10,000 stated value, 350 shares
authorized, none issued or outstanding at March
31, 1998 and 1999............................... -- --
Common stock, $0.01 par value, 20,040,195 shares
designated, 8,607,445 and 10,803,500 issued and
outstanding at March 31, 1998 and 1999.......... 86,075 108,035
Additional paid-in capital........................... 8,760,980 15,295,977
Accumulated deficit.................................. (9,064,694) (10,637,166)
Unearned compensation................................ (118,273) (24,929)
----------- ------------
Total shareholders' equity................... 1,667,932 5,075,886
----------- ------------
$ 8,456,339 $ 7,299,985
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 65
INTRANET SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Product licenses........................ $ 885,620 $ 2,563,339 $ 6,826,952
Services................................ 28,282 409,335 1,601,743
Hardware integration and support........ 15,276,674 16,477,121 5,629,621
----------- ----------- -----------
Total revenues............................ 16,190,576 19,449,795 14,058,316
----------- ----------- -----------
Cost of revenues:
Product licenses........................ 229,935 285,271 662,741
Services................................ 13,537 284,517 1,002,601
Hardware integration and support........ 11,894,532 12,883,240 4,600,683
----------- ----------- -----------
Total cost of revenues.................... 12,138,004 13,453,028 6,266,025
----------- ----------- -----------
Gross profit.............................. 4,052,572 5,996,767 7,792,291
----------- ----------- -----------
Operating expenses:
Sales and marketing..................... 2,014,160 3,130,885 4,315,646
General and administrative.............. 1,983,591 2,369,011 2,929,037
Research and development................ 1,115,782 1,243,068 1,342,394
----------- ----------- -----------
Total operating expenses.................. 5,113,533 6,742,964 8,587,077
----------- ----------- -----------
Loss from operations...................... (1,060,961) (746,197) (794,786)
Other income (expense):
Gain on sale of hardware integration
unit................................. -- -- 516,934
Interest expense, net................... (127,747) (332,109) (54,823)
----------- ----------- -----------
Loss from continuing operations........... (1,188,708) (1,078,306) (332,675)
Discontinued operations:
Loss on sale of distribution group...... -- -- (111,103)
Loss from operations of distribution
group................................ (2,559,756) (2,576,666) (410,361)
----------- ----------- -----------
Net loss.................................. (3,748,464) (3,654,972) (854,139)
Preferred stock dividends and accretion... -- (1,664,889) (718,333)
----------- ----------- -----------
Loss attributable to common
shareholders............................ $(3,748,464) $(5,319,861) $(1,572,472)
=========== =========== ===========
Loss per common share -- basic and
diluted:
Continuing operations................... $ (0.19) $ (0.14) $ (0.03)
Discontinued operations................. (0.40) (0.14) (0.05)
Net loss................................ (0.58) (0.47) (0.09)
Loss attributable to common
shareholders......................... (0.58) (0.68) (0.17)
=========== =========== ===========
Weighted average common shares
outstanding............................. 6,418,111 7,844,190 9,508,886
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 66
INTRANET SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE RETAINED
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS
---------------------- -------------------- --------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT)
-------- ----------- ------ ----------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1,
1996.................. -- $ -- -- $ -- 4,318,583 $ 43,186 $ (51,793) $ 3,631
Grant of compensatory
stock options......... -- -- -- -- -- -- 241,222 --
Exercise of stock
options and
warrants.............. -- -- -- -- 60,926 609 66,610 --
Stock option
compensation earned... -- -- -- -- -- -- -- --
Conversion of
promissory notes...... -- -- -- -- 158,346 1,583 548,417 --
Shares issued in
reverse acquisition... -- -- -- -- 2,940,587 29,406 2,583,352 --
Shares issued in
conjunction with
acquisition........... -- -- -- -- 45,161 452 349,548 --
Warrants issued in
conjunction with
promissory notes...... -- -- -- -- -- -- 90,000 --
Net loss............... -- -- -- -- -- -- -- (3,748,464)
-------- ----------- ---- ----------- ---------- -------- ----------- ------------
Balance at March 31,
1997.................. -- -- -- -- 7,523,603 75,236 3,827,356 (3,744,833)
Exercise of stock
options and
warrants.............. -- -- -- -- 541,034 5,411 1,625,082 --
Conversion of
promissory notes...... -- -- -- -- 71,428 714 249,286 --
Issuance of convertible
preferred stock....... 800,000 3,562,395 -- -- -- -- -- --
Conversion of preferred
stock to common
stock................. (350,000) (1,558,551) -- -- 471,380 4,714 1,553,837 --
Record non-cash deemed
dividend.............. -- (1,570,000) -- -- -- -- 1,570,000 --
Record deemed dividend
accretion............. -- 1,570,000 -- -- -- -- -- (1,570,000)
Dividends paid on
convertible preferred
stock................. -- -- -- -- -- -- -- (94,889)
Net loss............... -- -- -- -- -- -- -- (3,654,972)
Other.................. -- -- -- -- -- -- (64,581) --
-------- ----------- ---- ----------- ---------- -------- ----------- ------------
Balance at March 31,
1998.................. 450,000 2,003,844 -- -- 8,607,445 86,075 8,760,980 (9,064,694)
Exercise of stock
options and
warrants.............. -- -- -- -- 334,381 3,343 1,370,814 --
Cancellation of
compensatory stock
options............... -- -- -- -- -- -- (90,760) --
Issuance of common
stock................. -- -- -- -- 29,057 291 119,709 --
Issuance of convertible
preferred stock....... -- -- 300 2,851,264 -- -- -- --
Conversion of preferred
stock to common
stock................. (375,000) (1,669,875) (300) (2,851,264) 1,832,617 18,326 4,502,813 --
Record non-cash deemed
dividend.............. -- -- -- (570,000) -- -- 570,000 --
Record deemed dividend
accretion............. -- -- -- 570,000 -- -- -- (570,000)
Dividends paid on
convertible preferred
stock................. -- -- -- -- -- -- 14,088 (148,333)
Net loss............... -- -- -- -- -- -- -- (854,139)
Other.................. -- -- -- -- -- -- 48,333 --
-------- ----------- ---- ----------- ---------- -------- ----------- ------------
Balance at March 31,
1999.................. 75,000 $ 333,969 -- $ -- 10,803,500 $108,035 $15,295,977 $(10,637,166)
======== =========== ==== =========== ========== ======== =========== ============
<CAPTION>
TOTAL
SHAREHOLDERS'
UNEARNED EQUITY
COMPENSATION (DEFICIT)
------------ -------------
<S> <C> <C>
Balance at April 1,
1996.................. $ (16,207) $ (21,183)
Grant of compensatory
stock options......... (241,222) --
Exercise of stock
options and
warrants.............. -- 67,219
Stock option
compensation earned... 26,309 26,309
Conversion of
promissory notes...... -- 550,000
Shares issued in
reverse acquisition... -- 2,612,758
Shares issued in
conjunction with
acquisition........... -- 350,000
Warrants issued in
conjunction with
promissory notes...... -- 90,000
Net loss............... -- (3,748,464)
--------- -----------
Balance at March 31,
1997.................. (231,120) (73,361)
Exercise of stock
options and
warrants.............. -- 1,630,493
Conversion of
promissory notes...... -- 250,000
Issuance of convertible
preferred stock....... -- 3,562,395
Conversion of preferred
stock to common
stock................. -- --
Record non-cash deemed
dividend.............. -- --
Record deemed dividend
accretion............. -- --
Dividends paid on
convertible preferred
stock................. -- (94,889)
Net loss............... -- (3,654,972)
Other.................. 112,847 48,266
--------- -----------
Balance at March 31,
1998.................. (118,273) 1,667,932
Exercise of stock
options and
warrants.............. -- 1,374,157
Cancellation of
compensatory stock
options............... 90,760 --
Issuance of common
stock................. -- 120,000
Issuance of convertible
preferred stock....... -- 2,851,264
Conversion of preferred
stock to common
stock................. -- --
Record non-cash deemed
dividend.............. -- --
Record deemed dividend
accretion............. -- --
Dividends paid on
convertible preferred
stock................. -- (134,245)
Net loss............... -- (854,139)
Other.................. 2,584 50,917
--------- -----------
Balance at March 31,
1999.................. $ (24,929) $ 5,075,886
========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 67
INTRANET SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net loss........................................... $(3,748,464) $(3,654,972) $ (854,139)
Adjustments to reconcile net loss to cash flows
from operating activities --
Depreciation and amortization.................. 231,157 290,094 308,244
Gain on sale of hardware integration unit...... -- -- (516,934)
Loss on sale of fixed assets................... 1,609 448 42,418
Discount amortization.......................... 17,527 71,894 --
Non-cash special charges....................... 219,361 -- --
Discontinued operations........................ (867,555) 1,029,072 709,128
Changes in operating assets and liabilities.... (750,395) (1,458,259) (1,152,160)
Other.............................................. 26,309 48,266 50,917
----------- ----------- -----------
Net cash flows used in operating activities........ (4,870,451) (3,673,457) (1,412,526)
----------- ----------- -----------
Investing activities:
Proceeds from sale of the hardware integration
group, net of related expenses................... -- -- 1,279,352
Proceeds from note receivable...................... 1,114,169 816,034 58,296
Proceeds from sale of fixed assets................. 6,570 3,398 6,355
Purchases of fixed assets.......................... (285,103) (371,766) (364,731)
----------- ----------- -----------
Net cash flows provided by investing
activities..................................... 835,636 447,666 979,272
----------- ----------- -----------
Financing activities:
Net advances (repayments) from revolving credit
facility......................................... 700,988 437,036 (1,824,437)
Proceeds from long-term obligations................ 2,433,313 -- --
Payments on long-term obligations.................. (191,820) (1,285,323) (806,935)
Payments on other long-term liabilities............ -- (102,447) (61,800)
Issuance of preferred stock........................ -- 3,521,373 2,851,264
Payment of dividends on preferred stock............ -- (94,889) (134,245)
Proceeds from stock options and warrants........... 67,219 1,630,494 1,374,157
Proceeds from reverse merger....................... 1,118,200 -- --
Other.............................................. (8,800) (7,725) (8,383)
----------- ----------- -----------
Net cash flows provided by financing
activities..................................... 4,119,100 4,098,519 1,389,621
----------- ----------- -----------
Net increase in cash................................. 84,285 872,728 956,367
Cash and equivalents, beginning of year.............. 37,513 121,798 994,526
----------- ----------- -----------
Cash and equivalents, end of year.................... $ 121,798 $ 994,526 $ 1,950,893
=========== =========== ===========
Supplemental disclosure of cash flows information:
Cash paid for interest............................. $ 351,955 $ 343,181 $ 71,661
Cash paid for income taxes......................... 600 7,281 6,842
Non-cash financing and investing activities:
Equipment acquired with capital lease obligation... $ 328,460 $ -- $ 84,377
Conversion of debt to common stock................. -- 250,000 --
Conversion of debt to preferred stock.............. -- 150,000 --
Common stock issued for royalties.................. -- -- 120,000
Common stock issued on purchase of business........ 350,000 -- --
Note receivable from sale of discontinued
operations....................................... -- 277,703 --
Detail of changes in operating assets and
liabilities:
Accounts receivable................................ $ (102,883) $(2,145,452) $ 1,100,028
Inventories........................................ (62,888) 80,039 68,240
Prepaid expenses and other current assets.......... (492,640) (291,674) (17,098)
Accounts payable................................... (365,621) 816,366 (2,458,847)
Accrued expenses and other liabilities............. 273,637 82,462 155,517
----------- ----------- -----------
Net changes in operating assets and
liabilities.................................... $ (750,395) $(1,458,259) $(1,152,160)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 68
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1998 AND 1999
1. NATURE OF THE BUSINESS
IntraNet Solutions, Inc. (the "Company") is a leading provider of Web-based
data and content management solutions for intranets, extranets and the Internet.
The Company's Intra.doc! suite of products offers customers the ability to
rapidly access, manage and publish unstructured business data. The Company's
customers are primarily located throughout the United States and in Europe.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Revenue Recognition: The Company currently derives all of its revenues from
licenses of its Intra.doc! suite of products and related services. Product
license revenue is recognized when a purchase order has been received, the
product has been shipped, and no significant obligations remain related to
implementation. Services revenue consists of fees from consulting and
maintenance. Consulting services include needs assessment, software integration,
security analysis, application development and training. The Company bills
consulting fees either on a time and materials basis or on a fixed-price
schedule. The Company's clients typically purchase maintenance agreements
annually, and the Company prices maintenance agreements based on a percentage of
the product license fee. Clients purchasing maintenance agreements receive
product upgrades, Web-based technical support and telephone hot-line support.
The Company recognizes revenue from maintenance agreements ratably over the term
of the agreement, typically one year.
Customer advances and billed amounts due from customers in excess of
revenue recognized are recorded as deferred revenue.
The Company adopted Statement of Position, or SOP, 97-2, Software Revenue
Recognition, and SOP 98-4, Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition, as of April 1, 1998. SOP 97-2 and SOP 98-4
provide guidance for recognizing revenue on software transactions and supersede
SOP 91-1, Software Revenue Recognition. The adoption of SOP 97-2 and SOP 98-4
did not have a material effect on the Company's financial results.
In December 1998, the American Institute of Certified Public Accountants
issued SOP 98-9 Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions. For the Company, SOP 98-9 amends SOP 98-4 to
extend the deferral of the application of certain passages of SOP 97-2 provided
by SOP 98-4 through March 31, 1999. All other provisions of SOP 98-9 are
effective for transactions entered into after March 31, 1999. The Company
believes the adoption of SOP 98-9 will not have a material effect on its
consolidated financial statements results or financial condition.
Cash and Equivalents: The Company considers all short-term, highly liquid
investments that are readily convertible into known amounts of cash and have
original maturities of three months or less to be cash equivalents.
F-8
<PAGE> 69
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1997, 1998 AND 1999
Inventories: Inventories, consisting primarily of computer software, are
valued at the lower of cost (first-in, first-out) or market value.
Property and Equipment: Property and equipment, including leasehold
improvements, are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets, ranging from
three to seven years, or the life of the lease for leasehold improvements,
whichever is shorter. Maintenance, repairs and minor renewals are expensed when
incurred.
Software Development Costs: Software development costs have been accounted
for in accordance with Statement of Financial Accounting Standards (SFAS) No.
86, Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed. Under SFAS No. 86 software development costs may be
capitalized once the technological feasibility of the project is established.
The amount of software development costs that may be capitalized is subject to
limitations based on the net realizable value of the potential product. To date,
the period between achieving technological feasibility of the Company's products
and the general availability of the products has been short. Software
development costs qualifying for capitalization have, consequently, been
immaterial. Accordingly, the Company has not capitalized any software
development costs and has instead charged all such costs to research and
development expense.
Net Income (Loss) per Common Share: The Company's basic net income (loss)
per share amounts have been computed by dividing net income (loss) by the
weighted average number of outstanding common shares. The Company's diluted net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of outstanding common shares and common share
equivalents relating to stock options, when dilutive. For each of the years
ended March 31, 1997, 1998 and 1999, the Company incurred net losses and
therefore basic and diluted per share amounts are the same. Common stock
equivalent shares consist of convertible preferred stock (using the if converted
method) and stock options and warrants (using the treasury stock method). Common
stock equivalents as of March 31, 1997, 1998 and 1999 included 1,275,876,
1,009,736 and 1,719,534 shares related to stock options and warrants and
included 606,061 and 67,756 shares, respectively, related to convertible
preferred stock at March 31, 1998 and 1999, respectively. There were no common
stock equivalents as of March 31, 1997 related to convertible preferred stock.
Advertising: The Company expenses the cost of advertising as it is
incurred. Advertising expense for the years ended March 31, 1997, 1998, and 1999
was $244,900, $596,200 and $751,500, respectively.
Recently Issued Accounting Standards: In February 1998, the American
Institute of Certified Public Accountants issued Statement of Position, or SOP,
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. SOP 98-1 establishes the accounting for costs of software products
developed or purchased for internal use, including when such costs should be
capitalized. SOP 98-1 is effective for financial statements for fiscal years
beginning after December 15, 1998. The Company believes that SOP 98-1 will not
have a material impact on its consolidated financial statements.
F-9
<PAGE> 70
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1997, 1998 AND 1999
The Company adopted SFAS No. 130, Reporting Comprehensive Income, effective
April 1, 1998. SFAS No. 130 established standards for the reporting and display
of an amount representing comprehensive income and its components as part of the
company's basic financial statements. Comprehensive income includes certain
non-owner changes in equity that currently are excluded from net income. Because
the company historically has not experienced transactions that would be included
in comprehensive income, the adoption of SFAS No. 130 did not have any effect on
the consolidated financial position, results of operations, or cash flows of the
Company.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
was issued in June 1998 and the Company is not required to adopt SFAS No 133
until April 1, 2000. The Company believes the adoption of SFAS No. 133 will not
have a material effect on its consolidated financial statements.
Stock-based Compensation: The Company utilizes the intrinsic value method
for stock-based compensation. Under this method, compensation expense is
recognized for the amount by which the market price of the common stock on the
date of grant exceeds the exercise price of an option.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications: Certain reclassifications have been made to the 1997 and
1998 financial statements to conform with the presentation used in the 1999
financial statements.
3. SALE OF HARDWARE INTEGRATION UNIT
During the fiscal year ended March 31, 1999, the Company sold the
operations of its hardware integration unit to Osage Systems Group, Inc.
("Osage") for approximately $1.6 million, and certain future financial
consideration from Osage, dependent on the performance of the unit over the next
two years.
In conjunction with the sale of its hardware integration unit, the Company
entered into a non-competition agreement with Osage. As a result, the Company
recorded the necessary provision for the reserve or write-down of the assets and
contracts associated with the hardware integration unit to their net realizable
value. The gain on the sale of the hardware integration unit operations of
$516,934 has been recorded in the statement of operations as other income.
F-10
<PAGE> 71
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1997, 1998 AND 1999
Revenues, cost of revenues, and gross profit for the hardware integration
and support unit are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1997 1998 1999
----------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Hardware integration.................... $10,476,702 $12,186,886 $4,357,809
Support................................. 4,799,972 4,290,235 1,271,812
----------- ----------- ----------
Total revenues............................ 15,276,674 16,477,121 5,629,621
----------- ----------- ----------
Cost of revenues:
Hardware integration.................... 8,792,240 10,249,621 3,711,929
Support................................. 3,102,292 2,633,619 888,754
----------- ----------- ----------
Total cost of revenues.................... 11,894,532 12,883,240 4,600,683
----------- ----------- ----------
Gross profit.............................. $ 3,382,142 $ 3,593,881 $1,028,938
=========== =========== ==========
</TABLE>
4. DISCONTINUED OPERATIONS
During the fiscal year ended March 31, 1998, the Company sold the
Minneapolis facility of its on-demand publishing operations for approximately
$1.6 million. The sale price included cash of approximately $359,000, a
promissory note of $278,000 and assumption of liabilities of approximately $1.0
million. The promissory note is payable in quarterly installments of $27,100,
including interest at 1.5% over prime (effective rate of 9.25% at March 31,
1999) and is due in March 2001. Future maturities of principal on this note are
$113,959 for 2000 and $100,105 for 2001. No gain or loss on the transaction was
recorded.
During the fiscal year ended March 31, 1999, the Company sold substantially
all of the remaining assets of its on-demand publishing operations, located in
Phoenix, Arizona for approximately $486,680. The sale price was substantially
for assumption of liabilities. The Company incurred a loss on the sale of the
related assets of $111,103.
The components of net assets of discontinued operations included in the
Company's consolidated balance sheet as of March 31, 1998 are as follows:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 469,732
Inventories and other current assets........................ 134,451
Property, equipment and other assets........................ 562,992
----------
Total assets................................................ $1,167,175
==========
Accounts payable and accrued expenses....................... $ 262,738
Debt........................................................ 195,309
----------
Total liabilities........................................... $ 458,047
==========
Net assets.................................................. $ 709,128
==========
</TABLE>
F-11
<PAGE> 72
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1997, 1998 AND 1999
Summarized financial information for the discontinued operations are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues....................... $ 3,819,430 $ 5,023,206 $ 729,111
Operating expenses....................... (6,196,457) (7,337,227) (1,103,836)
Interest................................. (182,729) (262,645) (35,636)
Income taxes............................. -- -- --
----------- ----------- -----------
Net loss from discontinued operations.... $(2,559,756) $(2,576,666) $ (410,361)
=========== =========== ===========
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company contracts with an entity that provides programming services to
certain of its customers. This entity is beneficially controlled by a principal
stockholder of the Company. Total fees under this contract arrangement for the
years ending March 31, 1997, 1998 and 1999 were $49,000, $36,000 and $42,000,
respectively.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Equipment and furniture................................. $1,327,566 $1,584,938
Leasehold improvements.................................. 117,237 75,842
---------- ----------
1,444,803 1,660,780
Less accumulated depreciation........................... 668,715 894,271
---------- ----------
$ 776,088 $ 766,509
========== ==========
</TABLE>
7. REVOLVING CREDIT FACILITY
The Company has a revolving credit agreement that provides for borrowings
of up to $2.5 million, subject to the availability of assets securing the loan.
Advances are due on demand and accrue interest at the bank's base lending rate
plus 2.5% (effective rate of 11.0% and 10.25% on March 31, 1998 and 1999,
respectively). At March 31, 1999 the Company had borrowing availability, of
approximately $2.1 million. The agreement is secured by substantially all the
Company's assets, personally guaranteed by a stockholder, and requires the
Company to meet various covenants including maintenance of minimum levels of net
worth.
On April 1, 1999 the Company entered into a new credit agreements which
provides for borrowings of up to $2.25 million, subject to the availability of
assets securing the loan. Advances will be due on demand and accrue interest at
the bank's lending rate plus 2.0%. The new agreement is due on demand and
secured by substantially all the Company assets and requires the Company to meet
various covenants including maintenance of minimum level of
F-12
<PAGE> 73
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1997, 1998 AND 1999
net worth. The agreement automatically renews annually unless the Company
provides 60 days notice to cancel or demand is made by the lender.
8. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Notes payable to shareholder, due on demand, quarterly
interest payments at 12.0%, unsecured and subordinated to
bank indebtedness........................................ $ 27,500 $ 20,000
Capital lease obligation, due in monthly installments of
$3,880 including interest at 10.5%, through December
2000, secured by computer equipment...................... -- 77,323
Contract payable, due in monthly installments of $10,300
with no interest, through July 30, 2000.................. -- 164,800
Notes payable to bank...................................... 406,795 --
Other notes................................................ 427,801 --
-------- --------
Total long-term debt....................................... 862,096 262,123
Less current maturities.................................... 663,631 177,631
-------- --------
$198,465 $ 84,492
======== ========
</TABLE>
Future maturities of long-term obligations are as follows:
<TABLE>
<S> <C>
2000................................................... $177,631
2001................................................... 84,492
--------
$262,123
========
</TABLE>
9. SHAREHOLDERS' EQUITY
Series A convertible preferred stock: During the year ended March 31, 1998,
the Company issued $4.0 million of Series A 5% convertible preferred stock. The
Company issued 800,000 units, each consisting of one share of $0.01 par value
preferred stock and a warrant to acquire one share of the Company's common stock
at an exercise price of $5.18. The preferred stock is convertible into the
Company's common stock at a price equal to 75% of market value at the time of
conversion, with a maximum conversion price of $3.71 per share and a minimum
conversion price of $1.00 per share. During the year ended March 31, 1998,
350,000 shares Series A convertible preferred stock were converted into 471,380
shares of common stock. During the year ended March 31, 1999, 375,000 shares of
Series A convertible preferred stock were converted into 795,197 shares of
common stock. The Series A convertible preferred stock is automatically
converted into common stock upon the
F-13
<PAGE> 74
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1997, 1998 AND 1999
Company's public sale of equity securities with gross proceeds equal to or in
excess of $10.0 million.
In connection with this transaction, the Company recorded a non-cash deemed
dividend of approximately $1.6 million. The deemed dividend was recorded as a
discount to preferred stock with a corresponding credit to additional paid in
capital. The discount was recognized during the periods in which the shares
become eligible for conversion, which occurred ratably from issuance through
December 31, 1997. The accretion of the discount is reflected in the statement
of operations as an adjustment to net loss, but has no net effect on total
shareholders' equity. The Company also paid $94,889 and $148,333 in preferred
stock dividends during the years ended March 31, 1998 and 1999, respectively.
Series B convertible preferred stock: In May, 1998, the Company issued $3.0
million of Series B 4% convertible preferred stock. This preferred stock was
convertible into the Company's common stock at a price equal to 84% of market
value at the date of conversion with a maximum conversion price of $7.56 and a
minimum conversion price of $1.81. During the year ended March 31, 1999, all the
Series B convertible preferred stock, including accrued dividends, were
converted into 1,037,420 of shares of common stock.
In connection with this transaction, the Company recognized a non-cash
deemed dividend of $570,000. The deemed dividend was recorded as a discount to
preferred stock with a corresponding credit to additional paid-in capital. The
discount was recognized at the date of issue of the preferred stock, the same
date at which the shares were eligible for conversion. The accretion of the
discount is reflected in the statement of operations as an adjustment to net
loss, but has no net effect on total shareholders' equity.
Warrants: The Company has 1,286,114 non-redeemable stock purchase warrants
with exercise prices of $2.32 to $8.00 outstanding at March 31, 1999. The
warrants expire on various dates through June, 2003.
Stock options: The Company maintains the 1994-1997 Stock Option Plan and
the 1997 Director Stock Option Plan, (collectively, the "Plan"), pursuant to
which options and other awards to acquire an aggregate of 3,100,000 and 300,000
shares, respectively, of the Company's common stock may be granted. The Company
integrated all previously granted options into the Plan. The Plan is
administered by the Board of Directors, which has the discretion to determine
the number and purchase price of shares subject to stock options (which may be
below the fair market value of the common stock on the date thereof), the term
of each option, and the terms of exercisability.
Certain options have exercise prices less than the fair market value of the
Company's common stock on the date of the grant. The Company recognizes the
compensation element of these grants over the vesting period of the related
options, generally five years. The options generally vest over periods of one to
five years.
Pro forma information regarding the fair value of stock options is
determined at the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions for the years ended March 31,
1997, 1998 and 1999: risk free interest rates of 6.0%, 6.3% and 5.0%,
respectively; no dividend yield; volatility factor of the expected market
F-14
<PAGE> 75
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1997, 1998 AND 1999
price of the Company's common stock of 65%, 75%, and 75%, respectively; and a
weighted-average expected life of the options of 8.5 years.
The Company's pro forma information had the fair value method been used is
as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma loss from continuing
operations............................ $(1,671,344) $(2,046,306) $(1,768,675)
Pro forma loss from continuing
operations per common share, basic and
diluted............................... (0.26) (0.26) (0.19)
Pro forma net loss...................... (4,231,100) (4,622,472) (2,290,139)
Pro forma net loss per common share,
basic and diluted..................... (0.66) (0.59) (0.24)
Pro forma loss attributable to common
shareholders.......................... (4,231,100) (6,287,861) (3,008,472)
Pro forma loss attributable to common
shareholders per common share, basic
and diluted........................... (0.66) (0.80) (0.32)
</TABLE>
These pro forma results are not representative of future effects of
applying this method, because they do not take into consideration the pro forma
effect of grants made prior to 1996.
F-15
<PAGE> 76
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1997, 1998 AND 1999
A summary of the Company's stock option activity, and related information
through March 31, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding as of April 1, 1996........................ 1,431,937 $2.85
Granted.............................................. 353,500 6.29
Exercised............................................ (47,618) 0.76
Forfeited............................................ (168,106) 3.15
--------- -----
Outstanding as of March 31, 1997....................... 1,569,713 3.66
Granted.............................................. 948,000 5.26
Exercised............................................ (155,725) 2.13
Forfeited............................................ (277,626) 5.04
--------- -----
Outstanding as of March 31, 1998....................... 2,084,362 4.33
Granted.............................................. 374,000 4.52
Exercised............................................ (221,076) 3.64
Forfeited............................................ (314,271) 5.31
--------- -----
Outstanding as of March 31, 1999....................... 1,923,015 $4.12
========= =====
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
Options exercisable at end of year................ 594,576 855,708 1,044,148
======= ======= =========
Weighted-average fair value of options granted
during the year................................. $6.44 $4.19 $3.52
======= ======= =========
</TABLE>
The following table summarizes information about the stock options
outstanding at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- -----------------------------
WEIGHTED-AVERAGE AVERAGE WEIGHTED-
RANGE OF NUMBER REMAINING EXERCISE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE EXERCISE PRICE
-------------- ----------- ---------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.20-$0.56............ 316,872 5.5 $ 0.24 271,128 $ 0.24
$ 3.00-$3.99............ 538,666 7.6 3.25 234,708 3.15
$ 4.00-$5.99............ 827,178 8.5 5.01 403,713 4.94
$ 6.00-$7.99............ 132,000 9.1 6.29 26,300 6.09
$10.36.................. 108,299 6.9 10.26 108,299 10.36
--------- ---------
1,923,015 8.1 4.12 1,044,148 3.91
========= =========
</TABLE>
F-16
<PAGE> 77
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1997, 1998 AND 1999
10. RETIREMENT SAVINGS PLAN
The Company maintains a pre-tax salary reduction/profit sharing plan under
the provisions of Section 401(k) of the Internal Revenue Code. The plan covers
substantially all full-time employees who have reached the age of 21. Profit
sharing contributions by the Company are discretionary. No contributions have
been made by the Company for the years ended March 31, 1997, 1998 and 1999.
11. INCOME TAXES
Due to net operating losses for the years ended March 31, 1997, 1998, and
1999, the Company has recorded no current income tax provision. The tax effects
of temporary differences giving rise to deferred income taxes consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation and amortization.............. $ (123,800) $ (88,700) $ (44,300)
Deferred tax assets:
Deferred revenue........................... 84,100 84,000 213,900
Accounts receivable and other reserves..... 160,300 212,000 90,700
Inventories................................ 11,800 24,800 24,800
Net operating loss carryforwards........... 1,409,000 2,620,000 3,166,300
Other...................................... 45,800 30,100 99,700
----------- ----------- -----------
1,587,200 2,882,200 3,551,100
Valuation allowance.......................... (1,587,200) (2,882,200) (3,551,100)
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
The Company's provision for income taxes differs from the expected tax
benefit amount computed by applying the statutory federal income tax rate of
34.0% to income before taxes as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate................................... (34.0)% (34.0)% (34.0)%
State taxes, net of federal benefit...................... -- 0.6 0.9
Stock based compensation................................. (3.1) (4.3) (27.9)
Change in valuation allowance............................ 42.4 35.4 66.8
Other.................................................... (5.3) 2.3 (5.8)
----- ----- -----
--% --% --%
===== ===== =====
</TABLE>
Deferred tax liabilities and deferred tax assets reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. The valuation allowance has been established due to the uncertainty of
future taxable income, which is necessary to realize the benefits of the
deferred tax assets. At March 31, 1999, the Company had net operating loss
F-17
<PAGE> 78
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1997, 1998 AND 1999
(NOL) carryforwards of approximately $7.9 million which begin to expire in 2011.
These NOL's are subject to annual utilization limitations due to prior ownership
charges.
12. COMMITMENTS AND CONTINGENCIES
Operating leases -- The Company has entered into certain non-cancelable
operating lease agreements related to office/warehouse space, equipment and
vehicles. Total rent expense under operating leases net of sublease income, was,
$309,409, $435,364 and $402,539 for the years ended March 31, 1997, 1998, and
1999, respectively.
Minimum remaining rental commitments under operating leases net of sublease
arrangements as of March 31, 1999 are as follows:
<TABLE>
<S> <C>
For the year ended March 31,
2000........................................................ $ 371,700
2001........................................................ 255,700
2002........................................................ 206,800
2003........................................................ 204,800
2004........................................................ 203,800
Thereafter.................................................. 265,100
----------
$1,507,900
==========
</TABLE>
Software royalties -- The Company has entered into several software royalty
agreements whereby it is required to pay a royalty amount based upon
predetermined payment schedules. At March 31, 1997, 1998 and 1999, the Company
recorded advanced royalties as prepaid expense of $51,500, $308,400 and
$391,600, respectively. Royalties are recognized as expense based on sales, and
during the years ended March 31, 1997, 1998 and 1999 totaled $209,200, $230,600
and $511,700, respectively.
Consulting agreement -- The Company has a consulting agreement with a
former shareholder that requires monthly payments of $10,300 through July 2000.
13. RISKS AND UNCERTAINTIES
Accounts receivable -- Accounts receivable is presented net of allowances
of $408,000 and $310,000 as of March 31, 1998 and 1999, respectively. No
customer has accounted for 10% or more of the Company's revenues in the years
ended March 31, 1997, 1998 and 1999. Credit is extended based on an evaluation
of the customer's financial condition and a cash deposit is generally not
required. The Company estimates its potential losses on trade receivables on an
ongoing basis and provides for anticipated losses in the period in which the
revenues are recognized. Credit losses have historically been within
management's expectations.
Year 2000 -- The Year 2000 issue relates to limitations in computer systems
and applications that may prevent proper recognition of the Year 2000. The
potential effect of the Year 2000 issue on the Company and its business partners
will not be fully determinable until the year 2000 and thereafter. If year 2000
modifications are not properly completed either by
F-18
<PAGE> 79
INTRANET SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1997, 1998 AND 1999
the Company or entities with whom the Company conducts business, the Company's
revenues and financial condition could be adversely impacted.
14. SEGMENTS OF BUSINESS AND GEOGRAPHIC AREA INFORMATION
Effective April 1, 1998, the Company adopted SFAS No 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131 did not have a
significant effect as the Company operates as a single segment.
A summary of the Company's operations by geographic area follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
United States.......................... $15,751,061 $19,042,461 $12,614,001
Europe................................. 439,515 407,334 1,444,315
----------- ----------- -----------
Total revenues...................... $16,190,576 $19,449,795 $14,058,316
=========== =========== ===========
Identifiable assets:
United States.......................... $ 564,924 $ 764,863 $ 745,214
Europe................................. -- 11,225 21,295
----------- ----------- -----------
Total............................... $ 564,924 $ 776,088 $ 766,509
=========== =========== ===========
</TABLE>
Sales are attributed to countries or region based on the location of the
customer.
F-19
<PAGE> 80
INSIDE BACK COVER GRAPHICS:
- IntraNet Solutions logo followed by: "Web-based Data and Content
Management Solutions."
- Six customer computer screen pictures with associated descriptive text
naming customer and use of product.
- IntraNet Solutions web-site address: www.intranetsol.com.
<PAGE> 81
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,600,000 SHARES
[INTRANET SOLUTIONS LOGO]
COMMON STOCK
------------------
$ PER SHARE
------------------
DAIN RAUSCHER WESSELS U.S. BANCORP PIPER JAFFRAY
a division of Dain Rauscher
Incorporated
------------------
, 1999
------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the
Securities and Exchange Commission registration fee, the NASD filing fee and the
Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 11,657
NASD filing fee............................................. 4,676
Nasdaq National Market listing fee.......................... 88,500
Legal fees and expenses..................................... 100,000
Accounting fees and expenses................................ 50,000
Blue Sky fees and expenses.................................. 5,000
Transfer agent fees and expenses............................ 10,000
Printing and engraving expenses............................. 75,000
Miscellaneous............................................... 20,167
--------
Total..................................................... $365,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
IntraNet Solutions is governed by Minnesota Statutes Chapter 302A.
Minnesota Statutes Section 302A.521, which 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.
As permitted by Section 302A.251 of the Minnesota Statutes, the Articles of
Incorporation of IntraNet Solutions provide that a director shall have no
personal liability to IntraNet Solutions and its shareholders for a breach of
fiduciary duty as a director, to the fullest extent permitted by law. The
underwriting agreement contains provisions under which IntraNet Solutions on the
one hand, and the underwriters, on the other hand, have agreed to indemnify each
other, including officers and directors of IntraNet Solutions and the
underwriters, and any person who may be deemed to control IntraNet Solutions or
the underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
II-1
<PAGE> 83
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1996, IntraNet Solutions issued $1.0 million of 9% promissory
notes to two investors. During the fourth quarter of fiscal 1997, IntraNet
Solutions issued an additional $500,000 of 9% promissory notes to five
investors. In consideration of these borrowings, IntraNet Solutions issued the
lenders warrants to acquire an aggregate of 300,000 shares of common stock at an
exercise price of $4.00.
During July 1997, IntraNet Solutions issued $4.0 million of Series A 5%
convertible preferred stock to 22 investors. IntraNet Solutions issued 800,000
units, each consisting of one share of $0.01 par value preferred stock and a
warrant to acquire one share of IntraNet Solutions' common stock at an exercise
price of $5.18. The preferred stock is convertible into IntraNet Solutions'
common stock at a price equal to 75% of market value at the time of conversion,
with a maximum conversion price of $3.71 per share and a minimum conversion
price of $1.00 per share.
In May 1998, IntraNet Solutions issued $3.0 million of Series B 4%
convertible preferred stock to two investors. The preferred stock is convertible
into IntraNet Solutions' common stock at a price equal to 84% of market value at
the date of conversion with a maximum conversion price of $7.56 and a minimum
conversion price of $1.81.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, or Regulation D promulgated thereunder. The
recipients in such transactions represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1 Revised Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation (incorporated
by reference to Exhibit 3.1 of the Registrant's registration
statement on Form SB-2, File No. 333-13175).
3.2 Bylaws (incorporated by reference to Exhibit 3.2 of the
Registrant's registration statement on Form SB-2, File No.
333-14175).
3.3 Articles of Amendment to Articles of Incorporation, as dated
June 20, 1997 (incorporated by reference to Exhibit 3.3 of
the Registrant's Form 10-KSB for the fiscal year ended March
31, 1997).
4.1 Certificate of Designation of Series B Preferred Stock
(incorporated by reference to Exhibit 4.1 of the
Registrant's registration statement on Form S-3, File No.
333-57181).
4.2 Securities Purchase Agreement, dated May 6, 1998, by and
among the Registrant, Stark International and Shepherd
Investments International, Ltd. (incorporated by reference
to Exhibit 4.2 of the Registrant's registration statement on
Form S-3, File No. 333-57181).
</TABLE>
II-2
<PAGE> 84
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
4.3 Registration Rights Agreement, dated May 6, 1998, by and
among the Registrant, Stark International and Shepherd
Investments International, Ltd. (incorporated by reference
to Exhibit 4.3 of the Registrant's registration statement on
Form S-3, File No. 333-57181).
4.4 Certificate of Designation of Series A convertible preferred
stock (incorporated by reference to Exhibit 3(i)(A) of the
Registrant's Form 10-QSB for the three months ended June 30,
1997).
4.5 Form of Stock Purchase Warrant issued to purchasers of units
containing the Registrant's Series A convertible preferred
stock and Stock Purchase Warrants (incorporated by reference
to Exhibit 4.1 of the Registrant's Form 10-QSB for the three
months ended June 30, 1997).
4.6 Form of Registration Rights Agreement entered into by and
between the Registrant and purchasers of units containing
the Registrant's Series A convertible preferred stock and
Stock Purchase Warrants (incorporated by reference to
Exhibit 10.1 of the Registrant's Form 10-QSB for the three
months ended June 30, 1997).
5 Opinion of Maslon Edelman Borman & Brand, LLP.
10.1 Lease Agreement dated, April 24, 1996, by and between CSM
Investors, Inc. and Registrant (incorporated by reference to
Exhibit 10.1 of the Registrant's registration statement on
Form SB-2, File No. 333-14175).
10.2 Credit and Security Agreement, dated March 14, 1995, by and
between Diversified Business Credit, Inc. and the Registrant
(incorporated by reference to Exhibit 10.2 of the
Registrant's registration statement on Form SB-2, File No.
333-14175).
10.3 Term Loan Supplement to Credit Agreement, dated March 14,
1995, by and between the Registrant and Diversified Business
Credit, Inc. (incorporated by reference to Exhibit 10.3 of
the Registrant's registration statement on Form SB-2, File
No. 333-14175).
10.4 IntraNet Solutions, Inc. 1994-1997 Stock Option and
Compensation Plan (incorporated by reference to Exhibit 10.4
of the Registrant's registration statement on Form SB-2,
File No. 333-14175).
10.5 Employment Agreement, dated July 30, 1996, by and between
the Registrant and Robert F. Olson (incorporated by
reference to Exhibit 10.5 of the Registrant's registration
statement on Form SB-2, File No. 333-14175).
10.6 Employment Agreement, dated July 30, 1996, by and between
the Registrant and Jeffrey J. Sjobeck (incorporated by
referenced to Exhibit 10.6 to the Registrant's Form 10-KSB
for the fiscal year ended March 31, 1997).
10.7 Promissory Note, dated December 23, 1996, made by the
Registrant in favor of Circle F Ventures, LLC (incorporated
by reference to Exhibit 10.7 of the Registrant's Form 10-KSB
for the fiscal year ended March 31, 1997).
10.8 Amendment, dated March 4, 1997, to the Promissory Note made
by the Registrant in favor of Circle F Ventures, LLC dated
December 23, 1996 (incorporated by reference to Exhibit 10.8
of the Registrant's Form 10-KSB for the fiscal year ended
March 31, 1997).
</TABLE>
II-3
<PAGE> 85
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.9 Lease Agreement dated April 22, 1998, by and between Lake
Corporate Center LLC and the Registrant (incorporated by
reference to Exhibit 10.9 of the Registrant's registration
statement on Form 10-KSB for the fiscal year ended March 31,
1998).
10.10 Stock Purchase Warrant Agreement, dated December 23, 1996,
by and between the Company and Circle F Ventures, LLC
(incorporated by reference to Exhibit 10.10 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.11 Security Agreement, dated December 23, 1996, by and between
the Registrant and Circle F Ventures, LLC (incorporated by
reference to Exhibit 10.11 of the Registrant's Form 10-KSB
for the fiscal year ended March 31, 1997).
10.12 Subordination Agreement, dated December 23, 1996, by and
between the Registrant Diversified Business Credit, Inc. and
Circle F Ventures, LLC (incorporated by reference to Exhibit
10.12 of the Registrant's Form 10-KSB for the fiscal year
ended March 31, 1997).
10.13 Promissory Note, dated March 18, 1997, made by the
Registrant in favor of Circle F Ventures, LLC (incorporated
by reference to Exhibit 10.13 of the Registrant's Form
10-KSB for the fiscal year ended March 31, 1997).
10.14 Sublease Agreement, dated April 22, 1998, by and between CSM
Investors, Inc., Digital River, Inc. and the Registrant
(incorporated by reference to Exhibit 10.14 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.15 Stock Purchase Warrant Agreement, dated March 18, 1997, by
and between the Registrant and Circle F Ventures, LLC
(incorporated by reference to Exhibit 10.15 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.16 Schedule identifying certain material details of documents
substantially identical to those set forth in Exhibits
10.17, 10.18, 10.19 and 10.20 (incorporated by reference to
Exhibit 10.16 of the Registrant's Form 10-KSB for the fiscal
year ended March 31, 1997).
10.17 Promissory Note, dated December 20, 1996, made by the
Registrant in favor of Rita M. Olson (incorporated by
reference to Exhibit 10.17 of the Registrant's Form 10-KSB
for the fiscal year ended March 31, 1997).
10.18 Amendment, dated March 4, 1997, to the Promissory Note made
by the Registrant in favor of Rita M. Olson dated December
20, 1996 (incorporated by reference to Exhibit 10.18 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.19 Amendment, dated June 5, 1997, by and between the Registrant
and Rita M. Olson dated December 20, 1996 (incorporated by
reference to Exhibit 10.19 of the Registrant's Form 10-KSB
for the fiscal year ended March 31, 1997).
10.20 Stock Purchase Warrant Agreement, dated December 20, 1996,
by and between the Registrant and Rita M. Olson
(incorporated by reference to Exhibit 10.20 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
</TABLE>
II-4
<PAGE> 86
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.21 Note Conversion and Subscription Agreement, dated June 6,
1997, by and between the Registrant and Rita M. Olson
(incorporated by reference to Exhibit 10.21 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.22 Note Conversion and Subscription Agreement, dated June 6,
1997, by and between the Registrant and Wayne W. Mills
(incorporated by reference to Exhibit 10.22 of the
Registrant's Form 10-KSB for the fiscal year ended March 31,
1997).
10.23 Asset Purchase Agreement, dated as of March 30, 1998, by and
among Midwest Graphics & Response Systems, Inc., Stephen M.
Krenz, and IntraNet Distribution Group, Inc. (incorporated
by reference to Exhibit 10.23 of the Registrant's Form
10-QSB for the three months ended September 30, 1998).
10.24 Asset Purchase Agreement, dated August 13, 1998, by and
among IntraNet Solutions, Inc., IntraNet Distribution Group,
Inc., and Communication Connections, Inc. (incorporated by
reference to Exhibit 10.24 of the Registrant's Form 10-QSB
for the three months ended September 30, 1998).
10.25 Asset Purchase Agreement, dated effective as of September
30, 1998, by and between Osage Systems Group, Inc., Osage
Systems Group Minneapolis, Inc. and IntraNet Solutions, Inc.
(incorporated by reference to Exhibit 10.25 of the
Registrant's Form 10-QSB for the three months ended
September 30, 1998).
10.26 Employment Agreement, dated April 1, 1999, by and between
the Registrant and Gregg A. Waldon.
10.27 Credit and Security Agreement, dated April 11, 1999, by and
between the Registrant and Diversified Business Credit, Inc.
21 Subsidiaries of Registrant (incorporated by reference to
Exhibit 21 of the Registrant's registration statement on
Form SB-2, File No. 333-14175).
23.1 Consent of Grant Thornton LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Maslon Edelman Borman & Brand, LLP (included in
Exhibit 5 to the Registration Statement).
24.1 Powers of Attorney.
27 Financial Data Schedule.
</TABLE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court
II-5
<PAGE> 87
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE> 88
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Minneapolis, State of Minnesota, on May 10, 1999.
INTRANET SOLUTIONS, INC.
By: *
-----------------------------------
Name: Robert F. Olson
Title:PPresident and Chief Executive
Officer
(Principal Executive
Officer)
By: /s/ GREGG A. WALDON
-----------------------------------
Name: Gregg A. Waldon
Title:CChief Financial Officer,
Treasurer and
Secretary (Principal
Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below on the 10th day of
May, 1999 by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* President, Chief Executive Officer
- --------------------------------------------------- and Director (Principal Executive
Robert F. Olson Officer)
* Chief Financial Officer, Treasurer,
- --------------------------------------------------- Secretary and Director (Principal
Gregg A. Waldon Financial and Accounting Officer)
* Director
- ---------------------------------------------------
Ronald E. Eibensteiner
* Director
- ---------------------------------------------------
Kenneth H. Holec
* Director
- ---------------------------------------------------
Steven C. Waldron
</TABLE>
* Gregg A. Waldon, by signing his name hereto, does hereby sign this document on
behalf of himself and each of the other above-named executive officer and
directors of the Registrant pursuant to powers of attorney duly executed by
such person.
<TABLE>
<C> <S>
/s/ GREGG A. WALDON
- ---------------------------------------------------
Gregg A. Waldron
</TABLE>
II-7
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT PAGE NO.
- ------- ----------------------- --------
<S> <C> <C>
1 Revised Form of Underwriting Agreement
5 Opinion of Maslon Edelman Borman & Brand, LLP.
10.26 Employment Agreement, dated April 1, 1999, by and between *
the Registrant and Gregg A. Waldon.
10.27 Credit and Security Agreement, dated April 11, 1999, by and *
between the Registrant and Diversified Business Credit, Inc.
23.1 Consent of Grant Thornton LLP. *
23.2 Consent of Ernst & Young LLP. *
23.3 Consent of Maslon Edelman Borman & Brand, LLP (included in
Exhibit 5).
24.1 Powers of Attorney. *
27 Financial Data Schedule *
</TABLE>
- -------------------------
* Previously filed.
<PAGE> 90
INTRANET SOLUTIONS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- --------- ---------- ----------
BALANCE AT BALANCE AT
BEGINNING END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
----------- ---------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deducted from assets:
Allowance for doubtful accounts:
Year ended March 31, 1997............. $ 20 $ 60 $ -- $ 80
==== ==== ==== ====
Year ended March 31, 1998............. $ 80 $328 $ -- $408
==== ==== ==== ====
Year ended March 31, 1999............. $408 $692 $790 $310
==== ==== ==== ====
</TABLE>
<PAGE> 1
EXHIBIT 1
4,600,000 Shares
INTRANET SOLUTIONS, INC.
Common Stock
$.01 Par Value Per Share
UNDERWRITING AGREEMENT
[ ], 1999
Dain Rauscher Incorporated
U.S. Bancorp Piper Jaffray Inc.
As Representatives of the several Underwriters
c/o Dain Rauscher Wessels
Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
IntraNet Solutions, Inc., a Minnesota corporation (the "Company"), and
the shareholders of the Company named in Schedule B hereto (the "Selling
Shareholders") propose, subject to the terms and conditions stated herein, to
issue and sell, or to sell, as the case may be, to the several Underwriters
named in Schedule A hereto (the "Underwriters"), for which you are acting as
representatives (the "Representatives"), an aggregate of 4,600,000 shares (the
"Firm Shares") of Common Stock, $.01 par value per share, of the Company (the
"Common Stock"), including 4,000,000 shares to be sold by the Company and
600,000 shares to be sold by the Selling Shareholders. The Company and the
Selling Shareholders also propose, subject to the terms and conditions stated
herein, to sell to the Underwriters, at the Underwriters' election, up to an
aggregate of 690,000 additional shares of Common Stock (the "Option Shares"),
including 600,000 shares to be sold by the Company and 90,000 shares to be sold
by the Selling Shareholders. The Firm Shares and the Option Shares are herein
collectively called the "Shares."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-77389) and a
related preliminary prospectus for the registration of the Shares under the
Securities Act of 1933, as amended (the "Act"). The registration statement, as
amended at the time it was declared effective, including the information (if
any) deemed to be part thereof pursuant to Rule 430A under the Act is herein
referred to as the "Registration Statement." The form of prospectus first filed
by the Company with the Commission pursuant to Rules 424(b) and 430A under the
Act is referred to herein as the "Prospectus." Each preliminary prospectus
included in the Registration Statement prior to the time it became effective or
filed with the Commission pursuant to Rule 424(a) under the Act is referred to
herein as a "Preliminary Prospectus." Copies of the
<PAGE> 2
Registration Statement, including all exhibits and schedules thereto, any
amendments thereto and all Preliminary Prospectuses have been delivered to you.
The Company and the Selling Shareholders hereby confirm their
respective agreements with respect to the purchase of the Shares by the
Underwriters as follows:
1. Representations and Warranties of the Company.
(a) The Company represents and warrants to, and agrees with,
each of the Underwriters that:
(i) The Registration Statement has been declared
effective under the Act, and no post-effective amendment to the Registration
Statement has been filed as of the date of this Agreement. No stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose has been instituted or threatened by the
Commission.
(ii) No order preventing or suspending the use of
any Preliminary Prospectus has been issued by the Commission, nor, to the best
of the Company's knowledge have proceedings for such purpose been instituted,
and each Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the rules and regulations
of the Commission promulgated thereunder (collectively, the "Regulations"), and
did not contain an 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 under which they were made, not
misleading; provided, however, the Company makes no representation or warranty
as to information contained in or omitted in reliance upon, and in conformity
with, written information furnished to the Company by or on behalf of any
Underwriter through the Representatives expressly for use in the preparation
thereof.
(iii) The Registration Statement conforms, and the
Prospectus and any amendments or supplements thereto will conform, in all
material respects to the requirements of the Act and Regulations. Neither the
Registration Statement nor any amendment thereto, and neither the Prospectus nor
any supplement thereto, contains or will contain, as the case may be, any untrue
statement of a material fact or omits or will omit to state any 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; provided,
however, that the Company makes no representation or warranty as to information
contained in or omitted from the Registration Statement or the Prospectus, or
any such amendment or supplement, in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of any Underwriter
through the Representatives, expressly for use in the preparation thereof.
(iv) The Company has been duly organized, is
validly existing as a corporation under the laws of its state of incorporation,
has the corporate power and authority to own, lease, license and use its
properties and conduct its business as described in the Prospectus,
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<PAGE> 3
and is duly qualified to transact business and is in good standing in all
jurisdictions in which the conduct of its business or its ownership, leasing,
licensing or using of property requires such qualification and the failure so to
qualify would have a material adverse effect on the business, properties, key
personnel, prospects, condition, financial or otherwise, or results of
operations of the Company and its subsidiaries, taken as a whole (a "Material
Adverse Effect").
(v) The Company has no subsidiaries other than
as listed on Exhibit 21 to the Registration Statement (herein referred to as its
"subsidiaries"). Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own,
lease, license and use its properties and conduct its business as described in
the Prospectus, and is duly qualified to transact business in all jurisdictions
in which the conduct of its business or its ownership, lease, license or use of
property requires such qualification and the failure so to qualify would have a
Material Adverse Effect. Other than the Company's subsidiaries, the Company does
not own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in any
firm, partnership, joint venture, association or other entity. All outstanding
shares of capital stock of each of the subsidiaries of the Company have been
duly authorized and validly issued, are fully paid and non-assessable, and are
owned, directly or indirectly, by the Company free and clear of all liens,
encumbrances and security interests. No options, warrants or other rights to
purchase, agreements or other obligations to issue, or other rights to convert
any obligations into, shares of capital stock or ownership interests in any of
the subsidiaries of the Company are outstanding.
(vi) The outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully paid and
nonassessable. All offers and sales by the Company of outstanding shares of
capital stock and other securities of the Company, prior to the date hereof,
were made in compliance with the Act and all applicable state securities or blue
sky laws and were not issued in violation of any preemptive right, resale right,
right of first refusal or similar right. The Shares to be issued and sold by the
Company to the Underwriters pursuant to this Agreement have been duly authorized
and, when issued and paid for as contemplated herein, will be validly issued,
fully paid and nonassessable. Each of the Underwriters will receive good and
marketable title to the Shares purchased by it, free and clear of any and all
liens, encumbrances, pledges, security interests, charges, claims, equitable
interests, restrictions and defects. Except as otherwise stated in the
Prospectus, there are no preemptive rights or other rights to subscribe for or
to purchase, or any restriction upon the voting or transfer of, any shares of
capital stock of the Company pursuant to the Company's charter, bylaws or any
agreement or other instrument to which the Company is a party or by which the
Company is bound. Neither the filing of the Registration Statement nor the
offering or the sale of the Shares as contemplated by this Agreement gives rise
to any rights for, or relating to, the registration of any shares of capital
stock or other securities of the Company, accept such rights which have been
validly waived or satisfied. Except as described in the Prospectus, there are no
outstanding options, warrants, agreements or contracts to purchase or preemptive
or other rights to purchase, subscribe for or acquire from the Company any
shares of its capital stock or any securities or obligations convertible into or
exercisable for shares of the Company's capital
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<PAGE> 4
stock. The Company has the authorized and outstanding capital stock as set forth
under the heading "Capitalization" in the Prospectus as of the date set forth
therein. The outstanding capital stock of the Company, including the Shares,
conforms, and the Shares to be issued by the Company to the Underwriters will
conform, to the description thereof contained in the Prospectus.
(vii) The financial statements, together with the
related notes and schedules as set forth in the Registration Statement and
Prospectus, present fairly the consolidated financial position, results of
operations and changes in financial position of the Company and its subsidiaries
on the basis stated in the Registration Statement at the indicated dates and for
the indicated periods. Such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, and all adjustments necessary for a fair
presentation of results for such periods have been made, except as otherwise
stated therein and are in accordance with the books and records of the Company.
The summary and selected financial and statistical data included in the
Registration Statement present fairly the information shown therein on the basis
stated in the Registration Statement and have been compiled on a basis
consistent with the financial statements presented therein. The books, records
and accounts of the Company and its subsidiaries accurately and fairly reflect
in all material respects, in reasonable detail, the transactions in and
dispositions of the assets of, and the results of operations of, the Company and
its subsidiaries.
(viii) There is no action, suit, claim, proceeding
or investigation pending or, to the knowledge of the Company, threatened or
contemplated against the Company or any of its subsidiaries or any of their
respective officers, directors, properties, assets or rights before any court or
administrative or regulatory agency which, if determined adversely to the
Company or any of its subsidiaries, would, individually or in the aggregate,
result in a Material Adverse Effect except as set forth in the Registration
Statement.
(ix) The Company has good and marketable title to
all properties and assets reflected in the financial statements hereinabove
described as owned by the Company (or as described in the Prospectus as owned by
the Company), in each case free and clear of all liens, encumbrances, pledges,
security interests, charges, claims, equitable interests, restrictions and
defects, except such as are described in the Prospectus or do not materially
affect the value of such properties and assets and do not materially interfere
with the use made and proposed to be made of such properties and assets by the
Company and its subsidiaries; and any real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid and
enforceable leases with such exceptions set forth in the Prospectus or 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.
(x) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, as they may
be amended or supplemented, (A) there has not been any material adverse change,
or any development that could reasonably be expected to
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<PAGE> 5
result in a material adverse change, in or affecting the condition, financial or
otherwise, of the Company and its subsidiaries, taken as a whole, or the
business affairs, management, financial position, shareholders' equity or
results of operations of the Company and its subsidiaries, taken as a whole,
whether or not occurring in the ordinary course of business, (B) there has not
been any transaction not in the ordinary course of business entered into by the
Company or any of its subsidiaries which is material to the Company and its
subsidiaries, taken as a whole, other than transactions described or
contemplated in the Registration Statement, (C) the Company and its subsidiaries
have not incurred any material liabilities or obligations, direct or indirect or
contingent or non-contingent, which are not in the ordinary course of business
or which could result in a material reduction in the future earnings of the
Company and its subsidiaries, (D) the Company and its subsidiaries have not
sustained any material loss or interference with their respective businesses or
properties from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance, (E) there has not been any change in the capital stock
of the Company (other than upon the exercise of options and warrants described
in the Registration Statement), or any material increase in the short-term or
long-term debt (including capitalized lease obligations) of the Company and its
subsidiaries, taken as a whole, (F) there has not been any declaration or
payment of any dividends or any distributions of any kind with respect to the
capital stock of the Company, other than any dividends or distributions
described or contemplated in the Registration Statement, or (G) there has not
been any issuance of warrants, options, convertible securities or other rights
to purchase or acquire capital stock of the Company (other than options granted
under the Company's employee stock option plans referred to in the Prospectus.
(xi) Neither the Company nor any of its
subsidiaries is in violation of, or in default under, its charter or bylaws, or
any statute, or any law, rule, regulation, order, judgment, injunction, decree
or authorization of any court or governmental or administrative agency or body
having jurisdiction over the Company or any of its subsidiaries or any of their
properties, or any indenture, mortgage, deed of trust, loan agreement, lease,
franchise, license or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any property or assets of the Company or any
of its subsidiaries is subject, which violation or default would have a Material
Adverse Effect.
(xii) The issuance and sale of the Shares by the
Company and the compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions contemplated herein will not
violate any provision of the charter or bylaws of the Company or any of its
subsidiaries or any statute or any order, judgment, decree, rule, regulation or
authorization of any court or governmental or administrative agency or body
having jurisdiction over the Company or any of its subsidiaries or any of their
properties, and will not conflict with, result in a breach or violation of, or
constitute, either by itself or upon notice or passage of time or both, a
default under any indenture, mortgage, deed of trust, loan agreement, lease,
franchise, license or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any property or assets of the Company or any
of its subsidiaries is subject. No approval, consent,
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<PAGE> 6
order, authorization, designation, declaration or filing by or with any court or
governmental agency or body is required for the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated, except as may be required under the Act or any state securities or
blue sky laws or under the rules and regulations of the National Association of
Securities Dealers, Inc. (the "NASD"). No further approval or authorization of
any securityholder, the Company's Board of Directors or any duly appointed
committee thereof or others is required for the issuance and sale or transfer of
the Shares, except as may be required by the NASD or under state securities or
blue sky laws.
(xiii) The Company and each of its subsidiaries
holds and is operating in compliance with all licenses, approvals, certificates
and permits from governmental and regulatory authorities, foreign and domestic,
which are necessary or material to the conduct of its business as described in
the Prospectus (except where the failure to so hold or operate in compliance
with such a license, approval, certificate or permit would not have a Material
Adverse Effect) and there are no proceedings pending or, to the knowledge of the
Company, threatened, which may cause any such license, approval, certificate or
permit to be withdrawn, cancelled, suspended or not renewed.
(xiv) The Company has the power and authority to
enter into this Agreement and to authorize, issue and sell the Shares it will
sell hereunder as contemplated hereby. This Agreement has been duly and validly
authorized, executed and delivered by the Company.
(xv) Grant Thornton LLP and Ernst & Young LLP,
which have certified certain of the financial statements filed with the
Commission as part of the Registration Statement, are independent public
accountants as required by the Act and Regulations.
(xvi) The Company has not taken and will not take,
directly or indirectly, any action designed to, or which has constituted, or
which might reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Common Stock.
(xvii) The Company's Common Stock is registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"); and the Shares have been approved for designation upon
notice of issuance on The Nasdaq National Market under the symbol "INRS."
(xviii) The Company has obtained and delivered to
the Representatives written agreements (the "Lock-Up Agreements"), in form and
substance satisfactory to the Representatives, of each of its officers and
directors that such officers and directors shall not (A) offer, pledge, sell,
offer to sell, contract to sell, sell any option or contract to purchase,
purchase any option to sell, grant any option right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any of the shares of
Common Stock or any securities convertible into, or exercisable or exchangeable
for, Common Stock, or (B) enter into any swap or other agreement that transfers,
in whole or in part, any of the economic consequences of
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<PAGE> 7
ownership of the shares of Common Stock or any securities convertible into, or
exercisable or exchangeable for, shares of Common Stock (whether any such
transaction described in clause (A) or (B) above is to be settled by delivery of
the shares of Common Stock or such other securities, in cash or otherwise), in
each case, beneficially owned (within the meaning of Rule 13d-3 under the
Exchange Act) or otherwise controlled by such officer or director on the date
hereof or hereafter acquired, for a period beginning from the date of execution
of this Agreement and continuing to and including the date 180 days after the
date of the Prospectus (the "Lock-Up Period"); provided, however, that such
officer or director may, without the prior written consent of Dain Rauscher
Wessels on behalf of the Underwriters, transfer shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for, Common Stock
either during his or her lifetime or, on death, by will or intestacy to members
of his or her immediate family or to trusts exclusively for the benefit of
members of his or her immediate family or in connection with bona fide gifts,
provided that, prior to any such transfer, such transferee executes an
agreement, satisfactory to Dain Rauscher Wessels, pursuant to which such
transferee agrees to receive and hold such shares subject to the provisions of
the Lock-Up Agreement and that there shall be no further transfer except in
accordance with the provisions of the Lock-Up Agreement. For purposes of this
paragraph, "immediate family" shall mean the spouse, lineal descendant, father,
mother, brother or sister of such officer or director. The restrictions on
transfers described in the Lock-Up Agreements shall not apply to (1) the sale of
any shares of Common Stock to the Underwriters pursuant to this Agreement or (2)
transactions in shares of Common Stock acquired in open-market transactions
after completion of the Offering.
(xix) The Company has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by the
Company.
(xx) The Company is in compliance with all
provisions of Florida Statutes Section 517.075 (Chapter 92-198, laws of
Florida). The Company does not do any business, directly or indirectly, with the
government of Cuba or with any person or entity located in Cuba.
(xxi) The Company and its subsidiaries have timely
filed all federal, state, local and foreign tax returns or reports required to
be filed, and have paid in full all taxes indicated by said returns or reports
and all assessments received by it or any of them to the extent that such taxes
have become due and payable, except where the Company and its subsidiaries are
contesting in good faith such taxes and assessments and there is no tax
deficiency that has been or, to the Company's knowledge, might be asserted
against the Company or any of its subsidiaries which might have a Material
Adverse Effect and all material tax liabilities, whether or not disputed, are
adequately provided for on the books of the Company and its subsidiaries. Except
as set forth in the Registration Statement and the Prospectus, neither the
Company nor any subsidiary has executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for assessment or
collection of any income taxes or is a party to
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<PAGE> 8
any pending action or proceeding by any foreign or domestic governmental agency
for assessment or collection of taxes, and no claims for assessment or
collection of taxes have been asserted against the Company or any of its
subsidiaries.
(xxii) The Company and each of its subsidiaries
owns or possesses adequate licenses or other rights to use all patents, patent
applications, trademarks, service marks, tradenames, trademark registrations,
service mark registrations, copyrights, licenses, inventions, trade secrets
know-how, technology and other similar rights necessary for or material to the
conduct of its business as described in the Prospectus (except for failures to
own or possess such rights that would not have a Material Adverse Effect). The
Company has no knowledge of any facts which would preclude it from having rights
to its patent applications described in the Prospectus. The Company has no
knowledge of any infringement by it or its subsidiaries of, or conflicts with,
any patents, patent applications, trademarks, service marks, tradenames,
trademark registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets, know-how, technology or other similar rights of
others, and neither the Company nor any of its subsidiaries has any knowledge of
or has received any notice or claim of conflict with the asserted rights of
others with respect any of the foregoing.
(xxiii) The Company is not, and upon completion of
the sale of Shares contemplated hereby will not be, required to register as an
"investment company" under the Investment Company Act of 1940, as amended.
(xxiv) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (C) access to records is
permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xxv) Other than as contemplated by this
Agreement, neither the Company nor any of its subsidiaries has incurred any
liability for any finder's or broker's fee or agent's commission in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(xxvi) The Company and its subsidiaries maintain
insurance with insurers of recognized financial responsibility of the types and
in the amounts generally deemed adequate for their respective businesses and
consistent with insurance coverage maintained by similar companies in similar
businesses, including, but not limited to, insurance covering real and personal
property owned or leased by the Company or its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect; neither the Company
nor any such subsidiary has been refused any insurance coverage sought or
applied for; and neither the Company nor any such
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<PAGE> 9
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 have a Material Adverse Effect.
(xxvii) To the Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, subassemblers,
subcontractors or international distributors that might be expected to result in
a material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise. No collective bargaining agreement exists with any
of the Company's employees and, to the Company's knowledge, no such agreement is
imminent.
(xxviii) The Company has not distributed and will not
distribute prior to the later of (A) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (B) completion of the
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted by
the Act.
(xxix) Neither the Company nor any of its
subsidiaries (nor any person representing the Company or any of its
subsidiaries) has at any time during the last five (5) years (A) made any
payment in violation of the Foreign Corrupt Practices Act, or (B) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
(xxx) Except as set forth in the Registration
Statement and Prospectus, (i) the Company and each of its subsidiaries is in
compliance with all rules, laws and regulations relating to the use, treatment,
storage and disposal of toxic substances and protection of health or the
environment ("Environmental Laws") which are applicable to its business, except
for such instances of non-compliance as would not individually or in the
aggregate have a Material Adverse Effect, (ii) neither the Company nor any of
its subsidiaries has received notice from any governmental authority or third
party of an asserted claim under Environmental Laws, which claim is required to
be disclosed in the Registration Statement and the Prospectus and is not so
disclosed, (iii) to the knowledge of the Company, neither the Company nor any of
its subsidiaries will be required to make future material capital expenditures
to comply with Environmental Laws and (iv) to the knowledge of the Company, no
property which is owned, leased or occupied by the Company or any of its
subsidiaries has been designated as a Superfund site pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. ss. 9601, et seq.), or otherwise designated as a
contaminated site under applicable state or local law.
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<PAGE> 10
(xxxi) There are no outstanding loans, advances
(except normal advances for business expenses in the ordinary course of
business) or guarantees of indebtedness by the Company to or for the benefit of
any of the officers or directors of the Company or any of the members of the
families of any of them, except as disclosed in the Registration Statement and
the Prospectus.
(xxxii) The Company has filed and made available to
the Underwriters all forms, reports, and documents required to be filed by the
Company with the Commission since March 31, 1998 (including all exhibits, notes,
and schedules thereto and documents incorporated by reference therein)
(collectively, the "Commission Reports"). The Commission Reports (i) at the time
filed, with respect to all of the Commission Reports other than registration
statements filed under the Act, or at the time of their respective effective
dates, with respect to registration statements filed under the Act, complied as
to form in all material respects with the applicable requirements of the Act or
the Exchange Act, as the case may be, and (ii) did not at the time filed or at
the time of their respective effective dates, as the case may be (or if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing), contain any untrue statement of a material fact or omit to
state a material fact required to be stated in such Commission Reports or
necessary in order to make the statements in such Commission Reports, in the
light of the circumstances under which they were made, not misleading. None of
the Company's subsidiaries is required to file any forms, reports, or other
documents with the Commission.
(b) Any certificate signed by any officer of the Company and
delivered to the Representatives or counsel to the Underwriters shall be deemed
to be a representation and warranty of the Company to each Underwriter as to the
matters covered thereby.
2. Representations, Warranties and Covenants of the Selling
Shareholders.
(a) Each Selling Shareholder severally represents and warrants
to, and covenants and agrees with, each of the Underwriters and the Company
that:
(i) Such Selling Shareholder has duly executed
and delivered a Custody Agreement (the "Custody Agreement") with [ ],
as Custodian, pursuant to which certificates in negotiable form for the Shares
to be sold by such Selling Shareholder hereunder have been placed in custody for
delivery under this Agreement.
(ii) Such Selling Shareholder has full right,
power and authority to enter into this Agreement, the Power of Attorney and the
Custody Agreement, and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Shareholder hereunder; and all consents, approvals,
authorizations and orders necessary for the execution and delivery by such
Selling Shareholder of this Agreement and the Custody Agreement, and for the
sale and delivery of the Shares to be sold by such Selling Shareholder
hereunder, have been obtained, except such as may be required by any state
securities or blue sky laws.
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<PAGE> 11
(iii) Such Selling Shareholder has, and at the
Closing Date and the Option Closing Date, as the case may be (as such dates are
hereinafter defined), will have good and valid title to the Firm Shares and the
Option Shares, respectively, to be sold by such Selling Shareholder hereunder,
free of any liens, encumbrances, security interests, equities or claims
whatsoever; and upon delivery of and payment for such Firm Shares and Option
Shares pursuant to this Agreement, good and valid title thereto, free of any
liens, encumbrances, security interests, equities or claims whatsoever, will be
transferred to the several Underwriters.
(iv) The execution and delivery by such Selling
Shareholder of this Agreement and the Custody Agreement and the consummation by
such Selling Shareholder of the transactions herein and therein contemplated and
the fulfillment by such Selling Shareholder of the terms hereof and thereof will
not conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any will, mortgage, deed of trust,
loan agreement or other agreement, instrument or obligation to which such
Selling Shareholder is a party or to which any of the property or assets of such
Selling Shareholder is subject, except for such agreements, instruments or
obligations for which consents have been obtained, nor will such actions result
in any violations of any statute, rule, regulation or order applicable to such
Selling Shareholder of any court or of any regulatory body or administrative
agency or other governmental body having jurisdiction over such Selling
Shareholder.
(v) Such Selling Shareholder has not taken and
will not take, directly or indirectly, any action designed to, or which has
constituted, or which might reasonably be expected to cause or result in,
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Shares.
(vi) To the extent that any statements or
omissions made in the Registration Statement, any Preliminary Prospectus
thereof, the Prospectus or any amendment or supplement thereto are made in
reliance upon and in conformity with written information with respect to such
Selling Shareholder furnished to the Company by such Selling Shareholder
expressly for use therein, such Preliminary Prospectus and the Registration
Statement did not, and the Prospectus and any further amendments or supplements
to the Registration Statement and the Prospectus will not, when they become
effective or are filed with the Commission, as the case may be, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
(vii) Such Selling Shareholder will not offer to
sell, sell, transfer, assign or otherwise dispose of any Common Stock or other
capital stock of the Company, directly or indirectly, for a period of 180 days
after the date of the Prospectus, otherwise than as expressly permitted under
the Lock-Up Agreement between such Selling Shareholder and the Representatives.
(viii) Such Selling Shareholder has reviewed the
information contained in the Registration Statement and, based on such review
and such Selling Shareholder's knowledge of the industry, the Company and its
business (but without further investigation),
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<PAGE> 12
such Selling Shareholder does not have knowledge that, and nothing has come to
such Selling Shareholder's attention that would give such Selling Shareholder
reason to believe that, at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up to
and on the Closing Date and on any Option Closing Date, (i) the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained or will contain any untrue statement of a material fact or omitted or
will omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (ii) the Prospectus, and any
amendments or supplements thereto effective on or prior to the Closing Date or
any Option Closing Date, contained or will contain any untrue statement of a
material fact or omitted or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(ix) The Shares to be sold by such Selling
Shareholder pursuant to this Agreement have been duly authorized and are validly
issued, fully paid and non-assessable.
(x) This Agreement and the Custody Agreement
have been duly executed and delivered by such Selling Shareholder and are valid
and binding agreements of such Selling Shareholder.
(xi) Assuming the Underwriters purchase the
Shares to be sold by such Selling Shareholder for value, in good faith and
without notice of any adverse claim within the meaning of Article VIII of the
Uniform Commercial Code, delivery of the Shares to be sold by such Selling
Shareholder pursuant to this Agreement will pass marketable title to such Shares
free and clear of any security interests, claims, liens, equities and other
encumbrances.
(b) Each Selling Shareholder represents and warrants to, and
agrees with, the Underwriters to the same effect as the representations and
warranties of the Company set forth in Section 2 of this Agreement.
(c) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Internal Revenue Code of 1986, as
amended, with respect to the transactions herein contemplated, each Selling
Shareholder agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
(d) Each Selling Shareholder specifically agrees that the
Shares represented by the certificates held in custody for such Selling
Shareholder under the Custody Agreement are subject to the interests of the
Underwriters hereunder, and that the arrangements made by such Selling
Shareholder for such custody are to that extent irrevocable. Such Selling
Shareholder specifically agrees that the obligations of such Selling Shareholder
hereunder shall not be terminated by operation of law, whether by the death or
incapacity of such Selling Shareholder or by the occurrence of any other event.
If such Selling Shareholder should die or become incapacitated, or if any other
such event should occur before the delivery of the Shares
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hereunder, certificates representing the Shares shall be delivered by or on
behalf of such Selling Shareholder in accordance with the terms and conditions
of this Agreement and of the Custody Agreement shall be as valid as if such
death, incapacity or other event had not occurred, regardless of whether or not
the Custodian shall have received notice of such death, incapacity or other
event.
(e) Any certificate signed by or on behalf of any Selling
Shareholder and delivered to the Representatives or to counsel to the
Underwriters shall be deemed to be a representation and warranty of such Selling
Shareholder to each Underwriter as to the matters covered thereby.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and covenants contained herein, and subject to the
terms and conditions herein set forth, the Company and each Selling Shareholder
agree, severally and not jointly, to sell to each Underwriter and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
each Selling Shareholder, at a price of $[ ] per share, the number of
Firm Shares (to be adjusted by you to eliminate fractional shares) determined by
multiplying the aggregate number of Firm Shares to be sold by the Company and
each Selling Shareholder, as set forth opposite their respective names in
Schedule B hereto, by a fraction, the numerator of which is the aggregate number
of Firm Shares to be purchased by such Underwriter as set forth opposite the
name of such Underwriter in Schedule A hereto and the denominator of which is
the aggregate number of Firm Shares to be purchased by all the Underwriters from
the Company and the Selling Shareholders hereunder.
In addition, on the basis of the representations, warranties and
covenants contained herein and subject to the terms and conditions herein set
forth, the Company and each Selling Shareholder, as and to the extent indicated
in Schedule B hereto, hereby grant, severally and not jointly, to the several
Underwriters an option to purchase at the Underwriters' election up to the
number of Option Shares set forth opposite their respective names in Schedule B
hereto, at the same price per share as set forth for the Firm Shares in the
paragraph above, for the sole purpose of covering over allotments in the sale of
the Firm Shares. The option granted hereby may be exercised in whole or in part,
but only once, and at any time upon written notice given within 30 days after
the date of this Agreement, by you, as Representatives of the several
Underwriters, to the Company, the Selling Shareholders and the Custodian setting
forth the number of Option Shares as to which the several Underwriters are
exercising the option and the time and date at which certificates are to be
delivered. Any such election to purchase Option Shares shall be made in
proportion to the maximum number of Option Shares to be sold by the Company and
each Selling Shareholder as set forth in Schedule B hereto. If any Option Shares
are purchased, each Underwriter agrees, severally and not jointly, to purchase
that portion of the number of Option Shares as to which such election shall have
been exercised (subject to adjustment to eliminate fractional shares) determined
by multiplying such number of Option Shares by a fraction the numerator of which
is the maximum number of Option Shares which such Underwriter is entitled to
purchase as set forth opposite the name of such Underwriter in Schedule A hereto
and the denominator of which is the maximum number of Option Shares
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<PAGE> 14
which all of the Underwriters are entitled to purchase hereunder. The time and
date at which certificates for Option Shares are to be delivered shall be
determined by the Representatives but shall not be earlier than two or later
than ten full business days after the exercise of such option, and shall not in
any event be prior to the Closing Date. If the date of exercise of the option is
three or more full days before the Closing Date, the notice of exercise shall
set the Closing Date as the Option Closing Date.
Certificates in definitive form for the Shares to be purchased by each
Underwriter hereunder, and in such denominations and registered in such names as
Dain Rauscher Wessels may request upon at least forty-eight hours' prior notice
to the Company, shall be delivered by or on behalf of the Company and such
Selling Shareholder to you for the account of such Underwriter at such time and
place as shall hereafter be designated by the Representatives, against payment
by such Underwriter or on its behalf of the purchase price therefor by certified
or official bank checks, payable to the order of the Company and such Selling
Shareholder in next day funds. The time and date of such delivery and payment
shall be, with respect to the Firm Shares, 8:30 a.m., Minneapolis, Minnesota
time, at the offices of Maslon Edelman Borman & Brand, LLP, 3300 Norwest Center,
Minneapolis, Minnesota, on the third (or if the Shares are priced, as
contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30 p.m. Eastern
time, the fourth) full business day following the date hereof, or at such other
time and date as you and the Company determine pursuant to Rule 15c6-1(a) under
the Exchange Act, such time and date being herein referred to as the "Closing
Date," and, with respect to the Option Shares, at the time and on the date
specified by you in the written notice given by you of the Underwriters'
election to purchase the Option Shares, or such other time and date as you and
the Company may agree upon in writing, such time and date being referred to
herein as the "Option Closing Date." Such certificates will be made available
for checking and packaging at least twenty-four hours prior to the Closing Date
or the Option Closing Date, as the case may be, at a location as may be
designated by you.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to make a public offering of the Firm Shares as soon as the
Representatives deem it advisable to do so. The Firm Shares are to be initially
offered to the public at the initial public offering price and terms set forth
in the Prospectus. The Representatives may from time to time thereafter change
the public offering price and other selling terms. To the extent, if at all,
that any Option Shares are purchased pursuant to Section 3 hereof, the
Underwriters will offer such Option Shares to the public on the foregoing terms.
5. Covenants of the Company. The Company covenants and agrees with the
several Underwriters that:
(a) The Company will prepare and timely file with the
Commission under Rule 424(b) under the Act a Prospectus containing information
previously omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A under the Act, and will not file any amendment to the
Registration Statement or supplement to the Prospectus of which the
Representatives shall not previously have been advised and furnished with a copy
and as to
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<PAGE> 15
which the Representatives shall have reasonably objected in writing promptly
after reasonable notice thereof or which is not in compliance with the Act or
the Regulations.
(b) The Company will advise the Representatives promptly of
any request of the Commission for amendment of the Registration Statement or for
any supplement to the Prospectus or for any additional information, or of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, or of the
institution or threatening of any proceedings for that purpose, and the Company
will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus or suspending such
qualification and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will endeavor to qualify the Shares for sale
under the securities laws of such jurisdictions as the Representatives may
reasonably have designated in writing and will, or will cause counsel to, make
such applications, file such documents, and furnish such information as may be
reasonably requested by the Representatives, provided that the Company shall not
be required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction where it is not now so qualified or
required to file such a consent. The Company will, from time to time, prepare
and file such statements, reports and other documents as are or may be required
to continue such qualifications in effect for so long a period as the
Representatives may reasonably request for distribution of the Shares.
(d) The Company will furnish the Underwriters with as many
copies of any Preliminary Prospectus as the Representatives may reasonably
request and, during the period when delivery of a prospectus is required under
the Act, the Company will furnish the Underwriters with as many copies of the
Prospectus in final form, or as thereafter amended or supplemented, as the
Representatives may, from time to time, reasonably request. The Company will
deliver to the Representatives, at or before the Closing Date, three signed
copies of the Registration Statement and all amendments thereto including all
exhibits filed therewith, and will deliver to the Representatives such number of
copies of the Registration Statement, without exhibits, and of all amendments
thereto, as the Representatives may reasonably request.
(e) If, during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading, or if
for any other reason it shall be necessary at any time to amend or supplement
the Prospectus to comply with any law, the Company promptly will prepare and
file with the Commission an appropriate amendment to the Registration Statement
or supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein in
light of the circumstances existing when it is so delivered, not misleading, or
so that the Prospectus will
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comply with law. In case any Underwriter is required to deliver a prospectus in
connection with sales of any Shares at any time nine months or more after the
effective date of the Registration Statement, upon the request of the
Representatives but at the expense of such Underwriter, the Company will prepare
and deliver to such Underwriter as many copies as the Representatives may
request of an amended or supplemented Prospectus complying with Section 10(a)(3)
of the Act.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
18 months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 thereunder and will advise you in
writing when such statement has been so made available.
(g) During a period of five (5) years after the date hereof,
or such shorter period that the Company remains subject to the periodic
reporting requirements of the Exchange Act, the Company, as soon as practicable
after the end of each respective financial quarter or year, as applicable, will
furnish to its shareholders annual reports (including financial statements
audited by independent certified public accountants) and will furnish to its
shareholders unaudited quarterly reports of operations for each of the first
three quarters of the fiscal year, and will, upon request, furnish to you and
the other several Underwriters hereunder (i) concurrently with making such
reports available to its shareholders, statements of operations of the Company
for each of the first three quarters in the form made available to the Company's
shareholders; (ii) concurrently with the furnishing thereof to its shareholders,
a balance sheet of the Company as of the end of such fiscal year, together with
statements of operations, of shareholders' equity and of cash flow of the
Company for such fiscal year, accompanied by a copy of the certificate or report
thereon of nationally recognized independent certified public accountants; and
(iii) concurrently with the furnishing of such reports to its shareholders,
copies of all reports (financial or other) mailed to shareholders; and (iv) as
soon as they are available, copies of all reports and financial statements
furnished to or filed with the Commission, any securities exchange or The Nasdaq
National Market by the Company (except for documents for which confidential
treatment is requested).
(h) No offering, sale or other disposition of any Common Stock
or other capital stock of the Company, or warrants, options, convertible
securities or other rights to acquire such Common Stock or other capital stock
(other than pursuant to employee stock option plans, employee stock purchase
plans, outstanding options or on the conversion of convertible securities
outstanding on the date of this Agreement; provided, that any employee stock
options issued pursuant to employee stock option plans during the Lock-Up Period
shall not vest and become exercisable to any extent prior to the expiration of
the Lock-Up Period; and, provided further, that any shares of Common Stock
issued to any current officer or director during the Lock-Up Period pursuant to
the exercise of stock options shall bear a restrictive legend restricting the
transfer of such shares during the Lock-Up Period) will be made from the date of
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<PAGE> 17
this Agreement until the end of the Lock-Up Period, directly or indirectly, by
the Company otherwise than hereunder or with the prior written consent of the
Representatives.
(i) The Company will apply the net proceeds from the sale of
the Shares to be sold by it hereunder substantially in accordance with the
purposes set forth under "Use of Proceeds" in the Prospectus. The Company will
invest such proceeds pending their use in such a manner that, upon completion of
such investment, the Company will not be an "investment company" as defined in
the Investment Company Act of 1940, as amended.
(j) The Company will use its best efforts to maintain the
designation of the Common Stock on The Nasdaq National Market.
(k) From the date of this Agreement until the termination of
the Lock-Up Period, the Company will not, without the prior written consent of
Dain Rauscher Wessels on behalf of the Underwriters, alter or amend in any
manner the vesting schedule of any option, warrant or other security of the
Company or its subsidiaries.
(l) The Company will maintain a Transfer Agent and, if
necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer Agent) for its Common Stock.
6. Costs and Expenses. Whether or not the transactions contemplated by
this Agreement are consummated, the Company will pay (directly or by
reimbursement) all costs, expenses and fees incident to the performance of the
obligations of the Company and the Selling Shareholders under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company the cost of preparing, printing and filing of the Registration
Statement, Preliminary Prospectuses and the Prospectus and any amendments and
supplements thereto and the printing, mailing and delivery to the Underwriters
and dealers of copies thereof and of this Agreement, the Agreement Among
Underwriters, any Selected Dealers Agreement, the Underwriters' Selling
Memorandum, the Invitation Letter, the Power of Attorney, the Blue Sky
Memorandum and any supplements or amendments thereto (excluding, except as
provided below, fees and expenses of counsel to the Underwriters); the filing
fees of the Commission; the filing fees and expenses (including legal fees and
disbursements of counsel for the Underwriters) incident to securing any required
review by the NASD of the terms of the sale of the Shares; listing fees, if any,
transfer taxes and the expenses, including the fees and disbursements of counsel
for the Underwriters incurred in connection with the qualification of the Shares
under state securities or blue sky laws; the fees and expenses incurred in
connection with the designation of the Common Stock on The Nasdaq National
Market; the costs of preparing stock certificates; the costs and fees of any
registrar or transfer agent and all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section 6. In addition, the Company will pay all travel and
lodging expenses incurred by management of the Company in connection with any
informational "road show" meetings held in connection with the offering and will
also pay for the preparation of all materials used in connection with such
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meetings. The Selling Shareholders will pay the fees and expenses of any
separate counsel retained by them in connection with the transactions
contemplated hereby. The Company and the Selling Shareholders shall not,
however, be required to pay for any of the Underwriters' expenses (other than
those related to qualification of the Shares under state securities or blue sky
laws and those incident to securing any required review by the NASD of the terms
of the sale of the Shares but including, without limitation, the Underwriter
expenses specified in Section 5(e) of this Agreement) except that, if this
Agreement shall not be consummated because the conditions in Section 7 hereof
are not satisfied or because this Agreement is terminated by the Representatives
pursuant to clause (i) of Section 11(a) hereof, or by reason of any failure,
refusal or inability on the part of the Company or the Selling Shareholders to
perform any undertaking or satisfy any condition of this Agreement or to comply
with any of the terms hereof on their respective parts to be performed, unless
such failure to satisfy said condition or to comply with said terms shall be due
to the default or omission of any Underwriter, then the Company shall promptly
upon request by the Representatives reimburse the several Underwriters for all
appropriately itemized out-of-pocket accountable expenses, including fees and
disbursements of counsel, reasonably incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of performing
their obligations hereunder; but the Company and the Selling Shareholders shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the Shares.
7. Conditions of Obligations of the Underwriters. The several
obligations of the Underwriters to purchase the Firm Shares on the Closing Date
and the Option Shares, if any, on the Option Closing Date, are subject to the
condition that all representations and warranties of the Company, and the
Selling Shareholders contained herein are true and correct, at and as of the
Closing Date or the Option Closing Date, as the case may be, the condition that
the Company and the Selling Shareholders shall have performed all of their
respective covenants and obligations hereunder (to the extent performance of
such covenants and obligations are due at such times) and to the following
additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing by the Regulations and in accordance with Section 5(a) hereof; no stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, or any part thereof shall have been issued and no proceedings
for that purpose shall have been initiated or threatened by the Commission; and
all requests for additional information on the part of the Commission shall have
been complied with to the reasonable satisfaction of the Representatives.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of Maslon
Edelman Borman & Brand, LLP, counsel for the Company and the Selling
Shareholders, dated the Closing Date or the Option Closing Date, as the case may
be, addressed to the Underwriters, to the effect that:
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(i) The Company has been duly organized and is
validly existing as a corporation under the laws of its state of incorporation,
with corporate power and authority to own, lease, license and use its properties
and conduct its business as described in the Prospectus, and is duly qualified
to transact business and is in good standing in all jurisdictions in which the
conduct of its business or its ownership, lease, license or use of property
requires such qualification and the failure so to qualify would have a Material
Adverse Effect.
(ii) The Company has authorized and outstanding
capital stock as described in the Prospectus as of the date set forth therein.
The outstanding shares of the Company's capital stock have been duly authorized
and validly issued and are fully paid and nonassessable. The form of certificate
for the Shares is in due and proper form and complies with the requirements of
applicable state corporation laws. The Shares to be issued and sold by the
Company pursuant to this Agreement have been duly authorized and, when issued
and paid for as contemplated herein, will be validly issued, delivered, fully
paid and nonassessable. No preemptive right, co-sale right, registration right,
right of first refusal or other similar right of shareholders of the Company, or
of holders of warrants, options, convertible securities or other rights to
acquire shares of capital stock of the Company, exist with respect to any of the
Shares or the issue and sale thereof (i) pursuant to the terms of the Company's
charter or bylaws or (ii) to the knowledge of such counsel, pursuant to the
terms of any agreement or instrument to which the Company is a party or by which
the Company is bound. To the knowledge of such counsel, no rights to register
outstanding shares of the Company's capital stock, or shares issuable upon the
exercise of outstanding warrants, options, convertible securities or other
rights to acquire shares of such capital stock, exist which have not been
validly exercised or waived with respect to the Registration Statement. The
capital stock of the Company, including the Shares, conforms in all material
respects as to legal matters to the description thereof contained in the
Prospectus.
(iii) The Registration Statement has become
effective under the Act and, to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued under
the Act and no proceedings for that purpose have been instituted or are pending
or threatened by the Commission.
(iv) The Registration Statement, the Prospectus
and each amendment or supplement thereto comply as to form in all material
respects with the requirements of the Act and the rules and regulations
thereunder (except that such counsel need express no opinion as to the financial
statements and the notes thereto and related schedules and other financial data
included therein or omitted therefrom).
(v) The statements (A) in the Prospectus under
the captions "Management--Limitation of Liability and Indemnification,"
"Description of Securities," and "Shares Eligible for Future Sale" and (B) in
the Registration Statement in Items 14 and 15 insofar as such statements
constitute a summary of matters of law, are, in all material respects, accurate
summaries and fairly present the information required to be stated.
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(vi) Such counsel does not know of any contracts,
agreements, documents or instruments required to be filed as exhibits to the
Registration Statement or described in the Registration Statement or the
Prospectus which are not so filed or described as required; and insofar as any
statements in the Registration Statement or the Prospectus constitute summaries
of any contract, agreement, document or instrument, such statements are, in all
material respects, accurate summaries and fairly present the information
required to be stated.
(vii) Such counsel knows of no legal or
governmental proceeding, pending or threatened, before any court or
administrative body or regulatory agency, to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or any
of its subsidiaries is subject that are required to be described in the
Registration Statement or Prospectus and are not so described, or statutes or
regulations that are required to be described in the Registration Statement or
the Prospectus that are not so described as required.
(viii) The execution and delivery of this Agreement
and the consummation of the transactions herein contemplated do not and will not
conflict with or result in a violation of or default under the charter or bylaws
of the Company or any of its subsidiaries, or under any statute, permit,
judgment, decree, order, rule or regulation known to such counsel of any court
or governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties (other than the state securities and
blue sky laws, as to which such counsel need express no opinion) and do not and
will not conflict with or result in a violation of or default under (except for
such conflicts, violations or defaults as would not have a Material Adverse
Effect) under any lease, license, contract, indenture, mortgage, loan agreement
or other agreement or other instrument or obligation known to such counsel to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any property or assets of the
Company or any of its subsidiaries is subject, except such agreements,
instruments or obligations with respect to which valid consents or waivers have
been obtained by the Company.
(ix) To the best of such counsel's knowledge,
neither the Company nor any of its subsidiaries is in violation of, or in
default under, its charter or bylaws, or any statute, or any law, rule,
regulation, order, judgment, injunction, decree or authorization of any court or
governmental or administrative agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties, or any indenture,
mortgage, deed of trust, loan agreement, lease, franchise, license or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to which
any property or assets of the Company or any of its subsidiaries is subject,
which violation or default would have a Material Adverse Effect.
(x) The Company has the corporate power and
authority to enter into this Agreement and to authorize, issue, sell and deliver
the Shares to be sold by the Company as contemplated hereby. This Agreement has
been duly and validly authorized, executed and delivered by the Company.
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(xi) No approval, consent, order, authorization,
designation, declaration, qualification or filing by or with any judicial,
regulatory, administrative or other governmental body is necessary in connection
with the execution and delivery of this Agreement and the consummation of the
transactions herein contemplated (other than as may be required by state
securities and blue sky laws, as to which such counsel need express no opinion)
except such as have been obtained or made.
(xii) The Company is not, and immediately upon
completion of the sale of Shares contemplated hereby will not be, required to
register as an "investment company" under the Investment Company Act of 1940, as
amended.
(xiii) Although such counsel assumes no
responsibility for the factual accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, except for those
referred to in the opinion in subsections (ii) and (v) of this Section 7(b) and
on the basis of the procedures undertaken by such counsel (and relying as to
materiality to the extent such counsel deems appropriate upon opinions of
officers and other representatives of the Company), no facts have come to the
attention of such counsel that cause it to believe that the Registration
Statement and any amendments and supplements thereto, at the time they became
effective and as of the Closing Date or the Option Closing Date, contained an
untrue statement of a material fact or omitted 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, or that the
Prospectus or any further amendment or supplement thereto, at the time it was
transmitted to the Commission for filing pursuant to Rule 424(b) and as of the
Closing Date and the Option Closing Date, included an untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that such counsel need not express any opinion with
respect to the financial statements and supporting schedules and other financial
data included in the Registration Statement and the Prospectus.
(c) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of Maslon
Edelman Borman & Brand, LLP, counsel for each of the Selling Shareholders, dated
the Closing Date or the Option Closing Date, as the case may be, addressed to
the Underwriters, to the effect that:
(i) A Custody Agreement has been duly executed
and delivered by such Selling Shareholder and is the valid and binding agreement
of such Selling Shareholder.
(ii) This Agreement has been duly executed and
delivered by such Selling Shareholder.
(iii) The sale of the Shares to be sold by such
Selling Shareholder hereunder and the compliance by such Selling Shareholder
with all of the provisions of this Agreement and the Custody Agreement, and the
consummation of the transactions herein and therein contemplated, will not
conflict with or result in a breach or violation of any terms or
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provisions of, or constitute a default under, any statute, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument known
to such counsel to which such Selling Shareholder is a party or by which such
Selling Shareholder is bound or to which any of the property or assets of such
Selling Shareholder is subject, nor will such action result in any violation of
any order, rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over such Selling Shareholder or the property
of such Selling Shareholder.
(iv) No consent, approval, authorization or order
of any court or governmental agency or body is required for the consummation of
the transactions contemplated by this Agreement in connection with the Shares to
be sold by such Selling Shareholder hereunder, except such consents, approvals,
authorizations or orders as have been validly obtained and are in full force and
effect, such as have been obtained under the Act, and such as may be required
under the state securities or blue sky laws in connection with the purchase and
distribution of such Shares by the Underwriters, as to which such counsel need
express no opinion.
(v) Such Selling Shareholder has full right,
power and authority to sell, assign, transfer and deliver the Shares to be sold
by such Selling Shareholder hereunder.
(vi) Upon delivery of the Shares being sold by
such Selling Shareholder and payment therefor, good and valid title to the
Shares being sold by such Selling Shareholder, free and clear of any claims,
liens, encumbrances, security interests or other adverse claims, will be
transferred to each of the several Underwriters who have purchased such Shares
in good faith and without notice of any such claim, lien, encumbrance, security
interest or other adverse claim within the meaning of the Uniform Commercial
Code.
(d) The Representatives shall have received from Faegre &
Benson LLP, counsel for the Underwriters, an opinion dated the Closing Date or
the Option Closing Date, as the case may be, with respect to the incorporation
of the Company, the validity of the Shares, the Registration Statement, the
Prospectus, and other related matters as the Representatives may reasonably
request, and such counsel shall have received such papers and information as
they may reasonably request to enable them to pass upon such matters.
(e) The Representatives shall have received on each of the
date hereof, the Closing Date and the Option Closing Date, as the case may be, a
signed letter, dated as of the date hereof, the Closing Date or the Option
Closing Date, as the case may be, in form and substance reasonably satisfactory
to the Representatives, from Grant Thornton LLP and Ernst & Young LLP, to the
effect that they are independent public accountants with respect to the Company
and its subsidiaries within the meaning of the Act and the related rules and
regulations and containing statements and information of the type ordinarily
included in accountants'
22
<PAGE> 23
"comfort letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and the
Prospectus.
(f) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date or the Option Closing Date, as the case may be,
there shall not have been any change or any development involving a prospective
change, in or affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in your judgment, is material and adverse to the Company and
makes it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at the Closing Date or the Option Closing
Date, as the case may be, on the terms and in the manner contemplated in the
Prospectus.
(g) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the chief executive officer and the chief financial officer of
the Company to the effect that, as of the Closing Date or the Option Closing
Date, as the case may be, each of them severally represents as follows:
(i) The Prospectus was filed with the Commission
pursuant to Rule 424(b) within the applicable period prescribed for such filing
by the Regulations and in accordance with Section 5(a) of this Agreement; no
stop order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for such purpose have been initiated or are, to such
officer's knowledge, threatened by the Commission.
(ii) The representations and warranties of the
Company set forth in Section 1 of this Agreement are true and correct at and as
of the Closing Date or the Option Closing Date, as the case may be, and the
Company has performed all of its obligations under this Agreement to be
performed at or prior to the Closing Date or the Option Closing Date, as the
case may be.
(h) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate of the
Selling Shareholders pursuant to which the Selling Shareholders certify that
their representations and warranties set forth in this Agreement are true and
correct at and as of the Closing Date or the Option Closing Date, as the case
may be, and that they have performed all of their obligations under this
Agreement to be performed at or prior to the Closing Date or the Option Closing
Date, as the case may be.
(i) The Company and the Selling Shareholders shall have
furnished to the Representatives such further certificates and documents as the
Representatives may reasonably have requested.
(j) The Lock-Up Agreements shall have been delivered to the
Representatives prior to the date hereof and are, as of the Closing Date or the
Option Closing Date, as the case may be, in full force and effect.
23
<PAGE> 24
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects reasonably satisfactory to the Representatives and to Faegre &
Benson LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 7
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be. In such event, the Company and the Underwriters shall not be under
any obligation to each other (except to the extent provided in Sections 6 and 8
hereof).
8. Indemnification.
(a) The Company and the Selling Shareholders jointly and
severally agree to indemnify and hold harmless each Underwriter, each officer
and director thereof, and each person, if any, who controls any Underwriter
within the meaning of the Act, against any losses, claims, damages or
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) to which such Underwriter or such persons may became subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus or the
Prospectus, including any amendments or supplements thereto, or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, or (iii) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Common Stock or the offering
contemplated hereby, and which is included as part of or referred to in any
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arising out of or based upon matters covered by clause (i) or (ii)
above, and will reimburse each Underwriter and each such officer, director and
controlling person for any legal or other expenses reasonably incurred by such
Underwriter or such officer, director or controlling person in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement, or omission or
alleged omission, made in the Registration Statement, any Preliminary Prospectus
or the Prospectus, including any amendments or supplements thereto, in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein; provided
further, that the Company and the Selling Shareholders shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission, made in a Preliminary Prospectus, if a copy of
the Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of
24
<PAGE> 25
the Underwriters to the person asserting such loss, claim, damage or
liability, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of Shares to such person, and if the Prospectus
(as amended or supplemented) would have cured the defect giving rise to such
loss, claim, damage or liability, unless the failure to so deliver the
Prospectus (as amended or supplemented) is the result of noncompliance by the
Company with the first sentence of paragraph 5(d) of this Agreement.
(b) Each Underwriter agrees severally and not jointly to
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement, the Selling Shareholders
and each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities to which the Company or any
such director, officer, Selling Shareholder or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made, and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, Selling Shareholder or controlling person in
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that each Underwriter will be liable
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity or contribution may be sought pursuant to this Section 8, such person
(the "indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) or contribution provided for
in Section 8(d) shall be available with respect to a proceeding to any party who
shall fail to give notice of such proceeding as provided in this Section 8(c) if
the party to whom notice was not given was unaware of the proceeding to which
such notice would have related and was prejudiced by the failure to give such
notice, but the failure to give such notice shall not relieve the indemnifying
party or parties from any liability which it or they may have to the indemnified
party otherwise than on account of the provisions of Section 8(a) or (b). In
case any such proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party and shall pay as incurred the fees and disbursements of
such counsel related to such proceeding. In any such
25
<PAGE> 26
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay promptly as incurred the reasonable fees and expenses of the counsel
retained by the indemnified party in the event (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and the indemnified party shall have reasonably concluded that there may be a
conflict between the positions of the indemnifying party and the indemnified
party in conducting the defense of any such action or that there may be legal
defenses available to it or other indemnified parties which are different from
or additional to those available to the indemnifying party. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm at any time for all such indemnified
parties. Such firm shall be designated in writing by the Representatives and
shall be reasonably satisfactory to the Company in the case of parties
indemnified pursuant to Section 8(a) and shall be designated in writing by the
Company and shall be reasonably satisfactory to the Representatives in the case
of parties indemnified pursuant to Section 8(b). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under Section
8(a), or (b) above in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other from the offering
of the Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Shareholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Shareholders bears
to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and the Selling Shareholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
26
<PAGE> 27
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
8(d). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereto) referred to above in this Section 8(d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8(d), no Underwriter shall be
required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, the Selling
Shareholders shall not be required to contribute any amount in excess of the
proceeds received by the Selling Shareholders, and no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section 8(d)
to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and the Selling Shareholder
under this Section 8 shall be in addition to any liability which the Company and
the Selling Shareholder may otherwise have, and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the Underwriters may otherwise have.
9. Default by Underwriters. If on the Closing Date or the Option
Closing Date, as the case may be, any Underwriter shall fail to purchase and pay
for the portion of the Shares which such Underwriter has agreed to purchase and
pay for on such date (otherwise than by reason of any default on the part of the
Company or a Selling Shareholder), you, as Representatives of the Underwriters,
shall use your best efforts to procure within 36 hours thereafter one or more of
the other Underwriters, or any others, to purchase from the Company and the
Selling Shareholders such amounts as may be agreed upon, and upon the terms set
forth herein, of the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If the aggregate
number of Shares that the defaulting Underwriter or Underwriters agreed to
purchase shall not be purchased in accordance with the preceding sentence, the
Company shall have the right, within 36 hours next succeeding the 36-hour period
above referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such remaining Shares on the terms herein
set forth. If during such two 36-hour periods you, as Representatives, and the
Company shall not have procured such other Underwriters, or any others, to
purchase the Firm Shares or Option Shares, as the case may be, agreed to be
purchased by the defaulting Underwriter or Underwriters, then (a) if the
aggregate number of Shares with respect to which such default shall occur does
not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the other Underwriters shall be obligated, severally, in proportion to
the respective numbers of Firm Shares or Option Shares, as the case may be,
which they are obligated to purchase hereunder, to purchase the Firm Shares or
Option Shares, as the case may be, which such defaulting Underwriter or
Underwriters
27
<PAGE> 28
failed to purchase, or (b) if the aggregate number of shares of Firm Shares or
Option Shares, as the case may be, with respect to which such default shall
occur exceeds 10% of the Firm Shares or Option Shares, as the case may be,
covered hereby, the Company and the Selling Shareholders or you as the
Representatives of the Underwriters will have the right, by written notice given
within the next 36-hour period to the parties to this Agreement, to terminate
this Agreement without liability on the part of the non-defaulting Underwriters
or of the Company and the Selling Shareholders except for expenses to be borne
by the Company, the Selling Shareholders and the Underwriters as provided in
Section 6 hereof and the indemnity and contribution agreements in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9 (and assuming that this Agreement is not terminated
pursuant to the immediately preceding sentences), the Closing Date or Option
Closing Date, as the case may be, may be postponed for such period, not
exceeding seven days, as you, as Representatives, may determine in order that
the required changes in the Registration Statement or in the Prospectus or in
any other documents or arrangements may be effected. The term "Underwriter"
includes any person substituted for a defaulting Underwriter. Any action taken
under this Section 9 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
10. Notices. All communications hereunder shall be in writing and,
except as otherwise provided herein, will be mailed, delivered or telegraphed
and confirmed as follows: if to the Underwriters, to Dain Rauscher Wessels, Dain
Bosworth Plaza, 60 South Sixth Street, Minneapolis, Minnesota 55402, Attention:
Jeffrey P. Greiner, with copies to Faegre & Benson LLP, 2200 Norwest Center, 90
South Seventh Street, Minneapolis, Minnesota 55402-3901, Attention: Steven C.
Kennedy, Esq.; if to the Company or Selling Shareholder, to IntraNet Solutions,
Inc., 8091 Wallace Road, Eden Prairie, Minnesota 55344, Attention: Robert F.
Olson, with copies to Maslon Edelman Borman & Brand, LLP, 3300 Norwest Center,
Minneapolis, Minnesota 55402, Attention: William M. Mower, Esq.
11. Termination. This Agreement may be terminated by you by notice to
the Company and the Selling Shareholders as follows:
(a) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which information
is given in the Registration Statement and the Prospectus, any material adverse
change in or affecting the condition, financial or otherwise, of the Company and
its subsidiaries taken as a whole or the business affairs, management, financial
position, shareholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency after the date hereof or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your judgment, make the
offering or delivery of the Shares impracticable or inadvisable, (iii)
suspension of trading in securities on the New York Stock Exchange or the
American Stock Exchange or limitation on prices (other than limitations on hours
or numbers of days of trading) for securities on either such Exchange, or a halt
or suspension of trading in securities generally which are quoted on The Nasdaq
28
<PAGE> 29
National Market System or The Nasdaq SmallCap Market, or (iv) declaration of a
banking moratorium by either federal or New York State authorities; or
(b) as provided in Sections 7 and 9 of this Agreement.
This Agreement also may be terminated by you, by notice to the Company,
as to any obligation of the Underwriters to purchase the Option Shares, upon the
occurrence at any time prior to the Option Closing Date of any of the events
described in subparagraph (a) above or as provided in Sections 7 and 9 of this
Agreement.
12. Written Information. For all purposes under this Agreement
(including, without limitation, Section 1, Section 2, Section 3 and Section 8
hereof), the Company and the Selling Shareholders understand and agree with each
of the Underwriters that the following constitutes the only written information
furnished to the Company by or through the Representatives specifically for use
in preparation of the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto: (i) the per share "Price to
Public" and per share "Underwriting Discounts and Commissions" set forth on the
cover page of the Prospectus, and (ii) the information set forth under the
caption "Underwriting" in the Preliminary Prospectus and the Prospectus.
13. Successors. This Agreement has been and is made solely for the
benefit of and shall be binding upon the Underwriters, the Company, the Selling
Shareholders and their respective successors, executors, administrators, heirs
and assigns, and the officers, directors and controlling persons referred to
herein, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares merely because
of such purchase.
14. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors or officers or the Selling Shareholders and (c)
delivery of and payment for the Shares under this Agreement.
Each provision of this Agreement shall be interpreted in such a manner
as to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable under any applicable
law or rule in any jurisdiction, such provision will be ineffective only to the
extent of such invalidity, illegality or unenforceability in such jurisdiction
or any provision hereof in any other jurisdiction.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Minnesota.
29
<PAGE> 30
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Shareholders and the several Underwriters in accordance with its terms.
Very truly yours,
IntraNet Solutions, Inc.
By:
-------------------------------
Name:
------------------------------
Its:
------------------------------
Selling Shareholders:
-----------------------------------
Robert F. Olson
-----------------------------------
Vernon J. Hanzlik
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.
Dain Rauscher Incorporated
U.S. Bancorp Piper Jaffray Inc.
As Representatives of the several Underwriters
By Dain Rauscher Incorporated
By:
------------------------------------------
Name:
----------------------------------------
Its:
-----------------------------------------
30
<PAGE> 31
SCHEDULE A
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF FIRM MAXIMUM NUMBER
UNDERWRITER SHARES TO BE PURCHASED OF OPTION SHARES
<S> <C> <C>
Dain Rauscher Wessels...................................
--------- ---------
U.S. Bancorp Piper Jaffray Inc. ........................
--------- ---------
Total................................................... 4,600,000 690,000
========= =========
</TABLE>
<PAGE> 32
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF MAXIMUM NUMBER
SELLER FIRM SHARES OF OPTION SHARES
<S> <C> <C>
IntraNet Solutions, Inc................................. 4,000,000 600,000
Selling Shareholders:
Robert F. Olson.................................. 500,000 75,000
Vernon J. Hanzlik................................ 100,000 15,000
Total................................................... 4,600,000 690,000
========= =======
</TABLE>
<PAGE> 1
EXHIBIT 5
May 10, 1999
IntraNet Solutions, Inc.
8091 Wallace Road
Minneapolis, Minnesota
RE: REGISTRATION STATEMENT ON FORM S-1
Gentlemen:
We have acted as counsel to IntraNet Solutions, Inc., a Minnesota
corporation (the "Company") in connection with the preparation of a registration
statement on Form S-1 (the "Registration Statement") filed by the Company with
the Securities and Exchange Commission on April 29, 1999 and amended on May 10,
1999, all relating to the registration under the Securities Act of 1933, as
amended (the "1933 Act") of 4,600,000 shares of the Company's common stock, $.01
par value, to be issued and sold by the Company (the "Company Shares") and
690,000 shares to be sold by selling shareholders (the "Selling Shareholders'
Shares"), of which 115,000 shares are issuable by the Company pursuant to
outstanding stock options (the "Option Shares").
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the 1933 Act.
In connection with the rendering of this opinion, we have examined and
are familiar with originals or copies, certified or otherwise identified to our
satisfaction, of (i) the Registration Statement; (ii) the Articles of
Incorporation and the Bylaws of the Company, as amended, each as currently in
effect; (iii) certain resolutions adopted by the Board of Directors of the
Company relating to the issuance of the Company Shares, the preparation and
filing of the Registration Statement and certain related matters; (iv) certain
agreements, certificates of public officials, certificates of other officers or
representatives of the Company or others; and (v) such other documents,
certificates and records as we deemed necessary or appropriate as a basis for
the opinions expressed herein.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as
<PAGE> 2
certified, conformed or photostatic copies and the authenticity of the
originals of such copies. As to any facts material to the opinions expressed
herein which we have not independently established or verified, we have relied
upon statements and representations of officers and other representatives of the
Company and others.
We are attorneys licensed to practice in the State of Minnesota and the
opinions expressed herein are limited to the laws of the State of Minnesota and
the Federal securities laws of the United States.
Based upon and subject to the limitations, qualifications, exceptions
and assumptions set forth herein, 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 Company Shares and the Option Shares have been duly authorized
and, when issued and sold against payment therefor as contemplated by the
Registration Statement, will be validly issued, fully paid and nonassessable.
3. The Selling Shareholders' Shares (exclusive of the Option Shares)
have been duly authorized and are validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the reference to our name under the
caption "Legal Matters" in the prospectus filed as part of the Registration
Statement.
This opinion is furnished to you in connection with the filing of the
Registration Statement and, except as provided in the immediately preceding
paragraph, is not to be used, circulated, quoted for any other purpose or
otherwise referred to or relied upon by any other person without the express
written permission of this firm.
Very truly yours,
/s/ MASLON EDELMAN BORMAN & BRAND, LLP
