<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTRAWARE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7375 68-0389976
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
------------------------------
25 ORINDA WAY
ORINDA, CA 94563
(925) 253-4500
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------------
PETER JACKSON
CHIEF EXECUTIVE OFFICER
25 ORINDA WAY
ORINDA, CA 94563
(925) 253-4500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
DAVID J. SEGRE STEVEN M. SPURLOCK
ROBERT M. TARKOFF WILLIAM A. HOLMES
LINDA M. CUNY KEVIN A. LUCAS
DAVID R. BOWMAN Gunderson Dettmer Stough
Wilson Sonsini Goodrich & Rosati Villenueve Franklin & Hachigian, LLP
Professional Corporation 155 Constitution Drive
650 Page Mill Road Menlo Park, California 94025
Palo Alto, California 94304 (650) 321-2400
(650) 493-9300
------------------------------
APPROXIMATE DATE OF COMMENCEMENT 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,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.0001 par value............................................. $69,000,000 $19,182.00
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
(2) All share information has been adjusted to reflect a two-for-one stock split
that will become effective upon the consummation of this offering.
------------------------------
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 HEREAFTER 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 SUCH SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 18, 1998
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE CANNOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
Shares
[LOGO]
Intraware, Inc.
Common Stock
-----------
Prior to this offering, there has been no public market for our Common Stock.
The initial public offering price is expected to be between $ and $ per
share. Application has been made to list our Common Stock on The Nasdaq
National Market under the symbol "INTR."
Investing in our Common Stock involves certain risks. See "Risk Factors"
starting on page 6.
Neither the Securities and Exchange Commission nor any state securities
commission
has approved or disapproved of these securities or determined if this
prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Intraware
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share............................................. $ $ $
Total(1).............................................. $ $ $
</TABLE>
(1) Intraware and certain stockholders have granted the underwriters an
option, exercisable for 30 days from the date of this prospectus, to
purchase a maximum of additional shares to cover over-allotments of
shares.
Delivery of the shares of Common Stock will be made on or about
, 1999, against payment in immediately available funds.
Credit Suisse First Boston
BancBoston Robertson Stephens
Hambrecht & Quist
Prospectus dated , 1999.
<PAGE>
[INSIDE FRONT COVER]
A split screen with depictions of IT professionals on one side and software
vendors on the other and the challenges (described in written text) they each
face in managing their software assets and product distribution, respectively.
[INSIDE GATEFOLD (2-PAGE)]
A flow chart depicting the needs of IT professionals and software vendors
and how Intraware addresses these needs. Benefits of our products to these
constituencies are also listed in text. On the right side aligned vertically are
screen-shots of the Company's several Web-site pages.
[BACK INSIDE COVER]
Logos of software vendors on the right side and a customer testimonial for
each of the Company's intraware.shop, SubscribNet and Compariscope services on
the left side.
<PAGE>
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY................ 3
RISK FACTORS...................... 6
USE OF PROCEEDS................... 17
DIVIDEND POLICY................... 17
CERTAIN INFORMATION............... 17
CAPITALIZATION.................... 18
DILUTION.......................... 19
SELECTED FINANCIAL DATA........... 20
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....... 21
BUSINESS.......................... 30
MANAGEMENT........................ 44
CERTAIN TRANSACTIONS.............. 54
PRINCIPAL AND SELLING
STOCKHOLDERS.................... 55
DESCRIPTION OF CAPITAL STOCK...... 58
SHARES ELIGIBLE FOR FUTURE SALE... 61
ADDITIONAL INFORMATION............ 63
UNDERWRITING...................... 64
NOTICE TO CANADIAN RESIDENTS...... 66
LEGAL MATTERS..................... 67
EXPERTS........................... 67
INDEX TO FINANCIAL STATEMENTS..... F-1
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH
WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
"INTRAWARE" is a service mark of Intraware, Inc. We have applied for federal
registration of the marks "ASK JAMES," "COMPARISCOPE," "INTRAWARE.SHOP," "IT
KNOWLEDGE CENTER," "RADARSCOPE," "SUBSCRIBNET," "SUBSCRIBNEWS," and
"VIRTUALEXPRESS." All other trademarks or service marks appearing in this
prospectus are trademarks or service marks of the respective companies that use
them.
------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS THAT
EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND
WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD
CONSIDER BEFORE BUYING SHARES IN THE OFFERING. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY.
INTRAWARE, INC.
Intraware is a leading provider of Internet-based business-to-business software
services for IT professionals and business software vendors. Through our
electronic software delivery and outsourcing technologies, we act as an
objective intermediary in the software decision-making process. Our branded,
integrated service offerings enable software decision-makers to evaluate,
purchase, deploy and maintain their business software assets more effectively.
Our online services also allow business software vendors to effectively market,
sell and distribute products to a targeted customer base of IT professionals.
Our core service offerings include IT KNOWLEDGE CENTER, INTRAWARE.SHOP and
SUBSCRIBNET. IT KNOWLEDGE CENTER is a Web site targeted at corporate IT
professionals and containing information services, including COMPARISCOPE, that
helps them research and evaluate business software decisions. A co-branded
version of IT KNOWLEDGE CENTER is available on the Computing & Internet channel
of Netscape's Netcenter portal. The INTRAWARE.SHOP service is an online
procurement and delivery service for business software. SUBSCRIBNET is an online
software update and license management service. Through SUBSCRIBNET, IT
professionals can track their software licenses and manage the software update
process throughout a corporate network. We offer our SUBSCRIBNET update and
license management capabilities as an outsourcing solution to business software
vendors and have entered into an agreement with Netscape to provide Intraware's
SUBSCRIBNET service to Netscape customers worldwide.
Our strategic objective is to be the leading online intermediary for the
business software industry, aggregating information, software and services for
IT professionals and software vendors. We provide an online community of content
and services for software decision makers, and we seek to significantly expand
this community by rapidly increasing both our IT professional memberships and
software vendor partnerships. We seek to enhance our revenue streams through
further development of our existing services and introduction of additional
online services as well as by targeting international markets. We believe that
it is critical to our business to continue to promote our brands through a
variety of media and through co-marketing arrangements with software vendors.
We have a broad base of members and customers in the IT departments of
medium to large corporations. As of December 1998, we had over 60,000 registered
members. In addition, Intraware's SUBSCRIBNEWS digest of news, information and
opinions for the IT professional community is emailed to over 35,000 subscribers
on a weekly basis. Our 1700 customers include the following companies: 3Com
Corporation, AT&T Corporation, Boeing Corporation, Charles Schwab Company,
Daimler Chrysler AG Corporation, GTE Corporation, Knight Ridder, Inc., Lycos,
Inc. and Reuters Group PLC. In addition, we have established relationships with
leading business software vendors including Netscape Communications Corporation,
Informix Corporation, RealNetworks, Inc., OpenText Corporation, and NetDynamics,
a wholly-owned subsidiary of Sun Microsystems, Inc.
3
<PAGE>
INTRAWARE, INC.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered........................ shares
Common Stock to be outstanding
after this offering....................... shares (1)
Use of proceeds............................. For general corporate purposes, principally
working capital, capital expenditures,
potential acquisitions, geographic
expansion and additional sales and
marketing efforts.
Proposed Nasdaq National Market symbol...... INTR
</TABLE>
- ------------------------
(1) Based on shares outstanding as of November 30, 1998. Excludes (1) 6,200,000
shares of Common Stock reserved for issuance under our 1996 Stock Option
Plan as of December 18, 1998, of which 2,017,050 shares were subject to
outstanding options at a weighted average price of $0.51 per share at
November 30, 1998, (2) 150,000 shares of Common Stock available for issuance
under our 1998 Director Stock Option Plan, which was approved by the Board
of Directors on December 17, 1998 and recommended to the stockholders for
adoption and (3) 600,000 shares available for issuance under our 1998
Employee Stock Purchase Plan, which was approved by the Board of Directors
on December 17, 1998 and recommended to the stockholders for adoption.
------------------------
EXCEPT AS OTHERWISE NOTED HEREIN, INFORMATION IN THIS PROSPECTUS ASSUMES (1) THE
CONVERSION OF EACH OUTSTANDING SHARE OF CONVERTIBLE PREFERRED STOCK INTO TWO
SHARES OF COMMON STOCK IMMEDIATELY PRIOR TO THE CLOSING OF THIS OFFERING (BASED
ON SHARES OUTSTANDING AS OF NOVEMBER 30, 1998), (2) A TWO-FOR-ONE FORWARD STOCK
SPLIT IMMEDIATELY PRIOR TO THE EFFECTIVENESS OF THIS OFFERING, (3) NO EXERCISE
OF THE UNDERWRITERS' OVER- ALLOTMENT OPTION AND (4) THE FILING, UPON THE
APPROVAL OF OUR STOCKHOLDERS, OF THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION (THE "RESTATED CERTIFICATE").
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 14, NINE MONTHS ENDED
1996
(INCEPTION) TO YEAR ENDED NOVEMBER 30,
FEBRUARY 28, FEBRUARY 28, --------------------
1997 1998 1997 1998
-------------- ------------ --------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total net revenues.................................................. $ 6 $ 10,387 $ 5,331 $ 24,556
Total cost of net revenues.......................................... 5 8,348 4,346 19,891
Gross profit........................................................ 1 2,039 985 4,665
Loss from operations................................................ (952) (3,900) (2,672) (7,863)
Net loss............................................................ (944) (3,982) (2,715) (7,840)
Net loss per share:
Basic and diluted................................................. $ (1.36) $ (2.02) $ (1.53) $ (2.25)
------- ------------ --------- ---------
------- ------------ --------- ---------
Weighted average shares........................................... 694 1,972 1,776 3,492
------- ------------ --------- ---------
------- ------------ --------- ---------
Pro forma net loss per share:
Basic and diluted (unaudited)..................................... $ (0.51) $ (0.53)
------------ ---------
------------ ---------
Weighted average shares (unaudited)............................... 7,763 14,765
------------ ---------
------------ ---------
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30, 1998
-------------------------
ACTUAL AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 5,413
Working capital........................................................................ 3,379
Total assets........................................................................... 38,921
Lease obligations, long-term........................................................... 225
Total stockholders' equity............................................................. 5,061
</TABLE>
- ------------------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.
(2) As adjusted to give effect to receipt of the net proceeds from the sale of
the shares of Common Stock offered hereby by Intraware at an assumed
public offering price of $ per share after deducting the underwriting
discount and estimated offering expenses payable by Intraware. See "Use of
Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE BUYING SHARES
IN THIS OFFERING. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY
RISKS WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR
THAT WE CURRENTLY DEEM IMMATERIAL MAY IMPAIR OUR BUSINESS OPERATIONS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MIGHT LOSE ALL OR PART
OF YOUR INVESTMENT.
THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. WE USE WORDS SUCH AS "ANTICIPATES," "BELIEVES," "PLANS,"
"EXPECTS," "FUTURE" AND "INTENDS" AND SIMILAR EXPRESSIONS TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING
STATEMENTS ATTRIBUTED TO CERTAIN THIRD PARTIES RELATING TO THEIR ESTIMATES
REGARDING THE GROWTH OF CERTAIN ELECTRONIC-COMMERCE, ELECTRONIC SOFTWARE
DELIVERY ("ESD"), SOFTWARE AND RELATED SERVICE MARKETS AND SPENDING. YOU SHOULD
NOT PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH APPLY ONLY
AS OF THE DATE OF THIS PROSPECTUS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS FOR MANY REASONS,
INCLUDING THE RISKS FACED BY US DESCRIBED BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES.
We incurred net losses of $944,000 for the period from August 14, 1996
(inception) through February 28, 1997, $4.0 million for the year ended February
28, 1998, and $7.8 million for the nine months ended November 30, 1998. As of
November 30, 1998, we had an accumulated deficit of $12.8 million. We have not
achieved profitability and expect to incur net losses for the forseeable future.
Net losses have increased for each of our quarters since inception and we cannot
assure you this trend will not continue. We expect to continue to increase our
sales and marketing, product development and administrative expenses. As a
result we will need to generate significant additional revenues to achieve and
maintain profitability. Our limited operating history makes it difficult to
forecast our future operating results. Although our revenues have grown in
recent quarters, we cannot be certain that such growth will continue or that we
will achieve sufficient revenues for profitability. If we do achieve
profitability in any period, we cannot be certain that we will sustain or
increase profitability on a quarterly or annual basis. See "Selected Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
WE ARE SUBSTANTIALLY DEPENDENT ON NETSCAPE COMMUNICATIONS CORPORATION.
For the nine months ended November 30, 1998, we generated over 90% of our
software product revenues from the sale of Netscape software, and 87% of our
online service revenues from the outsourcing of Intraware SUBSCRIBNET services
to Netscape. As a result, transactions with Netscape and the sale of Netscape
products accounted for over 90% of our total net revenues in the nine months
ended November 30, 1998. While we expect that revenues derived from sales of
Netscape software products will decrease as a percentage of total revenues in
future periods, we will remain substantially dependent on such sales for the
foreseeable future. We cannot assure you that Netscape will continue to sell its
software through us. If Netscape were to discontinue selling its software
through Intraware, there would be a material adverse effect on our business,
revenues and other operating results.
We provide online software update and license management services to
Netscape customers through our SUBSCRIBNET service under a one-year agreement
with Netscape entered into effective October 1, 1998. Netscape has the right,
however, to terminate this agreement upon 90 days notice. We cannot assure you
that Netscape will not terminate this agreement or that they will renew it on
satisfactory terms at the end of the current one year term. Substantially all of
our SUBSCRIBNET revenues to date have been generated through this Netscape
contract, and our failure to renew this contract at the end of the one year term
could have a material adverse effect on our SUBSCRIBNET revenues and on our
business as a whole.
6
<PAGE>
Recently, Netscape entered into agreements to be acquired by America Online,
Inc. and to strengthen its relationship with Sun Microsystems, Inc. We do not
currently know whether this proposed acquisition, or Netscape's relationship
with Sun Microsystems will have an adverse effect on our relationship with
Netscape. Unless and until we are able to derive substantially increased
revenues from sales of software of other vendors and our related online
services, we will continue to be substantially dependent on our relationship
with Netscape. If Netscape chose to offer its own electronic software delivery,
tracking, maintenance or other services, which it is permitted to do under the
current agreement, it would have a substantial and immediate adverse effect on
our business, results of operations and financial condition.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
Our operating results have varied widely in the past, and we expect that
they will continue to vary significantly from quarter to quarter due to a number
of factors, including:
- demand for our online services and the products of our software vendors;
- the timing of sales of our online services and the products of our
software vendors;
- loss of strategic relationships with major software vendors;
- the mix of our proprietary online services vs. software products sold;
- delays in introducing our online services or our vendors' software
products according to planned release schedules;
- our ability to retain existing customers and attract new customers;
- changes in our pricing policies or the pricing policies of our software
vendors;
- changes in the growth rate of Internet usage and acceptance by customers
of ESD for large software purchases, particularly for international
customers;
- technical difficulties, system failures or Internet downtime;
- the mix of domestic and international sales;
- certain government regulations;
- our ability to upgrade and develop our IT systems and infrastructure;
- costs related to acquisitions of technology or businesses; and
- general economic conditions as well as those specific to the Internet and
related industries.
We have experienced declining gross margins on revenues derived from
software product sales and anticipate that such declines may continue. In
addition, as we broaden our sales and marketing efforts to support our recently
introduced online services, such as SUBSCRIBNET and COMPARISCOPE, we may
experience one or more quarters of reduced software product sales. Any shortfall
in our revenues would directly adversely affect our operating income or loss,
and these fluctuations could affect the market price of our Common Stock.
We plan to significantly increase our operating expenses to expand our sales
and marketing operations, broaden our customer support capabilities, and fund
greater levels of product development. Our operating expenses, which include
sales and marketing, product development and general and administrative
expenses, are based on our expectations of future revenues and are relatively
fixed in the short term. If revenues fall below our expectations, we will not be
able to quickly reduce our spending in response to such a shortfall, which would
adversely affect our operating results. We do not operate with a significant
sales backlog, and, consequently, our sales revenues for each quarter depend on
sales completed in that quarter.
Due to the foregoing factors, we believe that quarter-to-quarter comparisons
of our operating results are not a good indication of our future performance. It
is likely that in some future quarter our operating results may be below the
expectations of public market analysts and investors. In this event, the price
of our Common Stock may fall.
7
<PAGE>
OUR NEWLY INTRODUCED ONLINE SERVICES MAY NOT BE ABLE TO GENERATE ANTICIPATED
REVENUES.
We have only recently started selling a number of online services such as
SUBSCRIBNET and COMPARISCOPE. We had no significant online services revenues
until the quarter ended November 30, 1998, and for the nine months ended
November 30, 1998, revenues from these online services totaled only $1.5
million, which constituted 6.2% of our total revenues for that period. We do not
expect these online services to constitute a significant portion of our total
revenues in any given quarter until at least the second half of calendar 1999.
This projection, however, is a forward-looking statement and our actual results
could differ materially from those anticipated as a result of a number of
factors, including demand for our online services and the competitive service
offerings of others. These online services are not only important to improving
our operating results but also to continuing to attract and retain both our
software vendor and corporate IT professional customers, and in differentiating
our online service offerings from those of our competitors. We cannot assure you
that these online services will result in additional customers and customer
loyalty, significant revenues, or improved operating margins in future periods.
Additionally, we cannot assure you software vendors will continue to find it
strategically or economically justifiable for us to deliver these services,
particularly SUBSCRIBNET, to their customers.
WE ARE AN EARLY STAGE COMPANY.
Intraware was founded in August 1996 and therefore has a limited operating
history. Before investing, you should consider the risks and difficulties we
will face in our new and evolving markets and also those risks and difficulties
frequently encountered by early stage companies. These risks include our:
- dependence on our relationship with Netscape;
- need to broaden our existing services;
- need to provide additional services;
- customer concentration;
- need to maintain and increase our customer base;
- competition;
- need to expand our sales and support organizations;
- need to manage changing operations;
- dependence upon key personnel;
- need to continue to develop and upgrade our technology and transaction
processing systems; and
- reliance on strategic relationships with major software vendors.
We cannot assure you that our business strategy will be successful or that
we will address these risks successfully. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
OUR INDUSTRY IS HIGHLY COMPETITIVE.
The market for selling software products and related on-line services is
highly competitive. We expect competition to intensify as current competitors
expand their product offerings and new competitors enter the market. Our current
competitors include a number of companies offering one or more solutions for the
evaluation, purchase, deployment and maintenance of business software. We
currently face or expect to face competition from the following entities:
SOFTWARE RESELLERS
We expect to face competition from a variety of software resellers,
specifically with respect to our ESD offerings. We may experience reduced sales
if such software resellers enter the ESD market. Such software resellers may
have more developed distribution channels and could provide a broader product
offering, a better pricing model, and a greater level of service than we
currently provide.
SOFTWARE VENDORS
We may face competition from our current or other software vendors. We
cannot predict whether software vendors will begin to seek additional revenue
streams by offering similar services that compete with our services or through
enhanced or alternative solutions to ESD and maintenance services.
8
<PAGE>
These software vendors have more extensive knowledge of their products and
potential complimentary services. As a result, these companies may be in a
better position to devote significant resources toward the development,
promotion and sale of these services.
KNOWLEDGE SERVICE PROVIDERS
We may face competition from a number of technology consulting or
information service providers. Certain of these firms possess significant
expertise with respect to specific types of business software and favorable
reputations or relationships with potential customers. While certain of these
firms may utilize our knowledge services (such as COMPARISCOPE) during their
evaluation stage of the purchase process, we cannot assure you that they will
continue to use our services or that they will not develop similar services.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, better name recognition, and a larger installed base of customers
than we do. Many of our competitors may also have well-established relationships
with our existing and prospective customers.
Our current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products to address customer needs. Accordingly, it is possible
that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share. We also expect that the competition will
increase as a result of software industry consolidations. In addition, because
these are relatively low barriers to entry in the software and Internet services
markets, we expect additional competition from other established and emerging
companies. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could materially
adversely affect our business, financial condition and results of operations. We
cannot assure you that we will be able to compete successfully against current
or future competitors, or that competitive pressures faced by us will not
materially adversely affect our business, financial condition and results of
operations.
THERE ARE CERTAIN RISKS ASSOCIATED WITH ELECTRONIC SOFTWARE DELIVERY.
Our success will depend, in large part, on acceptance by IT professionals of
ESD as a method of buying business software. ESD is a relatively new method of
selling software products and the growth and market acceptance of ESD is highly
uncertain and subject to a number of factors. These factors include:
- the potential for state and local authorities to levy taxes on Internet
transactions;
- the availability of sufficient network bandwidth to enable purchasers to
rapidly download software;
- the number of software packages that are available for purchase through
ESD as compared to those available through traditional delivery methods;
- the level of customer confidence in the process of downloading software;
and
- the relative ease of such a process and concerns about transaction
security.
If ESD does not achieve widespread market acceptance, our business will be
adversely affected. Even if ESD achieves widespread acceptance, we cannot be
sure that we will overcome the substantial existing and future technical
challenges associated with electronically delivering software reliably and
consistently on a long-term basis. Furthermore, the proliferation of software
viruses poses a risk to our industry. Any well-publicized transmission of a
computer virus by us or another company using ESD could deter IT professionals
from utilizing ESD technology and our business could be adversely affected.
WE ARE DEPENDENT ON THE INTERNET AND INTERNET INFRASTRUCTURE DEVELOPMENT.
The widespread acceptance and adoption of the Internet by traditional
businesses for conducting business and exchanging information is likely only in
the event that the Internet provides these businesses with greater efficiencies
and improvements in the areas of commerce and communication. The failure of
9
<PAGE>
the Internet to continue to develop as a commercial or business medium would
adversely affect our business.
The recent growth in Internet traffic has caused frequent periods of
decreased performance, requiring Internet service providers and users of the
Internet to upgrade their infrastructures. If Web usage continues to grow
rapidly, the Internet infrastructure may not be able to support the demands
placed on it by this growth and its performance and reliability may decline. If
these outages or delays on the Internet occur frequently, overall Web usage, as
well as usage of our Web site in particular, could grow more slowly or decline.
Our ability to increase the speed with which we provide services to customers
and to increase the scope of such services is ultimately limited by and
dependent upon the speed and reliability of both the Internet and our customers'
internal networks, each of which is operated by third parties. Consequently, the
emergence and growth of the market for our services is dependent on improvements
being made to the entire Internet as well as to our customers' networking
infrastructure to alleviate overloading and congestion.
In addition, our operations depend upon our ability to maintain and protect
our computer systems, all of which are located in our principal headquarters in
Orinda, California and at an offsite location managed by a third party in Santa
Clara, California. Although the outside facility, which hosts our primary Web
and database servers, is designed to be fault tolerant, the system is vulnerable
to damage from fire, floods, earthquakes, power loss, telecommunications
failures, and similar events. The occurrence of such an event could have a
material adverse effect on our business. Although we maintain insurance against
fires, floods, earthquakes and general business interruptions, there can be no
assurance that the amount of coverage will be adequate in any particular case.
We currently do not have a disaster recovery plan in effect and do not have
fully redundant systems for our service at an alternate site.
MOST OF OUR REVENUE IS GENERATED BY A FEW CUSTOMERS.
We focus on selling software of third party vendors and providing our online
services to corporate IT professionals. For the nine-month period ended November
30, 1998, sales to our top ten corporate and government IT customers comprised
approximately 60% of our total revenues. In addition, we believe that a
substantial amount of revenue from software product sales in any given future
period may come from a relatively small number of customers. If one or more
major customers were to substantially cut back software purchases or stop using
our products or services, our operating results would be materially adversely
affected. We do not have long-term contractual relationships with any of these
customers because our customers purchase software on a transaction by
transaction basis. We cannot assure you that any of our customers who purchase
software through us will purchase from us in future periods.
INCREASED SECURITY RISKS OF ONLINE COMMERCE MAY DETER FUTURE USE OF OUR
SERVICES.
The need to securely transmit confidential information over the Internet has
been a significant barrier to electronic commerce and communications over the
Web. We rely on encryption and authentication technology from third parties to
provide for the secure transmission of confidential information. We cannot be
certain that advances in computer capabilities, new discoveries in the field of
cryptography, or other events or developments will not result in a compromise or
breach of the algorithms we use to protect our customers' transaction data or
our software vendors' products. Any well-publicized compromise of security could
deter people from using the Web or from using it to conduct transactions that
involve transmitting confidential information or downloading sensitive
materials.
A party who is able to circumvent our security measures could misappropriate
proprietary information or cause interruptions in our operations. We may be
required to incur significant costs to protect against security breaches or to
alleviate problems caused by such
10
<PAGE>
breaches. Concerns over the security of transactions conducted on the Internet
and the privacy of users may also inhibit the growth of the Internet and other
online services generally, and online commerce in particular. For these reasons,
our failure to prevent security breaches could significantly harm our business
and results of operations.
WE NEED TO MANAGE OUR GROWTH AND EXPAND OUR TECHNOLOGY RESOURCES.
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We have increased, and plan to continue to increase, the
scope of our operations domestically and internationally. As a result, our
headcount has grown and will continue to grow substantially. At November 30,
1997, we had a total of 53 employees and at November 30, 1998, we had a total of
126 employees. In particular, we will need to expand our technology
infrastructure, which will include making certain key employee hires in product
development. These hires historically have been difficult. This growth has
placed, and our anticipated future growth, if any, will continue to place a
significant strain on our management systems and resources. We expect that we
will need to continue to improve our financial and managerial controls and
reporting systems and procedures, and will need to continue to expand, train and
manage our workforce. Furthermore, we expect that we will be required to manage
multiple relationships with various software vendors, customers and other third
parties. We cannot assure you that we will be able to successfully manage our
growth.
WE NEED TO EXPAND OUR SALES AND MARKETING EFFORTS AND UNDERLYING SUPPORT
ORGANIZATION.
We need to substantially expand our sales operations and marketing efforts,
both domestically and internationally, in order to increase market awareness and
sales of the products and services we offer. These products and services require
a sophisticated sales effort targeted at several people within the IT
departments of our prospective customers. We have recently expanded our direct
sales force and plan to hire additional sales personnel. Competition for
qualified sales and marketing personnel is intense, and we might not be able to
hire and retain sufficient numbers of qualified sales and marketing personnel.
We currently have a small customer service and support organization and will
need to increase our staff to support new customers and the expanding needs of
existing customers. Hiring customer service and support personnel is very
competitive in our industry due to the limited number of people available with
the necessary technical skills and understanding of the Internet. We cannot
assure you that we will be able to hire and retain sufficient numbers of
qualified customer service and support personnel.
WE ARE DEPENDENT ON CERTAIN KEY PERSONNEL.
Our future success depends upon the continued service of our executive
officers and other key technology, sales, marketing and support personnel. If we
lost the services of one or more of our key employees, or if one or more of our
executive officers or employees decided to join a competitor or otherwise
compete directly or indirectly with us, this could have a material adverse
effect on our business. In particular, the services of Peter Jackson, Chief
Executive Officer, and Paul Martinelli, Chief Technology Officer, would be
difficult to replace. None of our officers or key employees is bound by an
employment agreement for any specific term. Our employment relationships with
these officers and key employees are at will. We do not have "key person" life
insurance policies covering any of our employees.
OUR PLANNED INTERNATIONAL OPERATIONS FACE SPECIAL RISKS.
To date, we have not received substantial revenues from sales to
international customers. We intend to expand the scope of sales to international
customers in future periods. In calendar 1999, we intend to open international
offices and hire international sales personnel, including the establishment of
at least one European office. We have only limited experience in marketing,
selling and supporting our services and our vendors' software products overseas.
Additionally, we do not have any experience in developing foreign language
11
<PAGE>
versions of our services. Such development may be more difficult or take longer
than we anticipate, especially due to localization problems (such as language
barriers or currency exchange) and the fact that the Internet infrastructure in
such foreign countries may be less advanced than the domestic Internet
infrastructure and may result in longer response time and less accurate or
consistent ESD.
We may not be able to successfully market, sell, deliver and support our
services and our vendors' software products internationally. If we are unable to
expand our international operations successfully and in a timely manner, this
could adversely affect our business and operating results. Our international
expansion will require significant management attention and financial resources.
In particular, we will have to attract experienced management, marketing and
sales personnel for our international offices. Competition for such personnel is
intense and we may be unable to attract qualified staff.
In addition, our contracts with Netscape currently do not allow us to market
or sell Netscape products (other than pursuant to our SUBSCRIBNET service) in
Europe. Revenues from European customers may not be able to grow as planned
unless we can obtain the rights to market Netscape products in Europe.
International operations are subject to a variety of additional risks
associated with conducting business internationally that could materially
adversely affect our business, including the following:
- problems in collecting accounts receivable;
- the impact of recessions in economies outside the United States;
- longer payment cycles;
- unexpected changes in regulatory requirements;
- fluctuations in currency exchange rates;
- restrictions on the import/export of certain technologies;
- reduced protection for intellectual property rights in some countries;
- seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world;
- potentially adverse tax consequences; and
- increases in tariffs, duties, price controls or other restrictions on
foreign currencies or trade barriers imposed by foreign countries.
OUR ACQUISITION STRATEGY INVOLVES RISKS.
We currently intend to make investments in complementary companies, services
and technologies. If we acquire a company, we could face difficulties in
assimilating that company's personnel and operations. In addition, the key
personnel of the acquired company may decide not to work for us. Acquisitions of
additional services or technologies also involve risks of incompatibility and
the need for integration into our existing services and marketing, sales and
support efforts. These difficulties could disrupt our ongoing business, distract
our management and employees and increase our expenses. Furthermore, if we
finance the acquisitions by incurring debt or issuing equity securities, this
could dilute our existing stockholders. Any amortization of goodwill or other
assets, or other charges resulting from the costs of such acquisitions, could
adversely affect our operating results.
WE MAY BE EXPOSED TO RISKS OF INTELLECTUAL PROPERTY INFRINGEMENT.
Our services operate in part by making software products and other digital
content available to end-users. This creates the potential for claims to be made
against us (either directly or through contractual indemnification provisions
with vendors) for defamation, negligence, copyright or trademark infringement,
personal injury, invasion of privacy or other legal theories based on the
nature, content or copying of these materials. Although we carry general
liability insurance, our insurance may not cover all potential claims or may not
be adequate to protect us from all liability that may be imposed.
Our success and ability to compete are substantially dependent upon our
internally developed technology, which we protect through a combination of
copyright, trade secret and trademark law. We have no patents issued or applied
for to date on our technology. We are aware that certain other companies are
using or
12
<PAGE>
may have plans to use the name "Intraware" as a company name or as a trademark
or servicemark. While we have received no notice of any claims of trademark
infringement, we cannot assure you that certain of these companies may not claim
superior rights to "Intraware" or to other marks we use. We generally enter into
confidentiality agreements with our employees, consultants and corporate
partners, and generally control access to and distribution of our vendors'
software and documentation as well as to our services and other proprietary
information. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our services or
technology. Policing unauthorized use of our services is difficult, and we
cannot be certain that the steps we have taken will prevent misappropriation of
our technology, particularly in foreign countries where the laws may not protect
our intellectual property and proprietary rights as fully as in the United
States.
Litigation regarding intellectual property rights is common in the Internet
and software industries. We expect that Internet technologies and software
products and services may be increasingly subject to third-party infringement
claims as the number of competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. There can be
no assurance that our services do not infringe on the intellectual property
rights of third parties. In addition, we may be involved in litigation involving
the software of third party vendors that we electronically distribute. Any
claims, with or without merit, could result in costly litigation and be
time-consuming to defend, divert management's attention and resources, cause
delays in releasing new or upgrading existing services or require us to enter
into royalty or licensing agreements. These royalty or licensing agreements, if
required, may not be available on acceptable terms, if at all. A successful
claim of infringement against us and our failure or inability to license the
infringed or similar technology could adversely affect our business.
In addition, we sell certain high encryption software domestically. Federal
regulations prohibit the exportation of these types of encryption software to
certain countries. We have established internal procedures to ensure that the
high encryption software is sold only to domestic customers. However, if these
procedures are not followed by our personnel, or are otherwise circumvented,
resulting in the sale by us of high encryption software to a prohibited foreign
customer, then we could be at risk for violating these federal export
regulations.
WE MAY BE EXPOSED TO THE YEAR 2000 COMPLIANCE RISKS.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, computer systems and/or
software products used by many companies may need to be upgraded to comply with
such year 2000 requirements.
Our online services, including IT KNOWLEDGE CENTER, COMPARISCOPE,
INTRAWARE.SHOP, VIRTUALEXPRESS, SUBSCRIBNET and their associated and supporting
tools, Web sites, and infrastructure were designed and developed to be year 2000
compliant. Our internal systems, including those used to deliver our services,
utilize third-party hardware and software. We have contacted these
infrastructure products' vendors in order to gauge their year 2000 compliance.
Based on our vendors' representations, we believe that the third-party hardware
and software we use is year 2000 compliant.
We cannot assure you that we will not experience unanticipated negative
consequences, including material costs caused by undetected errors or defects in
the technology used in our internal systems. If, in the future, it comes to our
attention that certain of our services need modification, or certain of our
third-party hardware and software is not year 2000 compliant, then we will seek
to make modifications to our services and systems on a timely basis and we do
not believe that the cost of such modifications will have a material effect on
our operating results. We cannot assure you,
13
<PAGE>
however, that we will be able to modify such products, services and systems in a
timely and successful manner to comply with the year 2000 requirements, which
could have a material adverse effect on our operating results.
Further, while we typically receive warranties and indemnities from our
software vendors with respect to year 2000 compliance of the software products
we resell, we have not independently verified the year 2000 compliance of these
products. If such software products nevertheless require modification to be year
2000 compliant, demand for them could decline if such modifications are not
timely made by the software vendors. This, in turn, could adversely affect our
business and results of operations. In addition, if software products we resell
were not year 2000 compliant and were installed at customer sites, we cannot
assure you that the indemnities we receive from our vendors would protect us
from customer claims and any such claims could divert significant management,
financial and other resources and our commercial insurance coverages may not be
adequate to cover such claims.
Year 2000 compliance issues also could cause a significant number of
companies, including our current customers, to reevaluate their current system
needs and, as a result, consider switching to other systems and suppliers. Any
of the foregoing could result in a material adverse effect on our business,
operating results and financial condition. Additionally, during the next twelve
months there is likely to be an increased customer focus on addressing year 2000
compliance issues, creating the risk that customers may reallocate capital
expenditures to fix year 2000 problems of existing systems. Although we have not
experienced the effects of such a trend to date, if customers defer purchases of
business software and related services because of such a reallocation, it would
adversely affect our operating results.
OUR MARKET MAY UNDERGO RAPID TECHNOLOGICAL CHANGE.
Our market is characterized by rapidly changing technology, evolving
industry standards and frequent new product announcements. These factors are
exacerbated by the recent growth of the Web as a vehicle for conducting
electronic commerce and the intense competition in our industry. To be
successful, we must adapt to our rapidly changing market by continually
improving the performance, features and reliability of our services. We could
also incur substantial costs to modify our services or infrastructure in order
to adapt to these changes. Our business could be adversely affected if we incur
significant costs without adequate results, or find ourselves unable to adapt
rapidly to these changes.
GLOBAL ECONOMIC UNCERTAINTY MAY AFFECT THE CAPITAL EXPENDITURES OF OUR
PROSPECTIVE CUSTOMERS.
The business software market could be negatively affected by certain
factors, including global economic difficulties, uncertainty and currency
issues. Business software purchasers could reduce their expenditures due to
internal difficulties or uncertainties. This could in turn give rise to longer
sales cycles, deferral or delay of customer purchasing decisions, and increased
price competition. The presence of such factors could adversely affect our
operating results.
EMERGING GOVERNMENT REGULATIONS CREATE LEGAL UNCERTAINTIES.
Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. The most recent session of the United
States Congress resulted in Internet laws regarding children's privacy,
copyrights and taxation. The European Union has enacted its own data protection
and privacy directive, which required all 15 European Union ("EU") Member States
to implement laws relating to the processing and transmission of personal data
by October 25, 1998. We must comply with these new regulations in both Europe
and the United States, as well as any other regulations adopted by other
countries where we may do business.
The law governing Internet transactions, however, remains largely unsettled,
even in areas where there has been some legislative action. It may take years to
determine whether and how existing laws such as those governing intellectual
14
<PAGE>
property, privacy, libel and taxation apply to the Internet. In addition, the
growth and development of the market for online commerce may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
that may impose additional burdens on companies conducting business online. The
adoption or modification of laws or regulations relating to the Internet could
adversely affect our business.
THE SCHEDULED ADOPTION OF THE EURO PRESENTS UNCERTAINTIES FOR OUR COMPANY.
On January 1, 1999, the new "Euro" currency will be introduced in 11 of the
Member States of the European Monetary Union ("EMU"). It is expected that some
other European countries will also adopt the Euro at a later date. A significant
amount of uncertainty exists as to the effect the Euro will have on the
marketplace generally. Additionally, the precise rate at which the existing
currencies of all 11 participating EU Member States will be converted into the
Euro will not be formally finalised until December 31, 1998.
We are currently assessing the effect the introduction of the Euro will have
on our internal accounting systems and the sales of our software vendors'
products and our services. We are not aware of any material operational issues
or costs associated with preparing our internal systems for the Euro. However,
we do utilize third party vendor equipment and software products that may or may
not be EMU compliant. Although we are currently taking steps to address the
impact, if any, of EMU compliance for such third party products, the failure of
any critical components to operate properly following the introduction of the
Euro may have an adverse effect on the business or results of operations of our
Company, and require us to incur expenses to remedy such problems.
OUR OFFICERS AND DIRECTORS MAY BE ABLE TO EXERT ADDITIONAL CONTROL THROUGH THEIR
EQUITY OWNERSHIP.
Executive officers, directors and entities affiliated with them will, in the
aggregate, beneficially own approximately % of our outstanding Common Stock
following the completion of this offering. These stockholders, if acting
together, would be able to significantly influence all matters requiring
approval by our stockholders, including the election of directors and the
approval of mergers or other business combination transactions.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS.
Our management can spend most of the proceeds from this offering in ways
with which the stockholders may not agree. We cannot predict that the proceeds
will be invested to yield a favorable return. See "Use of Proceeds."
OUR SECURITIES HAVE NO PRIOR MARKET.
Before this offering, there has not been a public market for our Common
Stock. The initial public offering price will be determined by negotiations
between Intraware and the representatives of the underwriters. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. An active public market for Intraware Common
Stock may not develop or be sustained after this offering. The market price of
the Common Stock may decline below the initial public offering price.
OUR CHARTER DOCUMENTS DISCOURAGE OUR ACQUISITION BY OTHERS.
Provisions of our Amended and Restated Certificate of Incorporation, Bylaws,
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. See "Description of
Capital Stock."
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
After this offering, we will have outstanding shares of Common Stock.
The remaining shares of Common Stock outstanding after this offering will
be available for sale (assuming the effectiveness of certain lock-up
15
<PAGE>
arrangements with the Underwriters) in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
- ----------------- -----------------------------------
<S> <C>
0 December 18, 1999 (date of this
prospectus)
0 March 18, 1999 (90 days after the
date of this prospectus)
19,534,778 June 17, 1999 (180 days after the
date of this prospectus) at various
times thereafter upon the
expiration of one-year holding
periods
</TABLE>
If our stockholders sell substantial amounts of Common Stock (including
shares issued upon the exercise of outstanding options) in the public market,
the market price of our Common Stock could fall. See "Shares Eligible for Future
Sale" and "Underwriting."
WE DO NOT INTEND TO PAY DIVIDENDS.
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future. See
"Dividend Policy."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of Common Stock
offered by us are estimated to be $ at an assumed public offering price
of $ per share, after deducting the underwriting discount and estimated
offering expenses (assuming no exercise of the underwriters' over-allotment
option to purchase shares from us and shares from certain of
our stockholders).
We expect to use the net proceeds for working capital and general corporate
purposes. In addition, we may use a portion of the net proceeds to acquire
complementary products, technologies or businesses; however, we currently have
no commitments or agreements and are not involved in any negotiations with
respect to any such transactions. Pending use of the net proceeds of this
offering, we intend to invest the net proceeds in interest-bearing, investment-
grade securities. We will not receive any proceeds from the sale of the shares,
if any, to be sold by the selling stockholders pursuant to the exercise of the
underwriters' over-allotment option. See "Principal and Selling Stockholders."
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Our existing bank line of credit prohibits the payment of
dividends.
CERTAIN INFORMATION
Our principal executive offices are located at 25 Orinda Way, Orinda,
California 94563 and our telephone number is (925) 253-4500. Our Web site is
located at http//www.intraware.com. Information contained on our Web site does
not constitute part of this prospectus.
Our logo and certain titles and logos of our publications and products
mentioned in this prospectus are our service marks or trademarks. Each
trademark, trade name or service mark of any other company appearing in this
prospectus belongs to its holder.
17
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of Intraware as
of November 30, 1998, (ii) the pro forma capitalization of Intraware after
giving effect to the conversion of all outstanding shares of convertible
preferred stock into 12,045,628 shares of Common Stock and (iii) the pro forma
as adjusted capitalization to give effect to the sale of shares of Common
Stock at $ per share in this offering (less underwriting discounts and
commissions the Company expects to pay in connection with this offering).
<TABLE>
<CAPTION>
NOVEMBER 30, 1998
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C> <C>
Lease obligations, long-term portion........................................ $ 225 $ 225 $
Stockholders' equity:
Convertible Preferred Stock; issuable in series, $0.0001 par value,
8,000,000 shares authorized, 6,022,814 shares issued and outstanding,
actual; 10,000,000 shares authorized, pro forma and as adjusted, none
issued and outstanding.................................................... -- --
Common Stock, $0.0001 par value; 40,000,000 shares authorized; 6,929,550
shares issued and outstanding, actual; 250,000,000 shares authorized pro
forma and as adjusted, 18,975,178 shares issued and outstanding, pro
forma; shares issued and outstanding, as adjusted................. -- --
Additional paid-in capital.................................................. 19,860 19,860
Unearned compensation....................................................... (2,033) (2,033) ()
Accumulated deficit......................................................... (12,766) (12,766) ()
---------- -----------
Total stockholders' equity.................................................. 5,061 5,061
---------- -----------
Total capitalization........................................................ $ 5,286 $ 5,286
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Excludes 6,950,000 shares of Common Stock reserved for issuance under
Intraware's stock option, director stock option and employee stock purchase
plans as of December 18, 1998, and 2,017,050 shares subject to outstanding
options as of November 30, 1998, and 129,056 shares of Common Stock issuable
upon exercise of outstanding warrants. See "Management--Incentive Stock
Plans," "Description of Capital Stock" and Notes 5 and 11 of Notes to
Financial Statements.
18
<PAGE>
DILUTION
The pro forma net tangible book value of Intraware as of November 30, 1998
was $5,061,000 or approximately $0.27 per share. Pro forma net tangible book
value per share represents the amount of Intraware's total tangible assets less
total liabilities, divided by the number of shares of Common Stock outstanding.
Dilution in net tangible book value per share represents the difference between
the amount per share paid by purchasers of shares of Common Stock in the
offering made hereby and the net tangible book value per share of Common Stock
immediately after the completion of this offering. After giving effect to the
sale of the shares of Common Stock offered by Intraware hereby at an
assumed public offering price of $ per share and after deducting the
underwriting discount and estimated offering expenses payable by Intraware, the
net tangible book value of Intraware at November 30, 1998 would have been
$ or approximately $ per share. This represents an immediate increase
in net tangible book value of $ per share to existing stockholders and an
immediate dilution in net tangible book value of $ per share to new
investors of Common Stock in this offering. The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed public offering price per share....................................... $
Pro forma net tangible book value per share as of November 30, 1998......... $ 0.27
Increase per share attributable to new investors(1)......................... $
---------
Pro forma net tangible book value per share after the offering(1)............. $
---------
Dilution in pro forma net tangible book value per share to new investors(1)... $
---------
---------
</TABLE>
- ------------------------
(1) The foregoing table excludes shares of Common Stock reserved for
issuance under Intraware's stock option and stock purchase plans, of which
shares were subject to outstanding options as of November 30, 1998,
and shares of Common Stock were issuable upon exercise of outstanding
warrants. See "Capitalization", "Management-Incentive Stock Plans",
"Description of Capital Stock" and Notes 8 and 11 of Notes to Financial
Statements.
The following table sets forth, as of November 30, 1998, the differences
between the number of shares of Common Stock purchased from Intraware, the total
consideration paid and the average price per share paid by existing holders of
Common Stock and by the new investors, before deducting the underwriting
discount and estimated offering expenses payable by Intraware, at an assumed
public offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
------------------------ AMOUNT ------------------------
NUMBER PERCENTAGE (IN THOUSANDS) PERCENTAGE PER SHARE
----------- ----------- ------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)........................ $ $
New investors...................................
----- ----- ------ -----
Total....................................... 100.0% $ 100.0%
----- ----- ------ -----
----- ----- ------ -----
</TABLE>
- ------------------------
(1) If the Underwriters over-allotment option is exercised in full, sales by the
selling stockholders pursuant thereto will reduce the number of shares of
Common Stock held by existing stockholders to or approximately %
of the total number of shares of Common Stock outstanding upon the closing
of this offering and the number of shares held by new public investors will
be or approximately % ( shares) of the total number of
shares of Common Stock outstanding after this offering. See "Principal and
Selling Stockholders."
19
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and are qualified by reference to the Financial Statements and
Notes thereto and appearing elsewhere in this prospectus. The statement of
operations data set forth below for the period from August 14, 1996 (inception)
to February 28, 1997, the year ended February 28, 1998 and the nine months ended
November 30, 1998 and the balance sheet data at February 28, 1997, February 28,
1998 and November 30, 1998 are derived from, and are qualified by reference to,
the audited financial statements of Intraware included elsewhere in this
prospectus. The historical results are not necessarily indicative of results to
be expected for any future period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
AUGUST 14, 1996
(INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED NOVEMBER 30,
FEBRUARY 28, FEBRUARY 28, --------------------
1997 1998 1997 1998
--------------- ------------ --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenues:
Software product sales..................................... $ 6 $ 10,383 $ 5,331 $ 23,027
Online services............................................ -- 4 -- 1,529
------ ------------ --------- ---------
Total net revenues....................................... 6 10,387 5,331 24,556
------ ------------ --------- ---------
Cost of net revenues:
Software product sales..................................... 5 8,348 4,346 19,421
Online services............................................ -- -- -- 470
------ ------------ --------- ---------
Total cost of net revenues............................... 5 8,348 4,346 19,891
------ ------------ --------- ---------
Gross profit................................................. 1 2,039 985 4,665
------ ------------ --------- ---------
Operating expenses
Sales and marketing........................................ 233 3,496 2,037 8,738
Product development........................................ 253 951 604 1,298
General and administrative................................. 467 1,492 1,016 2,492
------ ------------ --------- ---------
Total operating expenses................................. 953 5,939 3,657 12,528
------ ------------ --------- ---------
Loss from operations......................................... (952) (3,900) (2,672) (7,863)
Interest expense............................................. (12) (103) (52) (154)
Interest and other income, net............................... 20 21 9 177
------ ------------ --------- ---------
Net loss..................................................... $ (944) $ (3,982) $ (2,715) $ (7,840)
------ ------------ --------- ---------
------ ------------ --------- ---------
Basic and diluted net loss per share(1)...................... $ (1.36) $ (2.02) $ (1.53) $ (2.25)
------ ------------ --------- ---------
------ ------------ --------- ---------
Weighted average shares(1) (2)............................... 694 1,972 1,776 3,492
------ ------------ --------- ---------
------ ------------ --------- ---------
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28,
-------------------- NOVEMBER 30,
1997 1998 1998
--------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................................... $ 303 $ 612 $ 5,413
Working capital (deficit)...................................................... 86 (220) 3,379
Total assets................................................................... 1,026 15,384 38,921
Lease obligations, long-term................................................... 189 105 225
Total stockholders' equity..................................................... 582 770 5,061
</TABLE>
- ------------------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the weighted average shares used to compute net loss per
share.
(2) All share information has been adjusted to reflect a two-for-one stock split
effective upon consummation of this offering.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THE ACCURACY OF WHICH
INVOLVES RISKS AND UNCERTAINTIES. WE USE WORDS SUCH AS "ANTICIPATES,"
"BELIEVES," "PLANS," "EXPECTS," "FUTURE" AND "INTENDS" AND SIMILAR EXPRESSIONS
TO IDENTIFY FORWARD-LOOKING STATEMENTS. THIS PROSPECTUS ALSO CONTAINS
FORWARD-LOOKING STATEMENTS ATTRIBUTED TO CERTAIN THIRD PARTIES RELATING TO THEIR
ESTIMATES REGARDING THE GROWTH OF CERTAIN ELECTRONIC-COMMERCE, ESD, SOFTWARE AND
RELATED SERVICE MARKETS AND SPENDING. PROSPECTIVE INVESTORS SHOULD NOT PLACE
UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH APPLY ONLY AS OF THE
DATE OF THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS FOR MANY REASONS,
INCLUDING THE RISKS FACED BY THE COMPANY DESCRIBED IN "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Intraware is a leading provider of online business-to-business software
services, and acts as an objective intermediary to address the needs of both
purchasers and vendors of business software. Intraware was incorporated in
August 1996, and, from inception until February 1997, the Company's operations
consisted primarily of various start-up activities, including development of
technologies central to its business, recruiting personnel and raising capital.
In February 1997, the Company began providing online software distribution
services, later branded as INTRAWARE.SHOP, and began providing online software
update and license management services through its SUBSCRIBNET service. In April
1998, the Company introduced the COMPARISCOPE service to provide IT
professionals with comprehensive, objective online analysis of various types of
software. In September 1998, the Company added IT KNOWLEDGE CENTER to its online
service offerings, providing corporate IT professionals with proprietary
content, aggregated technical information and related resources. The Company
incurred net losses of $944,000, $4.0 million and $7.8 million in the period
from August 1996 (inception) through February 28, 1997, the year ended February
28, 1998 and the nine months ended November 30, 1998, respectively. The Company
expects to incur net losses for the foreseeable future. See "Risk Factors--We
Have a History of Losses and Expect Future Losses."
Intraware generates revenues from sales of third-party software vendors'
products through INTRAWARE.SHOP, and from sales of its online services
SUBSCRIBNET and COMPARISCOPE. Historically, Intraware has derived the
substantial majority of its revenue from software product sales and did not
recognize material online service revenues until the quarter ended November 30,
1998. The Company first recognized revenues from software product sales in
February 1997, and software product sales revenues constituted 100%, 100% and
94% of the Company's total net revenues for the period from inception through
February 28, 1997, the year ended February 28, 1998 and the nine months ended
November 30, 1998, respectively. Intraware expects that software product sales
will continue to represent the substantial majority of its total net revenues
for the foreseeable future. See "Risk Factors--Our Newly Introduced Value-Added
Services May Not Be Able to Generate Anticipated Revenues."
The Company generates software product revenues from the sale of third party
software and related maintenance products. Of these revenues, sales of software
licenses are recognized when there is evidence of an arrangement for a fixed and
determinable fee that is probable of collection and the software is available
for customer download through INTRAWARE.SHOP. Related maintenance revenues are
recognized ratably over the terms of the underlying service contract. Online
services revenues are derived primarily from delivery of SUBSCRIBNET, and other
fee-based information services. Online services revenues are recognized ratably
over the term of the underlying service contracts. See Note 1 of Notes to
Financial Statements.
During the nine month period ended November 30, 1998, the Company generated
over 90% of its software product revenues from the sale of Netscape software
products. While
21
<PAGE>
the Company expects that net revenues derived from the sale of Netscape products
will decrease as a percentage of total revenues in future periods, the Company
believes that it will remain substantially dependent on such sales for the
foreseeable future. The Company has no assurance that Netscape will continue to
sell software products through the Company. If Netscape were to discontinue
selling its software through the Company, there would be a material adverse
effect on the Company's software product revenues and other operating results,
its financial condition, and its business. Recently, Netscape entered into an
agreement to be acquired by America Online, Inc. and there can be no assurance
that this proposed transaction will not have an adverse effect on Intraware's
relationship with Netscape. See "Risk Factors-- We Are Substantially Dependent
on Netscape Communications Corporation."
Intraware first generated significant revenues from sales of its online
services in the quarter ended November 30, 1998. For the nine months ended
November 30, 1998, the Company generated 87% of its online service revenues from
the sale of SUBSCRIBNET services to Netscape. Under a one-year agreement with
Netscape effective on October 1, 1998, the Company provides online software
update and license management services to Netscape customers through the
Company's SUBSCRIBNET service. Netscape has the right, however, to terminate
this agreement upon 90 days notice. Accordingly, the Company has no assurance
that Netscape will not terminate this agreement or, at the end of the current
term, renew the agreement on satisfactory terms. To date, substantially all of
the Company's SUBSCRIBNET revenues have been generated through this Netscape
agreement, and if the Company were not able to renew the agreement on
satisfactory terms, there could be a material adverse effect on the Company's
online service revenues and upon the Company's business. See "Risk Factors--We
Are Substantially Dependent on Netscape Communications Corporation."
Intraware's limited operating history makes it difficult to forecast its
future operating results. Although the Company's net revenues have grown in
recent quarters, the Company cannot be certain that its net revenues will
increase at a rate sufficient to achieve and maintain profitability. Even if the
Company were to achieve profitability in any period, the Company cannot be
certain that it would sustain or increase profitability on a quarterly or annual
basis. See "Risk Factors--We Have a History of Losses and Expect to Incur Future
Losses."
RESULTS OF OPERATIONS
NINE MONTHS ENDED NOVEMBER 30, 1997 AND 1998
NET REVENUES
Net revenues increased from $5.3 million for the nine months ended November
30, 1997 to $24.6 million for the nine months ended November 30, 1998. This
increase was primarily due to an increase in sales of third-party software
products. In addition, during the nine months ended November 30, 1998, the
Company recognized $1.5 million in initial sales of its online services.
Approximately $1.3 million of these initial online service revenues was
attributable to the Company's agreement with Netscape to provide SUBSCRIBNET
services.
COST OF NET REVENUES
Cost of net revenues consists primarily of the cost of third-party software
and maintenance products sold, costs for content development and acquisition,
and Internet connectivity and allocated overhead charges. The Company purchases
software products at a discount to the software vendors' established list prices
pursuant to standard reseller terms. Total cost of net revenues increased from
$4.3 million for the nine months ended November 30, 1997 to $19.9 million for
the nine months ended November 30, 1998. This increase in total cost of net
revenues was primarily attributable to increases in the volume of third-party
software and maintenance products sold by the Company.
The Company's gross margin increased from 18.5% for the nine months ended
November 30, 1997 to 19.0% for the nine months ended November 30, 1998. The
increased margins on the Company's software product sales due to increased
competitive pricing pressures, particularly on large sale transactions, were
more
22
<PAGE>
than offset by the effects of an increase in online service revenues having
substantially higher gross margins. Gross margins on software product sales
decreased from 18.5% for the nine months ended November 30, 1997 to 15.7% for
the nine months ended November 30, 1998. The Company anticipates that it will
continue to experience declining gross margins on software product sales. Gross
margins on the Company's online service revenues were 69.3% for the nine months
ended November 30, 1998.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of employee salaries,
benefits and commissions, advertising, promotional materials and trade show
exhibit expenses. Sales and marketing expenses increased from $2.0 million for
the nine months ended November 30, 1997 to $8.7 million for the nine months
ended November 30, 1998. This increase was primarily attributable to an overall
increase in the scope of the Company's marketing and branding efforts.
Additionally, during the 1998 nine month period, the Company increased the
number of internal and external sales personnel, which in turn increased
salaries and related expenses. The number of employees engaged in sales and
marketing increased from 27 at November 30, 1997 to 71 at November 30, 1998.
Management expects that the dollar amount of sales and marketing expenses will
continue to increase due to the planned growth of its sales force, including the
establishment of sales offices in additional domestic and international
locations, and from expected additional increases in advertising and promotional
activities.
In September 1998, the Company entered into an agreement with Netscape in
which the Company's IT KNOWLEDGE CENTER is featured on the Netcenter Computer
and Internet Channel. Under the agreement, Intraware receives advertising banner
space and text links across the Netcenter site. Advertising and marketing
expenses in connection with this agreement totaled $1.7 million for the nine
months ended November 30, 1998. The advertising fee paid to Netscape by the
Company under this agreement is being expensed based on the actual number of
impressions delivered in a given period. In addition, the fees paid by the
Company to be featured on the Netcenter site are being amortized over the one
year term of the agreement. See "Business--Strategic Relationship With
Netscape."
PRODUCT DEVELOPMENT EXPENSES
Product development expenses consist primarily of personnel and related
costs associated with the Company's development and technical support efforts.
Product development expenses increased from $604,000 for the nine months ended
November 30, 1997 to $1.3 million for the nine months ended November 30 1998.
The increase was primarily due to an increase in the number of product
development personnel employed to support expansion of the Company's SUBSCRIBNET
online service and its other online service offerings. The number of employees
engaged in product development increased from 11 at November 30, 1997 to 23 at
November 30, 1998. The Company believes significant investment in product
development is essential to its future success and expects that the dollar
amount of product development expenses will increase in future periods.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of employee salaries
and related expenses for executive, administrative and accounting personnel,
facility costs, operations, recruiting fees, insurance costs and professional
fees. General and administrative expenses increased from $1.0 million for the
nine months ended November 30, 1997 to $2.5 million for the nine months ended
November 30, 1998. This increase was primarily attributable to overall business
growth and to increased salary and related expenses in accounting, operations
and administration. The number of employees engaged in general and
administrative functions increased from 13 at November 30, 1997 to 26 at
November 30, 1998. Management expects general and administrative expenses to
increase in dollar amount in future periods.
23
<PAGE>
INTEREST EXPENSE
Interest expense relates to borrowings under a bank line of credit
arrangement and from obligations under capital leases. The changes in interest
expense in each period result from changes in the outstanding principal
obligations during each period.
INTEREST AND OTHER INCOME, NET
Interest and other income, net consists primarily of interest earned on cash
and cash equivalents offset by miscellaneous non-operating expenses. The changes
in other income, net in each period result primarily from changes in the amount
and mix of interest-bearing investments outstanding during each period.
INCOME TAXES
From inception through November 30, 1998, the Company incurred net losses
for federal and state tax purposes and has not recognized any tax provision or
benefit. As of November 30, 1998, the Company had approximately $11.7 million of
federal and $11.5 million of state net operating loss carryforwards to offset
future taxable income which expire in varying amounts beginning in 2012 and
2005, respectively. Given the Company's limited operating history, losses
incurred to date and the difficulty in accurately forecasting the Company's
future results, management does not believe that the realization of the related
deferred income tax asset meets the criteria required by generally accepted
accounting principles and, accordingly, a 100% valuation allowance has been
recorded. Furthermore, as a result of changes in the Company's equity ownership
from the Company's Convertible Preferred Stock financings and this offering,
utilization of the net operating losses and tax credits is subject to
substantial annual limitations due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
tax credits before utilization. See Note 4 of Notes to Financial Statements.
STOCK-BASED COMPENSATION
In the year ended February 28, 1998 and the nine months ended November 30,
1998, the Company recorded aggregate unearned compensation totaling $2.3 million
in connection with certain stock option grants. In addition, subsequent to
November 30, 1998, the Company recorded additional unearned compensation
totaling $865,000 for employee stock options granted on December 2, 1998. The
unearned compensation is being amortized over the four-year vesting period of
the related options and is being allocated among the operating expense
categories based upon the primary activity of the related employee. During the
nine months ended November 30, 1998, amortization of unearned compensation
totaled $264,000, and was allocated in the amounts of $132,000 to sales and
marketing, $66,000 to product development, and $66,000 to general and
administrative expenses. Amortization of unearned compensation was considered
immaterial in the year ended February 28, 1998. See Note 9 of Notes to Financial
Statements.
THE PERIOD FROM AUGUST 14, 1996 (INCEPTION) THROUGH FEBRUARY 28, 1997 AND
THE YEAR ENDED FEBRUARY 28, 1998
NET REVENUES
Total net revenues increased from $6,000 for the period from inception
through February 28, 1997 to $10.4 million for the year ended February 28, 1998.
This increase resulted primarily from the sale of third-party software products
upon the Company's launch of its electronic software delivery service in
February 1997. Software sales increased from $6,000 for the period from
inception through February 28, 1997 to $10.4 million for the year ended February
28, 1998.
COST OF NET REVENUES
Cost of net revenues increased from $5,000 for the period from August 14,
1996 (inception) through February 28, 1997 to $8.3 million for the year ended
February 28, 1998. This increase reflected the increased software product sales
of the Company.
24
<PAGE>
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased from $233,000 for the period from
August 14, 1996 through February 28, 1997 to $3.5 million for the year ended
February 28, 1998. This increase was primarily due to an increase in the number
of sales and marketing personnel employed and to expenses incurred in connection
with attending trade shows following the launch of INTRAWARE.SHOP.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses increased from $253,000 for the period from
August 14, 1996 through February 28, 1997 to $951,000 for the year ended
February 28, 1998. The increase resulted primarily from an increase in the
number of product development personnel required to support expansion of the
Company's SUBSCRIBNET and other online service offerings.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased from $467,000 for the period
from August 14, 1996 through February 28, 1997 to $1.5 million for the year
ended February 28, 1998. This increase was due primarily to an increase in the
number of general and administrative personnel and operational costs as the
Company expanded its operations.
STOCK-BASED COMPENSATION
In the year ended February 28, 1998, the Company recorded aggregate unearned
compensation totaling $2.3 million in connection with certain stock option
grants. Amortization of unearned compensation was considered immaterial in the
year ended February 28, 1998. See Note 9 of Notes to Financial Statements.
QUARTERLY RESULTS OF OPERATION
The following table sets forth, for the periods presented, certain data from
the Company's statement of operations and such data as a percentage of net
revenues (except for costs of software product sales and costs of online
services which are expressed as a percentage of software product sales and
online service revenues, respectively). The statement of operations data has
been derived from the Company's unaudited financial statements that, in
management's opinion, have been prepared on substantially the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
information for the periods presented. This information should be read in
conjunction with the Financial Statements and Notes thereto included elsewhere
in this Prospectus. The operating results in any quarter are not necessarily
indicative of the results that may be expected for the future period.
25
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30,
1997 1997 1997 1998 1998 1998 1998
------- ---------- ------------ ------------ ------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
NET REVENUES:
Software product sales........... $ 311 $2,346 $ 2,673 $ 5,053 $5,002 $ 8,183 $ 9,842
Online services.................. -- -- -- 4 16 63 1,450
------- ---------- ------------ ------------ ------- ---------- ------------
Total net revenues............. 311 2,346 2,673 5,057 5,018 8,246 11,292
------- ---------- ------------ ------------ ------- ---------- ------------
COST OF NET REVENUES:
Software product sales........... 241 1,974 2,131 4,002 3,939 6,832 8,650
Online services.................. -- -- -- -- 68 109 293
------- ---------- ------------ ------------ ------- ---------- ------------
Total cost of net revenues..... 241 1,974 2,131 4,002 4,007 6,941 8,943
------- ---------- ------------ ------------ ------- ---------- ------------
Gross profit................. 70 372 542 1,055 1,011 1,305 2,349
------- ---------- ------------ ------------ ------- ---------- ------------
OPERATING EXPENSES:
Sales and marketing.............. 338 711 988 1,459 1,684 2,321 4,733
Product development.............. 131 191 282 347 361 444 493
General and administrative....... 257 353 406 476 593 763 1,136
------- ---------- ------------ ------------ ------- ---------- ------------
Total operating expenses....... 726 1,255 1,676 2,282 2,638 3,528 6,362
------- ---------- ------------ ------------ ------- ---------- ------------
Loss from operations............... (656) (883) (1,134) (1,227) (1,627 ) (2,223) (4,013)
Interest expense................... (14) (12) (26) (51) (62 ) (47) (45)
Interest and other income, net..... 1 2 6 12 17 94 66
------- ---------- ------------ ------------ ------- ---------- ------------
Net loss........................... $(669) $ (893) $(1,154) $(1,266) $(1,672) $(2,176) $(3,992)
------- ---------- ------------ ------------ ------- ---------- ------------
------- ---------- ------------ ------------ ------- ---------- ------------
NET REVENUES:
Software product sales........... 100% 100% 100% 100% 100% 99% 87%
Online services.................. -- -- -- -- -- 1 13
------- ---------- ------------ ------------ ------- ---------- ------------
Total revenues................. 100 100 100 100 100 100 100
------- ---------- ------------ ------------ ------- ---------- ------------
COST OF NET REVENUES:
Software product sales........... 77 84 80 79 78 83 77
Online services.................. -- -- -- -- 1 1 3
------- ---------- ------------ ------------ ------- ---------- ------------
Total cost of net revenues.....
Gross profit................. 23 16 20 21 21 16 20
------- ---------- ------------ ------------ ------- ---------- ------------
OPERATING EXPENSES:
Sales and marketing.............. 108 30 37 29 34 28 42
Product development.............. 42 8 11 7 7 5 4
General and administrative....... 83 15 15 9 12 9 10
------- ---------- ------------ ------------ ------- ---------- ------------
Total operating expenses....... 233 53 63 45 53 42 56
------- ---------- ------------ ------------ ------- ---------- ------------
Loss from operations............... (210) (37) (43) (24) (32 ) (26) (36)
Interest expense................... (5) -- (1) (1) (1 ) -- --
Interest and other income, net..... -- -- -- -- 1 --
------- ---------- ------------ ------------ ------- ---------- ------------
Net loss........................... (215)% (37)% (44)% (25)% (33 )% (25)% (36)%
------- ---------- ------------ ------------ ------- ---------- ------------
------- ---------- ------------ ------------ ------- ---------- ------------
</TABLE>
The Company's revenues and operating results could vary significantly from
quarter to quarter due to the following factors, among others, (i) the demand
for the services the Company offers and vendor software products it sells; (ii)
the timing of sales of the Company's services and the products of its software
vendors; (iii) the losses of strategic relationships with major vendors (such as
Netscape); (iv) the mix of the Company's value-added services and vendor
software products sold; (v) delays in introducing the Company's value-added
services, or delays in vendors' software release schedules; and (vi) the
Company's ability to retain existing customers and attract new customers.
The Company has incurred net losses in each quarter since inception and
expects to continue to incur losses for the foreseeable
26
<PAGE>
future. The Company's net loss has increased each quarter since inception and
there can be no assurance that this trend will not continue.
The Company has experienced declining gross margins on software product
sales and anticipates that such declines will continue. In addition, the Company
intends to broaden its sales and marketing efforts to support its recently
introduced online services, SUBSCRIBNET and COMPARISCOPE, and, as a result, the
Company may experience one or more quarters of reduced software product revenue.
If this were to occur, Intraware's operating results would be adversely
affected, which could result in a decline of the market price of the Company's
Common Stock.
The Company plans to significantly increase its operating expenses to expand
its sales and marketing operations, broaden its customer support capabilities,
and fund greater levels of product development. Intraware's planned level of
operating expenses, including sales and marketing, administrative and
development expenses, are based on expectations of future revenues and are
relatively fixed in the short term. If revenues were to fall below these
expectations, the Company may not be able to quickly reduce its operating
expenses in response to such a shortfall. Due to the nature of the Company's
sales, there is no significant sales backlog. Consequently, for each quarter,
the Company's sales revenues are dependent on sales made in that quarter.
Due to the foregoing factors, the Company's quarterly revenue and operating
results are difficult to forecast, and the Company believes that
period-to-period comparisons of its operating results will not necessarily be
meaningful and should not be relied upon as an indication of future performance.
It is likely that in one or more future quarters the Company's operating
results may fall below the expectations of securities analysts and investors. In
such event, the trading price of the Common Stock would likely be materially
adversely affected. See "Risk Factors--Our Quarterly Financial Results Are
Subject to Significant Fluctuations."
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically satisfied its cash requirements primarily
through private placements of equity securities, bank borrowings and lease
financings. To date, the Company has raised approximately $17.4 million through
equity financings. See Notes 6 and 7 of Notes to Financial Statements.
Net cash used in operating activities totaled $779,000 for the period from
August 14, 1996 (inception) through February 28, 1997, $4.9 million for the year
ended February 28, 1998, and $5.9 million for the nine months ended November 30,
1998. Cash used in operating activities in the period from inception through
February 28, 1997 was primarily attributable to initial product development
efforts and general and administrative expenses. The increase in the year ended
February 28, 1998 was primarily attributable to a net operating loss of $4.0
million and increases in prepaid licenses and services and accounts receivable,
partially offset by increases in accounts payable and deferred revenue, as well
as depreciation and amortization of fixed assets. Cash used in operating
activities for the first nine months of 1998 resulted primarily from a net loss
of $7.8 million.
Net cash used in investing activities totaled $428,000 million for the
period from inception through February 27, 1997, $686,000 for the year ended
February 28, 1998 and $477,000 for the nine months ended November 30, 1998. The
increases in each period resulted primarily from purchases of computer equipment
and other fixed assets.
Net cash provided by financing activities totaled $1.5 million for the
period from inception through February 28, 1997, $5.9 million for the year ended
February 28, 1998 and $11.1 for the nine months ended November 30, 1998. The
increases in each period resulted primarily from the net proceeds from issuances
of Convertible Preferred Stock and from bank line of credit borrowings.
As of November 30, 1998, the Company's principal sources of liquidity
included $5.4 million of cash and cash-equivalents and
27
<PAGE>
$3.8 million available under the Company's bank line of credit. Although the
Company has no material long-term commitments for capital expenditures, it
anticipates a substantial increase in its capital expenditures and lease
commitments consistent with anticipated growth in operations, infrastructure and
personnel. See Notes 5 and 6 of Notes to Financial Statements.
The Company believes that the net proceeds from this offering, combined with
its current cash and short-term investments and its available bank line of
credit, will be sufficient to meet its anticipated liquidity needs for working
capital and capital expenditures for at least twelve months from the date of
this Prospectus. The Company's future liquidity and capital requirements will
depend upon numerous factors, including the pace of expansion of the Company's
operations, the timing of development of new and enhanced services, responses to
competitive pressures, acquisitions of complementary businesses or technologies,
or to take advantage of unanticipated opportunities. The Company's forecast of
the period of time through which its financial resources will be adequate to
support its operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary materially as a result of the
foregoing factors. If the Company requires additional capital resources, the
Company may seek to sell additional equity or debt securities or to increase its
bank line of credit. The sale of additional equity or convertible debt
securities could result in additional dilution to the Company's stockholders.
There can be no assurance that any financing arrangements will be available in
amounts or on terms acceptable to the Company, if at all.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, computer systems and/or
software products used by many companies may need to be upgraded to comply with
such year 2000 requirements. The Company's services, including SUBSCRIBNET,
INTRAWARE.SHOP, COMPARISCOPE, IT KNOWLEDGE CENTER, VIRTUALEXPRESS and their
associated and supporting tools, Web sites, and infrastructure were designed and
developed to be year 2000 compliant. The Company's internal systems used to
deliver its services, however, utilize third-party hardware and software.
Intraware has contacted these infrastructure products' vendors in order to gauge
their year 2000 compliance. Based on these vendors' representations, Intraware
believes that the third-party hardware and software it uses are year 2000
compliant. There can be no assurance, however, that the Company will not
experience unanticipated negative consequences, including material costs caused
by undetected errors or defects in the technology used in its internal systems.
If, in the future, it comes to Intraware's attention that certain of its
services need modification, or certain of its third-party hardware and software
is not year 2000 compliant, then Intraware will seek to make modifications to
its systems. In such case, Intraware expects such modifications to be made on a
timely basis and Intraware does not believe that the cost of such modifications
will have a material effect on its operating results. There can be no assurance,
however, that Intraware will be able to modify such products, services and
systems in a timely and successful manner to comply with the year 2000
requirements, which could have a material adverse effect on its business and
operating results.
Further, while the Company typically has received warranties and indemnities
from its software vendors with respect to year 2000 compliance of the software
products, the Company resells but does not independently verify the year 2000
compliance of these products. If such software products nevertheless require
modification to be year 2000 compliant, demand for such products could decline
if such modifications are not timely made by the software vendors. This, in
turn, could adversely affect Intraware's business and results of operations.
Year 2000 issues also could cause a significant number of companies,
including our current customers, to reevaluate their current
28
<PAGE>
system needs and, as a result, consider switching to other systems and
suppliers. Any of the foregoing could result in a material adverse effect on our
business, operating results and financial condition. Additionally, during the
next twelve months there is likely to be an increased customer focus on
addressing year 2000 issues, creating the risk that customers may reallocate
capital expenditures to fix year 2000 problems of existing systems. Although we
have not experienced the effects of such a trend to date, if customers defer
purchases of business software and related services because of such a
reallocation, it would adversely affect our operating results. See "Risk
Factors--We May Be Exposed to the Year 2000 Compliance Risks."
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which establishes standards for reporting information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company will adopt the provisions of SFAS No. 131 in connection
with the preparation of its financial statements for the fiscal year ending
February 28, 1999.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
is effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software developed
or obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company will adopt the provisions of
SOP 98-1 in its year ending February 28, 2000, and does not expect such adoption
to have a material effect on the Company's financial statements.
In March 1998, AIPCA issued Statement of Position 98-4, "Deferral of the
Effective Date of a provision of SOP 97-2" ("SOP 98-4"). SOP 98-4 defers for one
year the application of certain provisions of Statement of Position 97-2
"Software Revenue Recognition" ("SOP 97-2"). Different informal and
non-authoritative interpretations of certain provisions of SOP 97-2 have arisen
and, as a result, the AICPA issued SOP 98-9 in December 1998 which is effective
for period beginning on or after March 15, 1999. SOP 98-9 extends the effective
date of SOP 98-4 and provides additional interpretive guidance. The adoption of
SOP 97-2, SOP 98-4, and SOP 98-9 have not had and are not expected to have
material impact on the Company's results of operations, financial position or
cash flows. However, due to the uncertainties related to the outcome of these
amendments, the impact on the future financial results of the Company is not
currently determinable.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivates and
Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards of derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The adoption of SFAS
No. 133 is not expected to have an impact on the Company's results of
operations, financial position or cash flows upon the adoption of this standard.
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BUSINESS
INTRAWARE, INC.
Intraware is a leading provider of Internet-based business-to-business
software services for IT professionals and business software vendors. Through
the Company's electronic software delivery and outsourcing services, the Company
acts as an objective intermediary in the software decision-making process. The
Company's branded, integrated service offerings enable software decision-makers
to evaluate, purchase, deploy and maintain their business software assets more
effectively. The Company's online services also allow business software vendors
to effectively market, sell and distribute products to a targeted customer base
of IT professionals.
The Company's core service offerings include IT KNOWLEDGE CENTER,
INTRAWARE.SHOP and SUBSCRIBNET. IT KNOWLEDGE CENTER is a Web site targeted at
corporate IT professionals and containing information services, including
COMPARISCOPE that helps them research and evaluate business software decisions.
A co-branded version of IT KNOWLEDGE CENTER is available on the Computing &
Internet channel of Netscape's Netcenter portal. The INTRAWARE.SHOP service is
an online procurement and delivery service for business software. SUBSCRIBNET is
an online software update and license management service. Through SUBSCRIBNET,
IT professionals can track their software licenses and manage the software
update process throughout a corporate network. The Company offers its
SUBSCRIBNET update and license management capabilities as an outsourcing
solution to business software vendors and have entered into an agreement with
Netscape to provide Intraware's SUBSCRIBNET service to Netscape customers
worldwide.
The Company has a broad base of members and customers in the IT departments
of medium to large corporations. As of December 1998, the Company had over
60,000 registered members. In addition, Intraware's SUBSCRIBNEWS digest of news,
information and opinion for the IT professional community is emailed to over
25,000 subscribers on a weekly basis. The Company's customers include the
following companies: 3Com Corporation, AT&T Corporation, Boeing Corporation,
Charles Schwab Company, Daimler Chrysler AG Corporation, GTE Corporation, Knight
Ridder, Inc., Lycos, Inc., and Reuters Group PLC. In addition, the Company has
established relationships with leading business software vendors including
Netscape, Informix, RealNetworks, OpenText, and NetDynamics, a wholly-owned
subsidiary of Sun Microsystems, Inc.
INDUSTRY BACKGROUND
Corporations today rely heavily upon information technology ("IT") to be
competitive, and software is a critical element of a corporation's IT
infrastructure. Corporations are spending increasingly large amounts on software
evaluation, purchase and maintenance. International Data Corporation ("IDC")
estimates that sales of software worldwide will increase from approximately $119
billion in 1997 to $231 billion in 2002. IDC further estimates that the market
for total worldwide software support will grow from approximately $19.6 billion
in 1997 to $38.5 billion in 2002.
SOFTWARE EVALUATION, PURCHASE, DEPLOYMENT AND MAINTENANCE BY CORPORATIONS
Corporate IT professionals are responsible for evaluating, purchasing,
deploying and maintaining software assets across the enterprise. The process of
evaluating business software for deployment can be costly and time-consuming, as
the information is widely dispersed and often biased. To evaluate software for
purchase, IT professionals typically review the product literature and Web sites
of numerous vendors, read a variety of online and printed publications and
attend industry seminars and trade shows. Once a purchase decision is made, IT
professionals must often test the software's effect on the existing IT
infrastructure before deploying it across the enterprise. Full scale deployment
often involves time-consuming physical installation on computers located at
geographically dispersed sites. As a result of
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these factors, corporate IT professionals often find themselves unable to
evaluate potential software purchases quickly and efficiently, or deploy them in
a timely manner throughout the enterprise.
Following deployment, a corporation will typically spend significant
additional resources on annual maintenance programs to support and maintain its
software assets. These programs provide corporations with the right to receive
subsequent releases of software to optimize existing functionality, incorporate
enhanced features and correct prior programming deficiencies. These maintenance
contracts, however, typically provide limited mechanisms for notifying IT
professionals of new and enhanced releases, or for managing the deployment of
such releases across the enterprise.
As a result of competitive pressures, software vendors are increasingly
seeking to reduce time to market, thereby compressing the release cycles for
their products. Forrester Research, Inc. ("Forrester") estimates that nearly 60%
of software vendors have product release cycles of three months or less. In
addition to the compressed release cycles associated with existing software
packages, corporations continue to install new business software on their
networks. These factors have made it increasingly difficult for IT professionals
to evaluate, deploy and track software updates, upgrades, new releases and other
lifecycle improvements to the many software assets used within their
organizations. As a result, corporations often do not realize the value they
anticipated when making the initial software purchase decision.
SOFTWARE SALE AND MAINTENANCE BY BUSINESS SOFTWARE VENDORS
Business software vendors typically rely on a combination of direct and
indirect methods to market and sell their products. Direct sales and marketing
efforts, including the use of targeted marketing campaigns and the creation and
management of a dedicated sales force, enable vendors to develop one-to-one
relationships with customers but can often be time-consuming and expensive.
Software vendors may reduce costs by using indirect marketing and sales
approaches, such as broad-based advertising campaigns and the use of resellers
and other intermediaries. Their ability to create relationships with and receive
feedback from corporate customers, however, is often compromised. Regardless of
the methods employed, business software vendors are challenged by the costs,
logistical complexities and administrative burden of marketing, selling and
distributing software products to a typically large and dispersed user base.
Vendors must also address their customers' needs to maintain software
assets. Because a corporation's user base for a typical software package may be
large, widely distributed and supported by numerous IT professionals, vendors
often have limited information about their customers' software deployments.
Without collecting adequate customer data, software vendors may be unable to
effectively track licensing programs, fully assess customer satisfaction,
determine feature requirements for subsequent releases, make program updates
quickly available, capture additional sale opportunities, or develop a proactive
maintenance management system. The Company believes the inefficiencies faced by
business software vendors will become more pronounced as these vendors
increasingly address the needs of a greater number of small to medium-sized
businesses.
THE INTERNET AS A MEDIUM FOR SOFTWARE PROCUREMENT, DELIVERY AND MAINTENANCE
The Internet and the World Wide Web have emerged as revolutionary global
communications media, enabling millions of consumers and business users to share
information and conduct business electronically. Forrester estimates that the
business-to-business electronic commerce market will grow nearly 100% annually,
from $43 billion in 1998 to $1.3 trillion by 2003. Business software vendors are
expected to benefit from this trend by utilizing the Internet as a more
effective medium to market, sell and support their software products. As a
result, IDC estimates the ESD market will grow from approximately $200 million
in 1997 to approximately $5.9 billion in 2001. Software
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support and maintenance services are also expected to be increasingly conducted
online. IDC estimates that the market for electronic support and software update
and license management services will grow from approximately $1.5 billion in
1997 to $10.5 billion in 2002.
Although the Internet is increasingly utilized to solve many inefficiencies
associated with the business software market, the Internet also brings new
challenges to the relationships between software vendors and their corporate
customers. The Web substantially increases the amount of information available
to IT professionals for researching and evaluating software purchase decisions,
but this information is still not typically aggregated by a central, organized
source. Moreover, the majority of the information available on the Web is
located on software vendors' own Web sites, which often do not provide complete
or unbiased content.
Vendors selling business software over the Internet can leverage the unique
features of the Web to enhance existing sales and marketing efforts and create a
more effective one-to-one relationship with the customer. However, the Company
believes that the challenges vendors face in using the Web as a software sales
and delivery vehicle require additional capabilities and skills outside the
vendors' traditional competencies. Specifically, vendors must contend with
enhanced Web site development and performance requirements, increased customer
demand for electronic software availability and support, integration of the Web
site with existing internal software systems, electronic licensing demands and
constantly changing export restrictions.
The Company believes that many corporations are attempting to utilize the
Web to improve their ability to efficiently evaluate, purchase and maintain
software, but they lack an objective, centralized online resource for such
activities. The Company similarly believes that software vendors seek the
benefits of using the Web to improve customer interaction, information
management, and sales, but have not been able to justify the resources required
to independently build and maintain their own system.
INTRAWARE SOLUTION
Intraware is a leading provider of online business-to-business software
services and acts as an objective intermediary to address the needs of both
purchasers and vendors of business software. The Company's integrated service
offerings enable software decision-makers to evaluate, purchase, deploy and
maintain their business software assets more effectively. At the same time,
Intraware's online services allow software vendors to effectively market, sell
and distribute products to a highly targeted customer base of IT professionals.
In addition, Intraware's online software maintenance services provide a
centralized solution for software publishers seeking to assist customers in the
maintenance of their software assets.
BENEFITS TO CORPORATE IT PROFESSIONALS
FACILITATES A MORE INFORMED EVALUATION AND PURCHASE DECISION. Intraware's
knowledge services allow IT professionals to obtain in-depth and objective
information about business software products to assist them in their software
purchasing decisions. Using the resources on the Intraware Web site, corporate
IT professionals can evaluate software license pricing models in real-time,
experience product features through interactive product demonstrations and
obtain comprehensive product information.
STREAMLINES DEPLOYMENT AND MAINTENANCE. Intraware's ESD capabilities are
tailored to corporate purchasing, deployment and tracking requirements. In
addition, the Company's information management services provides corporations
with a central online source to easily and efficiently track software licenses,
monitor which versions are installed in different locations, and install
upgrades using a central, online repository.
PROVIDES THE PLATFORM FOR A UNIQUE IT PROFESSIONAL COMMUNITY. Intraware's
unique market position allows the Company to objectively mediate and enhance the
relationship between IT professionals and software vendors.
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The Company has focused on improving the quality of information available to
both IT professionals and software vendors, thereby increasing communication
among technology professionals regarding software industry trends, opinions, and
product experiences.
BENEFITS TO SOFTWARE VENDORS
Rather than build their own online software delivery, license management and
maintenance capabilities, software vendors can leverage Intraware's service
offerings. By outsourcing the management of these services to Intraware,
software vendors can eliminate the time-to-market risks associated with building
these services themselves.
IMPROVES MARKETING AND SALES EFFORTS. Through the Company's online services,
software vendors can centralize their online sales and marketing activities and
improve the quality of their customer interactions. By capturing direct customer
feedback, vendors can make improvements to their products and services to meet
customer needs, capitalize on incremental revenue opportunities through
follow-on software sales and ultimately decrease the time-to-market of their
software products.
IMPROVES SOFTWARE DELIVERY AND MAINTENANCE. Intraware's ESD engine reduces
the costs and logistical complexities associated with software distribution. The
Company's maintenance services allow vendors to assist their customers in
monitoring software licenses and tracking installations of new releases and
upgrades through a central, online repository.
IMPROVES CUSTOMER INFORMATION MANAGEMENT. Using Intraware's online services,
software vendors can extract more detailed, comprehensive and valuable customer
data through the extensive customer resources offered by the Company. By
outsourcing the management of customer maintenance programs, software vendors
can capture rich data from an objective online source about the acceptance and
performance of their software products.
INTRAWARE STRATEGY
Intraware's objective is to be the leading online intermediary for the
business software industry, aggregating information, software and services for
IT professionals and software vendors. Key elements of the Company's strategy
include:
DEVELOP A BROAD-BASED IT COMMUNITY CONSISTING OF CORPORATE IT PROFESSIONALS
AND SOFTWARE VENDORS. Through its position as an objective resource for
software decision making, Intraware helps meet the information needs of IT
professionals. Intraware provides an online community of content and services,
including career information, product information and tutorials, and links to
third-party information of interest to IT professionals. The Company's services
for software evaluation, purchasing, deployment and maintenance further enhance
the Intraware community experience for IT professionals, and drives them to
Intraware's site. Intraware believes this approach deepens its relationship with
IT professionals and, as a result, can more effectively market and sell its
services and its existing vendors' software products, as well as develop new
software vendor partnerships.
EXTEND CURRENT SERVICE OFFERINGS AND INTRODUCE NEW SERVICE
OFFERINGS. Intraware seeks to maintain, develop and enhance existing and new
revenue streams from both its software vendor and corporate IT professional
customers through the further development of existing services and introduction
of additional online services. The Company initially introduced SUBSCRIBNET, a
service that provides IT professionals with pro-active and centralized update
and licensed management services. The Company also recently introduced
COMPARISCOPE, a premium subscription service designed to provide IT
professionals with leading enterprise software evaluation tools. Although these
services as well as the other subscription-based services of the Company have
not generated significant revenues to date, Intraware anticipates that these
services will represent an increasing proportion of its revenue base. The
Company believes that its market position and integrated service offerings will
enable it to
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continue to develop, market and sell service offerings that address the needs of
the IT professional community. The Company plans to develop additional service
and content offerings through both internal resources as well as the acquisition
of complementary businesses, services and content.
LEVERAGE CUSTOMER BASE AND SERVICE FUNCTIONALITY TO CAPTURE SOFTWARE VENDOR
OUTSOURCING OPPORTUNITIES. Intraware has positioned itself to provide IT
professionals with services to objectively evaluate, select and maintain
software products. As Intraware further adds functionality to its services and
aggregates a targeted community of IT professionals, the Company believes that
software vendors will benefit from new outsourcing services offered by the
Company. In addition, software vendors may benefit from improved features and
functionality of the Company's existing services. The Company plans to continue
forging relationships with software vendors to provide its IT professionals with
a broader selection of software products and complementary Intraware services.
PROMOTE INTRAWARE BRAND AWARENESS. The Company believes that, due to the
competitive nature of online commerce and services targeted at the IT
professional, it is critical to continue to brand Intraware as an objective
intermediary in order to continue to grow its business. To facilitate this,
Intraware intends to continue promoting its brands and services through an
extensive PR campaign, advertising in print media and Web sites targeted at IT
professionals. In addition, the Company promotes its brand through its placement
on Netscape's Netcenter site and through a variety of co-marketing arrangements
with other software vendors.
MAINTAIN LEADING EDGE TECHNOLOGY FOCUS. Intraware plans to continually
enhance its technology to enable additional online services, high throughput and
secure delivery of software products through its ESD engine by using leading
edge technologies. Intraware's development group is able to rapidly add new
services and features to the Company's existing service offerings. By developing
on open standards, the Company can more easily integrate with vendor and partner
systems for expanded services and outsource implementation.
EXPAND GLOBALLY. The online nature of Intraware's business enables the
Company to offer its services to a worldwide community of IT professionals and
software vendors. Although the Company had not actively targeted the
international IT community until recently and has not generated any significant
revenues internationally to date, approximately half of Intraware's registered
membership is based in international markets. The Company believes that the
global opportunity to market its services will continue to grow rapidly. The
Company intends to address this opportunity by selectively enhancing its global
pricing, currency and language capabilities. In addition, the Company intends to
access international markets through a combination of global online services,
online and traditional marketing efforts, partnerships and direct investments
and acquisitions of complementary businesses.
SERVICES
Intraware's service offerings are designed to address all stages of the
business software lifecycle, from evaluation and purchase, to deployment and
online maintenance management.
INFORMATION SERVICES: IT KNOWLEDGE CENTER
The IT KNOWLEDGE CENTER is a Web site containing focused content for IT
professionals. It includes featured articles, career information, online
library, and tutorials. The IT KNOWLEDGE CENTER was recently introduced and has
not generated significant revenue to date. The individual services and features
of the IT KNOWLEDGE CENTER are described below:
COMPARISCOPE is an online research service that permits customers to perform
objective, in-depth, technical evaluations of over twenty categories of business
software. The analysis can be tailored to match individual requirements by
enabling IT professionals to rank the importance of and compare various software
product features. COMPARISCOPE is available for a fee.
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PREMIERE CONTENT is a collection of tools, models, templates and other
resources available to facilitate the evaluation and selection of software
products. PREMIERE CONTENT is available for a fee.
"ASK JAMES" is an online service designed to provide personalized answers to
customers' IT-related concerns or questions. This service also provides an
archive of previously answered questions. "ASK JAMES" is free for all registered
members, but to receive expedited service, in which a customer's question will
be answered within 24 hours of receipt, a customer must pay a fee.
SUBSCRIBNEWS is an email based weekly digest of news, information, and
opinions focused on Internet technology. SUBSCRIBNEWS is currently available
free of charge.
RADARSCOPE is an interactive service providing information on over 1,000
business software products. RADARSCOPE allows customers to efficiently search
for business software products by vendor, product, or keyword. The Company does
not currently charge for the use of RADARSCOPE.
PURCHASE AND DELIVERY SERVICES: INTRAWARE.SHOP
The INTRAWARE.SHOP service is an online service designed to simplify the
purchase and delivery of business software for corporations. This service
provides in-depth product information, simplifies complex bundling and pricing
options, accepts online purchase orders and credit evaluations, enables the
electronic delivery of large software products, and supports deployment to
multiple servers and locations. The INTRAWARE.SHOP service also offers customers
online self-service quotations, evaluations, live interactive software
demonstrations and several financing options. Customers can use INTRAWARE.SHOP
for the purchase of new software packages, as well as additional licenses,
renewals and add-on products.
Currently, the Company does not charge its IT professional customers for
access to INTRAWARE.SHOP, but does typically charge software vendors for the
inclusion of their products in the INTRAWARE.SHOP. The Company receives a
negotiated percentage of the purchase price of all software products it sells.
The individual services and features of INTRAWARE.SHOP are described below.
PRODUCT CATALOG is an online software catalog focused on software from
leading Internet technology vendors. Currently the Company's software product
selection includes more than 1,000 products from 25 software vendors, including
Netscape, Informix and NetDynamics. PRODUCT CATALOG contains a simple format for
searching, browsing and researching, and gives customers precise information
concerning software products offered by the Company.
DEMO CENTER provides potential customers an interactive experience through
either screen shots or online demonstrations. DEMO CENTER is a method for
software purchasers to determine the user and administrative features of
selected software products.
TRY AND BUY allows potential customers to download the evaluation version of
a software product and use that version in their own IT environment before
making a final purchasing decision. Potential customers can interact with
systems engineers and sales consultants to enhance the TRY AND BUY service.
VIRTUALEXPRESS SOFTWARE DELIVERY is a fault-tolerant online software
delivery engine through which a customer purchases software online.
VIRTUALEXPRESS is also used to deliver subsequent updates and upgrades.
VIRTUALEXPRESS contains features such as encryption, compression and
multi-location deployment. Customer service representatives work with customers
to assist in the download process. VIRTUALEXPRESS streamlines the software
delivery and distribution process to multiple servers and locations. The Company
is able to track the type and version of software products licensed to
customers.
MAINTENANCE SERVICES: SUBSCRIBNET
The Company provides online update and license management services for
certain software products through the use of SUBSCRIBNET, a Web-based,
multi-vendor software update service that provides end-users with proactive,
customized
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email notification of software updates with on-demand access to software
downloads. SUBSCRIBNET can help alleviate the burden of tracking and retrieving
the software to which a corporate customer is entitled.
For IT professionals, SUBSCRIBNET provides proactive notification, on-demand
downloads, and a central repository for software licenses, subscriptions and
product release archiving. SUBSCRIBNET automatically notifies appropriate IT
professionals within 24 hours of any product update, including bug patches and
other major and minor releases. These notifications are personalized to the
user's product, version and platform. IT professionals can then download these
product updates electronically through the use of VIRTUALEXPRESS. SUBSCRIBNET
contains a personalized release archive containing all versions entitled to each
user, including enhancements and bug and security patches. Account history, such
as asset reports, quotes, order status, and purchase history, and account
activity, such as download and notification logs, enable the Company to monitor
purchasing activity and software upgrade downloads. SUBSCRIBNET was introduced
in February 1997 and has only recently begun to generate revenues.
In addition to servicing end users, SUBSCRIBNET is targeted at software
vendors. For software vendors, SUBSCRIBNET is a vehicle through which they can
provide their customers with a higher level of service, while also facilitating
and improving the flow and quality of customer data available to them. By
outsourcing subscription services to the Company, software vendors can off-load
some of the costs and burdens associated with physical distribution of updates,
minimize technical support resources devoted to updates and patches and increase
the productivity of their own IT and sales departments by reducing after-sales
management efforts.
The SUBSCRIBNET update and license management service supports all of the
software products sold by the Company. SUBSCRIBNET may be purchased with any
software product offered by the Company, for an additional fee. Additionally,
the Company is seeking contracts with software vendors whose products the
Company does not sell in order to achieve broader and more comprehensive
coverage.
SOFTWARE VENDOR PARTNERS
Listed below are the software vendors whose products are offered through one
or more of the Company's services as of November 30, 1998.
Allegis Corporation
Avesta Technologies, Inc.
Applix, Inc.
Bluestone Software, Inc.
Check Point Software Technologies Ltd.
Diffusion, Inc.
Elemental Software
EnCommerce, Inc.
Extensity Inc.
grapeVINE Technologies, LLC
Informix Corporation
Marimba, Inc.
Mercury Interactive Corporation
Netegrity, Inc.
net.Genesis Corporation
Netmosphere Inc.
Netscape Communications Corporation
Oblix Inc.
Open Text Inc.
Real Networks Inc.
Reasonate, Inc.
Segue Software Inc.
Sun Microsystems, Inc.
Symantec Corporation
WindDance Networks Corporation
Although the Company has entered into license agreements with these vendors
which allows the Company to offer these vendors' software products through one
or more of the Company's services, these agreements generally are terminable on
short or no notice. There can be no assurance that any of these software vendors
will continue to offer their software products through the Company. For the nine
months ended November 30, 1998, Intraware generated over 90% of its total net
revenues from the sale of Netscape software products and the outsourcing of
SUBSCRIBNET services to Netscape. See "Risk Factors--We Are Substantially
Dependent on Netscape Communications Corporation."
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CUSTOMERS
As of November 30, 1998, the Company served almost 2,000 organizations in a
wide range of industries, including finance, retail, high technology,
telecommunications and transportation. The following is a list of our customers
who have purchased over $100,000 of software products or online services from
Intraware:
TECHNOLOGY
3Com Corporation
Loral Space Systems
LSI Logic*
Lycos, Inc.
Mentor Graphics
National Semiconductor
Progress Software Corporation
Seagate Technology*
United Webs, Inc.
Zilog, Inc.
TELECOMMUNICATIONS
AT&T Corporation
AT&T Local Services
Frontier Corporation*
GTE Enterprise Solutions
INFORMATION SERVICES
Galileo International
Gentrobe
Knight-Ridder, Inc.
Reuters Information Technology
SRI
When.Com*
MANUFACTURING
Boeing--Materials and Support Service
DaimlerChrysler AG*
International Rectifier*
Modus Media International
Raytheon Aircraft Company
FINANCIAL SERVICES
Banc One Services Corporation*
Charles Schwab Company*
First American Title
Franklin Resources
HEALTH CARE
Boston Medical Center
Medaphis Corporation
OTHER
Kinko's, Inc.*
Raley's/Bel Air
State of New York
* Denotes IT KNOWLEDGE CENTER, INTRAWARE.SHOP and SUBSCRIBNET customers that
have purchased all three online services from the Company.
SALES STRATEGY
The Company sells its services into to major customer constituencies: IT
professionals and software vendors. The sales approach to each customer
constituency differs due to the nature of the respective sales processes. Sales
of business software and Intraware's online knowledge services are characterized
by reasonably short sales cycles and are targeted at IT professionals. Sales of
software vendor outsourcing services, such as SUBSCRIBNET, tend to be
characterized by longer sales cycles and are targeted at marketing, sales,
customer satisfaction, operations and general management professionals at the
executive level. The Company currently uses two distinct sales organizations to
accomplish these goals.
SALES TO IT PROFESSIONALS
As of November 30, 1998, the Company's direct sales force consisted of 43
commissioned salespeople. Of these, the telemarketing and inside sales personnel
are primarily focused on building initial relationships with corporate
customers, selling subscriptions to the Company's knowledge services, including
Gold Membership, and generating software product sales opportunities for the
Company's field sales force. Intraware's field sales professionals interact
directly with IT decision-makers at large corporations to promote both the
Company's services and its software vendors' products.
The Company's regional sales teams consist of field and inside sales
professionals and dedicated systems engineers who provide a high level of
strategic technical support to their customers. In addition to its principal
sales office
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in Orinda, California, the Company has established sales offices in ten major
cities in the United States, including Boston, Chicago, Cleveland, Dallas,
Detroit, Los Angeles, New York, Salt Lake City, Seattle, and Washington, D.C.
Intraware's sales to IT professional customers have grown as a result of its
coordinated sales effort, combining the benefits of online sales opportunities
with a direct salesforce.
SALES TO SOFTWARE VENDORS
The Company manages sales of its SUBSCRIBNET outsourcing update and license
management services through its product marketing and business development
group. This sales process effort is in its early stages, and as of November 30,
1998, the Company employed ten business development professionals focused in
this area. The process of getting vendors to outsource their update and license
management functions to the Company is lengthy, as many of the features of the
services need to be tailored to the specific requirements of the Company's
software vendor partners. The Company intends to hire additional specialized
outsourcing sales professionals to address this sales effort.
CO-MARKETING RELATIONSHIPS
Partnerships are an integral part of Intraware's sales strategy. The Company
has established relationships with each of the vendors whose products are
offered through INTRAWARE.SHOP. The Company's product marketing group continues
to target additional software vendors to expand the number of software products
offered through INTRAWARE.SHOP.
In addition, Intraware has an established relationship with Netscape to
prominently display its IT KNOWLEDGE CENTER service on Netscape's Netcenter
Computer and Internet Channel. This relationship provides additional
opportunities to reach a broader audience of IT Professionals. The Company
intends to develop additional partnerships with Internet traffic aggregators to
offer its services to a large, targeted group of IT professionals.
The Company also intends to develop relationships with IT content providers
who are of interest to Intraware's targeted user base, so as to enhance the
value of the Company's IT KNOWLEDGE CENTER service offerings. The Company's
partnership with EarthWeb, Inc. allows IT KNOWLEDGE CENTER subscribers access to
EarthWeb's content through Intraware's Web site. The Company intends to leverage
partnerships with IT consultants to establish an indirect sales channel for its
services.
Intraware has also established a relationship with Informix Software, Inc.
whereby Intraware manages Informix's online store. Several of Informix's
products and promotional programs have generated a large interest among IT
professionals which has contributed to additional Intraware membership
registrations.
Intraware has recently entered into an agreement with Nettgain Solutions
Limited, a United Kingdom based consulting firm, to offer the Company's services
to prospective United Kingdom-customer base, and intends to develop additional
partnerships to address international markets.
MARKETING
The Company employs a broad range of marketing activities to promote its
brands, develop name recognition and visibility, and drive traffic to its Web
site in an effort to build its membership base and expand its community appeal.
The Company has an active public relations program in place, and also utilizes
print and online advertising, trade shows, seminars, direct mail, online
promotions, and regional marketing development in an attempt to expand its
penetration within the IT professional community in mid-to-large-sized
corporations and governmental agencies. The Company also distributes
SUBSCRIBNEWS, its weekly Web technology news and product information email
subscription newsletter, to over 30,000 IT professionals and other interested
members. The Company markets its SUBSCRIBNET service both to corporate software
decision makers and to business software developers.
As of November 30, 1998, the Company's marketing department consisted of ten
individuals, all of whom are located at the Company's Orinda, California
headquarters. The
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marketing department supports both domestic and international marketing efforts.
Domestically, efforts are focused on stimulating demand for the Company's
Web-based services and generating sales leads for its direct sales force. Lead
generation activities internationally are designed to assist consulting and
distribution partners in the resale of the COMPARISCOPE service.
The Company promotes its products and outsourcing services through a variety
of fixed and variable fee programs. The Company promotes its IT KNOWLEDGE CENTER
services in part through its Gold Membership program, an annual subscription
service. By bundling many of its free services with paid services, the Company
has been able to integrate and aggregate its comprehensive mix of interactive
services and dynamic content into a format of interest and value to individual
IT professionals within corporate and governmental IT departments.
The Company markets its Gold Membership through a number of vehicles
including its own Web site, the Netcenter IT KNOWLEDGE CENTER site, co-branded
with Netscape, traditional direct mail, online advertising and Internet-based
direct marketing.
The Company's sales force and systems engineers provide ongoing customer
service to the Company's customers. The customer service group responds to
inquiries regarding product downloads, product installation, and order
processing. The customer service department communicates with Intraware
customers primarily through email, although a toll-free phone number is also
available. Customer service professionals post frequently asked questions,
reference documents, and links to useful information on relevant parts of its
Web sites.
STRATEGIC RELATIONSHIP WITH NETSCAPE
Intraware plans to pursue strategic relationships to expand the Company's
product and service offerings, increase access to customers, and build brand
recognition. To date, the Company has established a strategic relationship with
Netscape as described below:
Intraware and Netscape entered into an agreement effective September, 1998
pursuant to which Intraware provides its IT KNOWLEDGE CENTER services as a
co-branded site within the Computing and Internet Channel of the Netcenter
portal. Intraware receives significant exposure across Netcenter in the form of
banner advertising and text links. Furthermore, the IT KNOWLEDGE CENTER site
hosts aggregated content and links to Intraware's interactive services. The
Company generates direct revenue from the co-branded site in the form of banner
advertisement revenue sharing. This agreement has a one year term, subject to a
one year renewal option on terms to be mutually agreed. This agreement is
terminable on 90 days notice.
SUBSCRIBNET
Effective October, 1998, Intraware entered into an agreement with Netscape
to provide SUBSCRIBNET software update and license management services, and
other maintenance services, to Netscape's customers worldwide for the entire
Netscape product line. Netscape serves as a key customer reference for
Intraware's SUBSCRIBNET service. This agreement has a one year term, subject to
a one year renewal option on similar terms unless terminated by either party.
This agreement is terminable on 90 days notice.
IT KNOWLEDGE CENTER
Under the terms of the Company's IT KNOWLEDGE CENTER agreement with Netscape
entered into in September 1998, Intraware provides all of the public IT
KNOWLEDGE CENTER content, within the framework of Netscape's Netcenter Computing
and Internet Channel. This agreement calls for the site to be "co-branded" with
Intraware's content surrounded by Netscape's Netcenter frame, and provides for
Intraware to be the premier sponsor of the IT KNOWLEDGE CENTER. In the event the
agreement is terminated after the one year term, Netscape may build a
substantially similar service.
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<PAGE>
TECHNOLOGY
OVERVIEW
Intraware uses a combination of third party software, such as Sun, Netscape,
Informix, and Infoseek, as well as internally developed technology to enable its
services. Customers, members and partners each access and use Intraware's
services via the Internet. The Company's services, including SUBSCRIBNET,
INTRAWARE.SHOP, VIRTUALEXPRESS, COMPARISCOPE, RADARSCOPE, and IT KNOWLEDGE
CENTER, are developed, enhanced, and maintained by Intraware's internal IT
group. Intraware's technologies and services use a common set of underlying data
structures including companies, contacts, products, documents, and orders. They
also make use of the Company's ESD engine, library of content, email list
management, and common reporting tools. The Company has developed the capability
to use template-based styles to enable the same service application to have
different graphical user interfaces. Additionally, these service applications
can be co-branded with partners and customers with a customized look and feel.
ELECTRONIC SOFTWARE DELIVERY ENGINE. The Company's internally developed ESD
engine is the mechanism used to deliver software over the Internet and is used
by several of the Company's services, including SUBSCRIBNET, VIRTUALEXPRESS, and
INTRAWARE.SHOP. Intraware's ESD engine utilizes FTP and HTTP protocols and is
compatible with a wide range of customer firewalls and client/server platforms.
Software integrity and security is maintained by storing all of the software
files in a relational database system. The ESD engine encrypts and compresses
software files from the database before delivering them to the customer. The
encryption and compression formats are compatible with all major client and
server operating systems. The system supports large file sizes and also multiple
software images per SKU. Serial numbers and license keys can be uniquely
generated and included in each customer's download image. Intraware's ESD engine
allows customers to schedule downloads, retry downloads automatically or
manually and pick up partially completed downloads in the exact byte of the file
where the previous attempt left off. The engine also enables the Company to
track download effectiveness and throughput, scale network connectivity or
server capacity, and verify delivery.
ARCHITECTURE AND SCALABILITY. The Company uses object-oriented methods and
"open" programming languages--HTML, JavaScript, Java, and SQL--to develop its
services. Third party software from Sun, Netscape, Informix, and Infoseek is
used as the foundation to run applications and manage information. Substantial
investments in server hardware systems and networking equipment from Sun
Microsystems and Cisco Systems, respectively, provide Intraware with high
reliability, performance, and scalability.
Intraware's internal systems identify Internet bandwidth bottlenecks
continuously and manage complex Internet connectivity options in order to
maximize realized throughput and enhance the customer experience. Intraware
currently uses Exodus Communications as its primary data center and Internet
connection point, with replicated servers and services connected to the Internet
via Level 3 Communications. The Company intends to continue partnering with
leading Internet connectivity and hosting providers to maintain and enhance the
scalability of the Company's services.
CONTENT MANAGEMENT. The Company's content, including product information,
software images, documents, URLs, member/customer profiles, and orders, is
maintained through a suite of intranet/extranet applications developed by the
Intraware IT department. These applications, accessible to internal and external
users, feed the data sources that are accessed through the Company's services.
The Company uses Infoseek software, integrated into its database, for Library
URL content management and retrieval.
REPORTING. The Company's ability to generate relevant and accurate
information about customer and member software assets, interests, preferences
and user experiences is an important aspect of its competitive position.
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Using third-party software from Business Objects and Net Genesis, the Company
has developed reports drawn from its transactional databases, data warehouses,
and Web server activities. Information about competitive vendors and customers
are strictly separated and access to such information is limited to those
Intraware personnel that have access rights. The Company is currently evaluating
third party software to further enhance its financial and sales force automation
reporting capabilities. Should Intraware choose to upgrade these systems, there
can be no assurance that it will be able to do so without interruption of these
internal capabilities.
COMPETITION
The online commerce market is new, rapidly evolving and intensely
competitive, and the Company expects competition to intensify in the future,
particularly in the area of electronic sale and distribution of software
products. Barriers to entry are minimal, and current and new competitors can
launch new Web sites at a relatively low cost. We believe that we compete
effectively as a result of our centralized, IT-focused, Internet-enabled
solution coupled with our commitment to providing high-quality solutions that
yield a rapid return on investment for our corporate IT professional customers.
The Company's current and potential competitors in the market include: (i)
information providers to IT professionals; (ii) online distributors, resellers
and VARs; and (iii) software update and license management services and
technology providers. The Company's competitors may operate in one or more of
these areas.
With respect to information providers, the Company competes with research
firms as well as other content and software vendor companies who have particular
sections of their Web sites directed at certain segments or sub-segments of the
IT professional community (various Web sites and publications). The Company
believes the competitive factors in this marketplace include the following:
objectivity, timeliness and comprehensiveness of information, breadth of product
and service offerings targeted at IT professionals and expertise in
Internet-based technologies. The Company is building competitive advantages by
providing not only relevant, high end content, but also by making its site
functional with interactive services and useful tools.
In addition, the software reselling industry is intensely competitive. The
Company believes the competitive factors in this market segment include product
selection, additional service offerings, price, customer service and technical
support. With respect to selling software, the Company currently competes
primarily with traditional software resellers, other online software resellers
and other vendors. In the online market, the Company competes with companies
that sell and distribute software products via the Internet as well as vendors
that maintain commercial Web sites that sell their software products directly
online. In addition there is indirect competition with other transaction
processing providers and enablers and indirect competition with other providers
of electronic commerce solutions. The Company believes that it is well
positioned with its electronic commerce and software delivery services being
tailored to high-end enterprise products, the need for in-depth information, and
corporate purchasing needs. There can be no assurance that consumer-focused
online resellers and retail enablers will not decide to move more aggressively
into the corporate market and corporate resellers could implement more robust
online commerce efforts, each of which could adversely affect the Company's
business and operating results.
In the update and license management market, the Company primarily competes
with software vendors that do not outsource these services. Principal
competitive factors in this market include the existing relationships software
vendors have with their customers, the comprehensiveness of the services offered
and price. The Company believes it competes effectively in this market on the
basis of its comprehensive service offerings, although it faces significant
competition due to its less established customer relationships.
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Many of our competitors have already established supplier relationships with
divisions of our current or potential customers. These competitors may be able
to leverage their existing relationships to discourage these customers from
purchasing additional Intraware products or persuade them to replace our
products with their products. Many of our competitors have longer operating
histories, significantly greater resources and name recognition and a larger
installed base of customers than we have. As a result, these competitors may
have greater credibility with our existing and potential customers. They also
may be able to devote greater resources to the development, promotion and sale
of their products than we can to ours, which would allow them to respond more
quickly than we can to new or emerging technologies and changes in customer
requirements.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES
Intraware's ability to compete and continue to provide technological
innovation is substantially dependent upon internally developed technology.
Internally developed applications include the following externally branded
services and extranet content administration tools - SUBSCRIBNET,
VIRTUALEXPRESS, COMPARISCOPE, ESD Engine, INTRAWARE.SHOP, IT KNOWLEDGE CENTER,
RADARSCOPE, ADMINISCOPE, ITEM MAGIC, QUOTETOOL, and REPORTMART. While the
Company relies on copyright, trade secret and trademark law to protect its
technology, the Company believes that factors such as the technological and
creative skills of its personnel, new product developments, frequent product
enhancements and reliable product maintenance are more essential to establishing
and maintaining a technology leadership position. The Company has no patents
issued or applied for to date on its technology. There can be no assurance that
others will not develop technologies that are similar or superior to the
Company's technology. The Company is aware that certain other companies are
using or may have plans to use in the future the name "Intraware" as a company
name or as a trademark or service mark. While the Company does not believe it
has infringed any rights, and it has received no notice of any claims of
infringement, the Company can make no assurance that certain of these companies
may not claim superior rights to "Intraware" or other marks used in the
Company's business.
The Company generally enters into confidentiality or license agreements with
its employees, consultants and corporate partners, and generally controls access
to and distribution of its software, documentation and other proprietary
information. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use the
Company's products or technology. Policing unauthorized use of the Company's
products is difficult, and there can be no assurance that the steps taken by the
Company will prevent misappropriation of its technology, particularly in foreign
countries where the laws may not protect the Company's proprietary rights as
fully as do the laws of the United States.
Substantial litigation regarding intellectual property rights exists in the
software industry, and the Company expects that software products may be
increasingly subject to third-party infringement claims as the number of
competitors in the Company's industry segments grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming to defend, result in costly litigation,
divert management's attention and resources, cause product and service delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company, if at all. A successful claim of infringement against the
Company and failure or inability of the Company to license the infringed or
similar technology could have a material adverse effect on the Company's
business, financial condition and results of operations.
EMPLOYEES
As of November 30, 1998, the Company had 126 full-time employees, 23 of whom
were
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engaged in product development, 71 in sales and marketing, and 26 in finance,
administration and operations. The Company's future performance depends in
significant part upon the continued service of its key technical, sales and
senior management personnel, none of whom is bound by an employment agreement
requiring service for any defined period of time. The loss of the services of
one or more of the Company's key employees could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company's future success also depends on its continuing ability to attract,
train and retain highly qualified technical, sales and managerial personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company can retain its key personnel in the future. None of the Company's
employees is represented by a labor union. The Company has not experienced any
work stoppages and considers its relations with its employees to be good.
FACILITIES
The Company leases approximately 18,000 square feet of office space in a
single office building located in Orinda, California. The Company believes its
current facilities, combined with adjacent space it is currently negotiating to
sublease, will be adequate through calendar year 1999 and is currently in the
process of locating additional space to meet its expected requirements
thereafter.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of Intraware as of November 30, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Peter H. Jackson.......................... 40 Founder, President, Chief Executive Officer and Director
Paul A. Martinelli........................ 34 Founder, Senior Vice President and Chief Technology Officer
Donald M. Freed........................... 47 Founder, Executive Vice President and Chief Financial Officer
Terence J. Healey......................... 34 Senior Vice President of Marketing
Norman A. Pensky.......................... 49 Vice President of Sales
Cynthia H. Mascheroni..................... 38 Vice President of Business Development
Anita A. Youmans-Trone.................... 48 Vice President of Finance
Manfred J. Krikke......................... 29 Vice President of Intraware International
James A. Brentano......................... 39 Vice President of Knowledge Services
David L. Dunlap........................... 31 Vice President of Operations
Mark B. Hoffman(2)........................ 52 Director, Chairman of the Board
Charles G. Davis, Jr.(1).................. 64 Director, Vice Chairman of the Board
Laurence M. Baer.......................... 41 Director
John V. Balen(1).......................... 38 Director
Mary Ann Byrnes(2)........................ 42 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
PETER A. JACKSON co-founded the Company in August 1996 and has served as
President and Chief Executive Officer since its inception. From May 1996 to
August 1996, Mr. Jackson served as a Vice President of Vanstar Corporation, a
computer hardware and services company. From May 1994 to May 1996, Mr. Jackson
served as President and COO of Dataflex Corporation, a value-added reseller of
computer hardware and services. From January 1986 to May 1994, Mr. Jackson
served as Founder and President of Granite Computer Products, Inc., a corporate
computer hardware reseller and services provider. Mr. Jackson holds an A.B. in
History from the University of California, Berkeley. Mr. Jackson currently
serves as a director of ONSALE, Inc., a public Internet company.
PAUL A. MARTINELLI co-founded the Company in August 1996 and has served as
Senior Vice President and Chief Technology Officer since its inception. From May
1996 to June 1996, Mr. Martinelli served as Vice President of Information
Services at Vanstar Corporation, a computer hardware and services company. From
May 1994 to May 1996, Mr. Martinelli served as Vice President of Information
Systems for Dataflex Corporation, a value-added reseller of computer hardware
and services. From February 1991 to May 1994, Mr. Martinelli served as Director
of Information Systems for Granite Computer Products, Inc., a corporate computer
hardware reseller and services provider. Mr. Martinelli holds a B.A. in Computer
Science from the University of California, San Diego.
DONALD M. FREED co-founded the Company in August 1996 and has served as
Executive Vice President and Chief Financial Officer since its inception. From
May 1996 to August 1996, Mr. Freed served as a business development manager for
Vanstar Corporation, a computer hardware and services company. From May 1994 to
May 1996, Mr. Freed served as Vice President
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of Business Development for Dataflex Corporation, a value-added reseller of
computer hardware and services. From May 1989 to May 1994, Mr. Freed served as
CFO of Granite Computer Products, Inc., a corporate computer hardware reseller
and services provider. Mr. Freed is a certified public accountant and holds a
B.S. in Accounting and a B.A. in Journalism from San Francisco State University.
TERENCE J. HEALEY has served as Senior Vice President of Marketing of the
Company since its inception in August 1996. From May 1994 to August 1988, Mr.
Healey served as Regional Vice President of Marketing, and later National Vice
President of Marketing for Dataflex Corporation, a value-added reseller of
computer hardware and services. From August 1990 to May 1994, Mr. Healey served
successively as a product manager, marketing manager and Director of Marketing
for Granite Computer Products, Inc., a corporate computer hardware reseller and
services provider. Mr. Healey holds a B.A. in Political Science from the
University of California at Berkeley.
NORMAN A. PENSKY joined the Company as Vice President of Sales in December
1996. From July 1991 to November 1996, Mr. Pensky served as Senior Director of
Strategic Accounts for Macromedia, Inc., an Internet publishing company. Mr.
Pensky holds an M.B.A. from Golden Gate University and a B.S. in Business from
the University of Southern California.
CYNTHIA H. MASCHERONI joined the Company as Director of Marketing in
February 1997 and as Vice President of Business Development in April 1997. From
February 1993 to February 1997, Ms. Mascheroni served as Director of Business
Development and Director of Marketing for Graphix Zone, a computer and data
processing company. Ms. Mascheroni holds an M.B.A. from Northwestern University
and a B.A. in Psychology from the University of California, Los Angeles.
ANITA A. YOUMANS-TRONE joined the Company as the Vice President of Finance
in November 1996. From May 1996 to November 1996, Ms. Youmans-Trone served as
Regional Vice President of Finance of Vanstar Corporation, a computer hardware
and services company. From May 1994 to May 1996, Ms. Youmans-Trone served
successively as Director--Process Planning and Development--Information Systems
and Regional Vice President of Finance for Dataflex Corporation, a value-added
reseller of computer hardware and services. From January 1988 to May 1994 Ms.
Youmans-Trone served as Controller for Granite Computer Products, Inc., a
corporate computer hardware reseller and services provider.
MANFRED J. KRIKKE joined the Company as Vice President of Intraware
International in August 1998. From December 1997 to February 1998, Mr. Krikke
served as Vice President, Software and Internet Investment Banking for
NationsBanc Montgomery Securities, a national investment banking firm. From
August 1994 to December 1997, Mr. Krikke served first as an Analyst and then as
an Associate for Montgomery Securities, a national investment banking firm. In
1994, Mr. Krikke received a Doctorandus Degree in Business Economics from the
Vrije University, Amsterdam, The Netherlands.
JAMES A. BRENTANO joined the Company as Director of Systems Engineering in
June 1997 and as Vice President of Knowledge Services in June 1998. From January
1996 to June 1997, Mr. Brentano served as Director of LAN Services for Pacific
Bell. From March 1991 to December 1995, Mr. Brentano served as an IT Strategic
Architect for Pacific Gas & Electric, a regional natural gas and electric power
utility. Mr. Brentano holds an M.S. in Computer Science from the University of
California, Davis and an A.B. in Letters and Sciences from the University of
California, Berkeley.
DAVID L. DUNLAP joined the Company as the Director of Product Lines in
September 1997 and as Vice President of Operations in May 1998. From September
1996 to September 1997, Mr. Dunlap served as a Financial Systems Project Manager
for PeopleSoft, Inc. a software development company. From May 1996 to September
1996, Mr. Dunlap served as Director of Purchasing for Vanstar Corporation, a
computer hardware and services company. From May 1994 to May 1996, Mr. Dunlap
served as
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Vice President of National Operations for Dataflex Corporation, a value-added
reseller of computer hardware and services. From September 1986 to May 1994, Mr.
Dunlap served as Vice President of Operations for Granite Computer Products,
Inc., a corporate computer hardware reseller and services provider. Mr. Dunlap
holds a B.A. in Government from Cornell University.
MARK B. HOFFMAN has served as Chairman of the Board of Directors of the
Company since August 1996. Since September 1996, Mr. Hoffman has served as
President of Commerce One, an e-commerce procurement and supplier-management
solutions company. In 1984, Mr. Hoffman co-founded Sybase, Inc., a database
software company, and served as President until July 1996. Mr. Hoffman holds an
M.B.A. from the University of Arizona and a B.S. in Engineering from the U.S.
Military Academy. Mr. Hoffman serves on the Board of Directors of several
privately held companies.
CHARLES G. DAVIS, JR. has served as Vice Chairman of the Board of Directors
of the Company since September 1996. Since 1992 Mr. Davis has served as
President and Chief Executive Officer of the Montclair Group, an advisory group
specializing in energy and techonology companies. Mr. Davis received a B.S. in
Geology from Stanford University. Mr. Davis serves on the Board of Directors of
several privately held companies.
LAURENCE M. BAER has served as a director of the Company since January 1998.
Mr. Baer has served as the Executive Vice President and Chief Operating Officer
of the San Francisco Giants professional baseball team since December 1992. Mr.
Baer holds an A.B. in Political Science from the University of California,
Berkley and an M.B.A. from Harvard University.
JOHN V. BALEN has served as a Director of the Company since April 1998.
Since September 1995 Mr. Balen has served as a Principal at Canaan Partners, a
national private venture capital firm. From June 1985 to June 1995, Mr. Balen
served as an Associate and a Managing Director of Horsley Bridge Partners, a
private equity investment management firm. Mr. Balen has an M.B.A. and a B.S. in
Electrical Engineering from Cornell University. Mr. Balen serves on the Board of
Directors of several privately held companies.
MARY ANN BYRNES has served as a Director of the Company since January 1998.
Ms. Byrnes founded Corsair Communications, a provider of real-time system
solutions for the wireless industry, in December 1994, and has served as its
President and Chief Executive Officer since its inception. From June 1987 to
November 1994, Ms. Byrnes served as Vice President of Sales and Marketing and
Vice President of Operations for Cellular One, a regional mobile phone and
communications company. Ms. Byrnes holds an M.B.A. from Harvard Business School
and a B.A. in Economics from Wellesley College. Ms. Byrnes serves on the Board
of Directors of Corsair Communications.
CLASSIFIED BOARD
The Company's Certificate of Incorporation provides for a classified Board
of Directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of the Company's Board of Directors
will be elected each year. To implement the classified structure, prior to the
consummation of the offering, two of the nominees to the Board will be elected
to one-year terms, two will be elected to two-year terms and three will be
elected to three-year terms. Thereafter, directors will be elected for
three-year terms. Charles G. Davis and Mary Ann Byrnes have been designated
Class I directors whose term expires at the 1999 annual meeting of stockholders.
John Balen and Laurence Baer have been designated Class II directors whose term
expires at the 2000 annual meeting of stockholders. Peter Jackson and Mark
Hoffman have been designated Class III directors whose term expires at the 2001
annual meeting of stockholders. See "Description of Capital Stock--Antitakeover
Effects of Provisions of Certain Charter Provisions, Bylaws and Delaware Law."
Executive officers are appointed by the Board of Directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships
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among any of the directors, officers or key employees of the Company.
BOARD COMMITTEES
The Company established the Audit Committee and Compensation Committee in
December 1998.
The Audit Committee consists of Messrs. Balen and Davis. The Audit Committee
reviews the internal accounting procedures of Intraware and consults with and
reviews the services provided by the Company's independent accountants.
The Compensation Committee consists of Mr. Hoffman and Ms. Byrnes. The
Compensation Committee reviews and recommends to the Board of Directors the
compensation and benefits of employees of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the Compensation Committee, the Board of Directors as
a whole performed the functions delegated to the Compensation Committee. No
member of the Board of Directors or the Compensation Committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation from the Company
for their service as members of the Board of Directors. Under the Company's 1996
Stock Option Plan, directors are eligible to receive stock option grants at the
discretion of the Board of Directors or other administrator of the plan. See
"--Incentive Stock Plans."
Currently, the Board of Directors provides option grants to each director
upon their appointment to the Board and upon each anniversary of service
thereafter. During 1997 and 1998, the Board granted options to purchase an
aggregate of 40,000 shares to each of Messrs. Davis and Hoffman. During 1998,
the Board granted options to purchase an aggregate of 30,000 shares to each of
Mr. Baer and Ms. Byrnes in connection with their appointment to Intraware's
Board of Directors.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table sets forth the compensation
earned for services rendered to Intraware in all capacities for the fiscal years
ended February 28, 1997 and February 28, 1998 by Intraware's Chief Executive
Officer and Intraware's next most highly compensated executive officers who
earned more than $100,000 during the fiscal year ended February 28, 1998
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL -------------
COMPENSATION SECURITIES
-------------------------- UNDERLYING
NAME AND PRINCIPAL POSITIONS YEAR SALARY($) BONUS($) OPTIONS(#)
- ------------------------------------------------------------ --------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter H. Jackson............................................ 1998 $ 230,833 60,000 100,000
President and Chief Executive Officer 1997(1) 103,125 -- --
Paul A. Martinelli.......................................... 1998 101,250 5,000 60,000
Senior Vice President and Chief Technology Officer 1997(1) 48,750 -- --
Donald M. Freed............................................. 1998 115,417 5,000 60,000
Executive Vice President and Chief Financial Officer 1997(1) 56,250 -- --
Norman A. Pensky............................................ 1998 125,000 37,500 30,000
Vice President of Sales 1997(1) 31,250 12,500 220,000
</TABLE>
- ------------------------
(1) Fiscal year 1997 compensation figures are for the seven month period
beginning August 13, 1996 (inception) and ending February 28, 1998.
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OPTION GRANTS. The following table sets forth certain information with
respect to stock options granted to each of the Named Executive Officers in the
fiscal year ended February 28, 1998. In accordance with the rules of the
Securities and Exchange Commission, also shown below is the potential realizable
value over the term of the option (the period from the grant date to the
expiration date) based on assumed rates of stock appreciation of 5% and 10%,
compounded annually. These amounts are based on certain assumed rates of
appreciation and do not represent Intraware's estimate of future stock price.
Actual gains, if any, on stock option exercises will be dependent on the future
performance of the Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM (4)
OPTIONS IN LAST PRICE EXPIRATION --------------------
NAME GRANTED (#) FISCAL YEAR(2) ($/SHARE)(3) DATE 5% 10%
- -------------------------------------- ----------- --------------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Peter H. Jackson(5)................... 100,000 5.2% $ 0.125 10/21/2007 $ 7,861 $ 19,922
Paul A. Martinelli(5)................. 60,000 3.1 0.125 10/21/2007 4,717 11,953
Donald M. Freed(5).................... 60,000 3.1 0.125 10/21/2007 4,717 11,953
Norman A. Pensky(5)................... 30,000 1.6 0.125 10/21/2007 2,358 5,977
</TABLE>
- ------------------------
(1) On September 23, 1998, each of the Named Executive Officers were granted
options at an exercise price of $1.00 per share. Specifically, the following
number of options were granted: Mr. Jackson - 50,000; Mr. Freed - 30,000 and
Mr. Martinelli - 30,000.
(2) Based on an aggregate of 1,909,000 options granted by Intraware during the
fiscal year ended February 28, 1998 to employees of and consultants to
Intraware, including the Named Executive Officers.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board of
Directors. The exercise price may be paid in cash, in shares of Common Stock
valued at fair market value on the exercise date or in the form of a
promissory note.
(4) The potential realizable value is based on the term of the option at its
time of grant (ten years), and assumes that the fair market value of
Intraware's Common Stock on the date of grant appreciates at the indicated
annual rate compounded annually for the entire term of the option and that
the option is exercised and sold on the last day of its term for the
appreciated stock price.
(5) All options were granted under the Company's 1996 Stock Option Plan. All
shares under the options are immediately exercisable; however, as a
condition of exercise the optionee must enter into a stock restriction
agreement giving the Company the right to repurchase all such shares at cost
in the event of the optionee's termination of employment. The shares vest at
a rate of 25% after twelve months following the vesting commencement date
and an additional one forty-eighth each month thereafter; provided however,
that in the event of a merger or sale of assets of the Company each
outstanding option shall vest and become exercisable to the extent of the
shares that would have vested upon December 31 of the year in which the
merger or sale of assets is consummated.
49
<PAGE>
AGGREGATE OPTION EXERCISES AND OPTION VALUES. The following table sets forth
information with respect to the Named Executive Officers concerning option
exercises for the fiscal year ended February 28, 1998, and exercisable and
unexercisable options held as of February 28, 1998. No options were exercised by
the Named Executive Officers during the fiscal year ended February 28, 1998.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT
FEBRUARY 28, 1998 (#) FEBRUARY 28, 1998 ($)(1)
-------------------------- --------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter H. Jackson(2)....................................... 100,000 -- $ 2,500 --
Paul A. Martinelli(2)..................................... 60,000 -- 1,500 --
Donald M. Freed(2)........................................ 60,000 -- 1,500 --
Norman A. Pensky(2)....................................... 250,000 -- 22,750 --
</TABLE>
- ------------------------
(1) Based on a value of $0.15 per share, the fair market value of Intraware's
stock as of February 28, 1998, as determined by the Board of Directors,
minus the per share exercise price, multiplied by the number of shares
issued upon exercise of the option.
(2) All options were granted under the Company's 1996 Stock Option Plan. All
shares under the options are immediately exercisable; however, as a
condition of exercise the optionee must enter into a stock restriction
agreement giving the Company the right to repurchase all such shares at cost
in the event of the optionee's termination of employment. The shares vest at
a rate of 25% after twelve months following the vesting commencement date
and an additional one forty-eighth each month thereafter; provided however,
that in the event of a merger or sale of assets of the Company each
outstanding option shall vest and become exercisable to the extent of the
shares that would have vested upon December 31 of the year in which the
merger or sale of assets is consummated.
INCENTIVE STOCK PLANS
401(K) PLAN
In 1996, Intraware adopted the Intraware 401(k) Plan (the "401(k) Plan")
covering Intraware's full-time employees located in the United States. The
401(k) Plan is intended to qualify under Section 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code"), so that contributions to the 401(k) Plan
by employees or by Intraware, and the investment earnings thereon, are not
taxable to employees until withdrawn from the 401(k) Plan, and so that
contributions by Intraware, if any, will be deductible by Intraware when made.
Pursuant to the 401(k) Plan, employees may elect to reduce up to 20% of their
current compensation by up to the statutorily prescribed annual limit ($10,000
in 1998) and to have the amount of such reduction contributed to the 401(k)
Plan. The 401(k) Plan permits, but does not require, additional matching
contributions to the 401(k) Plan by Intraware on behalf of all participants in
the 401(k) Plan. To date, Intraware has not made any contributions to the 401(k)
Plan.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "1996 Plan") provides for the
granting to employees of incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code"), and for the granting to employees and consultants of nonstatutory stock
options. The 1996 Plan was approved by the Board of Directors and the
Stockholders in October 1996. Unless terminated sooner, the 1996 Plan will
terminate automatically in 2006. A total of 6,200,000 shares of Common Stock is
reserved for issuance pursuant to the 1996 Plan, plus annual increases equal to
the lesser of (i) 750,000 shares, (ii) 2% of the outstanding
50
<PAGE>
shares on such date or (iii) a lesser amount determined by the Board.
The 1996 Plan may be administered by the Board of Directors or a committee
of the Board (as applicable, the "Administrator"). The Administrator has the
power to determine the terms of the options granted, including the exercise
price, the number of shares subject to each option, the exercisability thereof,
and the form of consideration payable upon such exercise. In addition, the
Administrator has the authority to amend, suspend or terminate the 1996 Plan,
provided that no such action may affect any share of Common Stock previously
issued and sold or any option previously granted under the 1996 Plan.
Options granted under the 1996 Plan are not generally transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
only by such optionee. Options granted under the 1996 Plan must generally be
exercised within three months of the end of optionee's status as an employee or
consultant of the Company, or within twelve months after such optionee's
termination by death or disability, but in no event later than the expiration of
the option's ten year term. The exercise price of all incentive stock options
granted under the 1996 Plan must be at least equal to the fair market value of
the Common Stock on the date of grant. The exercise price of nonstatutory stock
options granted under the 1996 Plan is determined by the Administrator. With
respect to any participant who owns stock possessing more than 10% of the voting
power of all classes of the Company's outstanding capital stock, the exercise
price of any incentive stock option granted must equal at least 110% of the fair
market value on the grant date and the term of such incentive stock option must
not exceed five years. The term of all other options granted under the 1996 Plan
may not exceed ten years.
The 1996 Plan provides that in the event of a merger of the Company with or
into another corporation, or the sale of substantially all of the Company's
assets, each outstanding option will be assumed or substituted for by the
successor corporation. In addition, whether or not the options are assumed or
substituted in the merger, each outstanding option will vest and become
exercisable to the extent of the shares that would have vested upon December 31
of the year in which the merger is consummated.
1998 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1998 Employee Stock Purchase Plan (the "1998 Purchase Plan")
was adopted by the Board of Directors in December 1998 and by the stockholders
in December 1998. A total of 600,000 shares of Common Stock has been reserved
for issuance under the 1998 Purchase Plan, plus annual increases equal to the
lesser of (i) 400,000 shares, (ii) 1% of the outstanding shares on such date or
(iii) a lesser amount determined by the Board on the first day of each fiscal
year starting in 2000.
The 1998 Purchase Plan, which is intended to qualify under Section 423 of
the Internal Revenue Code of 1986, as amended, contains successive twenty-four
month offering periods. The offering periods generally start on the first
trading day on or after April 15 and October 15 of each year, except for the
first such offering period which commences on the first trading day on or after
the effective date of this Offering and ends on the last trading day on or
before October 15, 2000.
Employees are eligible to participate if they are customarily employed by
the Company or any participating subsidiary for at least 20 hours per week and
more than five months in any calendar year. However, any employee who (i)
immediately after grant owns stock possessing 5% or more of the total combined
voting power or value of all classes of the capital stock of the Company, or
(ii) whose rights to purchase stock under all employee stock purchase plans of
the Company accrues at a rate which exceeds $25,000 worth of stock for each
calendar year may be not be granted an option to purchase stock under the 1998
Purchase Plan. The 1998 Purchase Plan permits participants to purchase Common
Stock through payroll deductions of up to 15% of the participant's
"compensation." Compensation is defined as the participant's base straight time
gross earnings and commissions but exclusive of payments for overtime, profit
sharing payments, shift premium payments, incentive compensation, incentive
51
<PAGE>
payments and bonuses. The maximum number of shares a participant may purchase
during a single offering period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of Common Stock at the end of each offering period. The price of stock
purchased under the 1998 Purchase Plan is 85% of the lower of the fair market
value of the Common Stock at the beginning of the offering period and the end of
each purchase period. Participants may end their participation at any time
during an offering period, and they will be paid their payroll deductions to
date. Participation ends automatically upon termination of employment with the
Company.
Rights granted under the 1998 Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1998 Purchase Plan. The 1998 Purchase Plan provides
that, in the event of a merger of the Company with or into another corporation
or a sale of substantially all of the Company's assets, each outstanding option
may be assumed or substituted for by the successor corporation. If the successor
corporation refuses to assume or substitute for the outstanding options, the
offering period then in progress will be shortened and a new exercise date will
be set, which will occur before the proposed sale or merger. The 1998 Purchase
Plan will terminate in 2008. The Board of Directors has the authority to amend
or terminate the 1998 Purchase Plan, except that no such action may adversely
affect any outstanding rights to purchase stock under the 1998 Purchase Plan.
1998 DIRECTOR OPTION PLAN
Non-employee directors are entitled to participate in the 1998 Director
Option Plan (the "Director Plan"). The Director Plan was adopted by the Board of
Directors in December 1998 and approved by the stockholders in December 1998,
but it will not become effective until the date of this Offering. The Director
Plan has a term of ten years, unless terminated sooner by the Board. A total of
150,000 shares of Common Stock have been reserved for issuance under the
Director Plan.
The Director Plan provides for the automatic grant of 15,000 shares of
Common Stock (the "First Option") to each non-employee director on the date on
which such person first becomes a non-employee director. After the First Option
is granted to the non-employee director, he or she shall automatically be
granted an option to purchase 7,500 shares (a "Subsequent Option") each year on
the date of the annual stockholder's meeting of the Company, if on such date he
or she shall have served on the Board for at least six months. Each First Option
and each Subsequent Option shall have a term of 10 years. The First Option shall
vest as to 12.5% of the shares subject to the option on the six-month
anniversary of the date of grant and monthly thereafter over the following four
year period. The Subsequent Option shall vest as to 25% of the shares subject to
the option on the six-month anniversary of the date of grant and monthly
thereafter over the following two year period. The exercise price of all Options
shall be 100% of the fair market value per share of the Common Stock, generally
determined with reference to the closing price of the Common Stock as reported
on the Nasdaq National Market on the date of grant.
In the event of a merger of the Company or the sale of substantially all of
the assets of the Company, if the option is not assumed or substituted, each
option shall become fully vested and exercisable for a period of thirty days
from the date the Board notifies the optionee of the option's full
exercisability, after which period the option shall terminate. If an option is
assumed or substituted and the optionee's service as a director is terminated,
other than upon a voluntary resignation, the option becomes fully vested.
Options granted under the Director Plan must be exercised within three months of
the end of the optionee's tenure as a director of the Company, or within twelve
months after such director's termination by death or disability, but in no event
later than the expiration of the option's ten year term. No option granted under
the Director Plan is transferable by the optionee other than by will or the laws
of descent and distribution, and each option is exercisable, during the lifetime
of the optionee, only by such optionee.
52
<PAGE>
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company has not entered into employment agreements with its executive
officers, and their employment may be terminated at any time at the discretion
of the Company's Board of Directors.
Under the 1996 Stock Option Plan, whether or not the options are assumed or
substituted in a merger or asset sale, each outstanding option will vest and
become exercisable to the extent of the shares that would have vested upon
December 31 of the year in which the merger is consummated.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Intraware's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (i) any
breach of their duty of loyalty to the corporation or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) unlawful payments of dividends or unlawful stock
repurchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit. Such limitation of liability does not
apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
Intraware's Certificate of Incorporation and Bylaws provide that Intraware
shall indemnify its directors and executive officers and may indemnify its other
officers and employees and other agents to the fullest extent permitted by law.
Intraware believes that indemnification under its Bylaws covers at least
negligence and gross negligence on the part of indemnified parties. Intraware's
Bylaws also permit it to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
such capacity, regardless of whether the Bylaws would permit indemnification.
Intraware has entered into agreements to indemnify its directors and
executive officers, in addition to indemnification provided for in Intraware's
Bylaws. These agreements, among other things, provide for indemnification of
Intraware's directors and executive officers for certain expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by or in the right of
Intraware, arising out of such person's services as a director or executive
officer of Intraware, any subsidiary of Intraware or any other company or
enterprise to which the person provides services at the request of Intraware.
Intraware believes that these provisions and agreements are necessary to attract
and retain qualified persons as directors and executive officers.
53
<PAGE>
CERTAIN TRANSACTIONS
The information on this page does not reflect the two-for-one forward stock
split effective immediately prior to the effectiveness of this offering.
In June and July 1997, Intraware issued a total of 1,650,999 shares of
Series B Preferred Stock to various investors at a purchase price of $1.60 per
share. Of the total number of shares of Series B Preferred Stock issued, 312,500
shares were issued to The Hoffman Family Trust and 500,000 shares were issued to
entities affiliated with WI Harper Group. The balance of the shares were
purchased by accredited investors. On July 28, 1997, the Company also granted
The Hoffman Family Trust a warrant to purchase 15,625 shares of Series B
Preferred Stock in connection with a bridge loan. Mr. Hoffman is the Chairman of
the Board of Directors of Intraware and beneficially owns over 5% of the
Company's Common Stock. WI Harper Group, as a result of this transaction, became
beneficial owner of over 5% of the Company's outstanding capital stock.
In December 1997, Intraware issued 666,667 shares of Series C Preferred
Stock at a purchase price of $2.25 per share to entities affiliated with Kleiner
Perkins Caufield & Byers ("KPCB") which through this transaction became a
beneficial owner of over 5% of the Company's outstanding capital stock.
In April 1998, Intraware issued an aggregate of 2,189,523 shares of Series D
Preferred Stock to various investors at a purchase price of $5.35 per share.
Entities affiliated with Attractor Ventures LLC ("Attractor") purchased 560,748
shares, entities affiliated with Canaan Equity Partners, L.L.C. ("Canaan")
purchased 560,748 shares, entities affiliated with KPCB purchased 93,458 shares
and Technology Crossover Ventures ("TCV") purchased 560,748 shares. Mr. Balen, a
partner of Canaan, is a member of the Company's Board of Directors. KPCB
beneficially owned more than 5% of the Company's outstanding capital stock at
the time of this financing while each of Attractor, Canaan and TCV became
beneficial owners of more than 5% of the Company's outstanding capital stock as
a result of this transaction. The holders of Series D Preferred Stock are
entitled through agreement with the Company to participate in any directed share
program in connection with this offering.
In July 1998, Intraware loaned to Mr. Jackson $300,000 secured, in part, by
the pledge of 1,744,900 shares of Intraware Common Stock held by Mr. Jackson.
Mr. Jackson is President, Chief Executive Officer and a director of the Company.
The note bears interest at the rate of 8%, and interest and principal on the
note are due and payable on the earlier of (i) 30 days following this offering,
(ii) 90 days following his last day of employment with the Company or (iii) 60
days following the sale of his shares in Intraware in connection with a change
in control of Intraware. Unless earlier repaid, the note otherwise matures in
July 2000.
All future transactions, including any loans from Intraware to its officers,
directors, principal stockholders or affiliates, will be approved by a majority
of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to Intraware than could be obtained from unaffiliated third parties.
54
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to Intraware with respect
to the beneficial ownership of its Common Stock as of November 30, 1998, and as
adjusted to reflect the sale of Common Stock offered hereby by (i) each
stockholder known by Intraware to own beneficially more than 5% of its Common
Stock, (ii) each of the Named Executive Officers, (iii) each director of
Intraware, (iv) all directors and executive officers as a group, and (v) all
other selling stockholders. As of November 30, 1998, there were 18,975,178
shares of Common Stock outstanding, as adjusted to reflect the conversion of all
outstanding shares of Preferred Stock upon closing of this offering. Except as
otherwise indicated, the Company believes that the beneficial owners of the
Common Stock listed below, based on the information furnished by such owners,
have sole voting power and investment power with respect to such shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1)(2)
------------------------- -------------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Peter H. Jackson(3)............................................. 3,639,800 19.1% 3,639,800
Entities Associated with Mark B. Hoffman(4) 1,866,250 9.8 1,866,250
c/o Intraware, Inc.
25 Orinda Way
Orinda, CA 94563..............................................
Entities Affiliated with Kleiner Perkins Caufield & Byers 1,520,250 8.0 1,520,250
2750 Sand Hill Road
Menlo Park, CA 94025..........................................
Entities Associated with Charles G. Davis, Jr.(5) 1,290,000 6.8 1,290,000
c/o Intraware, Inc.
25 Orinda Way
Orinda, CA 94563..............................................
Entities Affiliated with Attractor Ventures L.L.C. 1,121,496 5.9 1,121,496
110 Burlingame Avenue
Burlingame, CA 94010..........................................
Entities Affiliated with Canaan Equity Partners, L.L.C.(6) 1,121,496 5.9 1,121,496
2884 Sand Hill Road, Suite 115
Menlo Park, CA 94025..........................................
Technology Crossover Ventures 1,121,496 5.9 1,121,496
56 Main Street, Suite 210
Milburn, NJ 07041.............................................
Entities Affiliated with WI Harper Group 1,000,000 5.3 1,000,000
50 California Street, Suite 2920
San Francisco, CA 94111.......................................
Paul A. Martinelli(7)........................................... 840,000 4.4 840,000
Donald M. Freed(8).............................................. 598,346 3.1 598,346
Norman A. Pensky(9)............................................. 250,000 1.3 250,000
Laurence M. Baer(10)............................................ 30,000 * 30,000
Mary Ann Byrnes(11)............................................. 30,000 * 30,000
John Balen(12).................................................. -- -- --
All directors and officers as a group (15 persons)(13).......... 9,481,872 49.1 9,481,872
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of Common Stock.
55
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options or warrants held by that person
that are currently exercisable or will become exercisable within 60 days
after November 30, 1998 are deemed outstanding, while such shares are not
deemed outstanding for purposes of computing percentage ownership of any
other person. Unless otherwise indicated in the footnotes below, the persons
and entities named in the table have sole voting and investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Unless otherwise indicated in the table above, the address
of each of the individuals listed in the table is Intraware, Inc., 25 Orinda
Way, Orinda, California 94563.
(2) Assumes no exercise of underwriters' over-allotment option. In addition to
that portion ( shares) of the underwriters' over-allotment option
granted by the Company, each of Messrs. Jackson and Davis has granted the
underwriters an option to purchase and shares of Common
Stock, respectively, to cover over-allotments, if any. If the underwriters
exercise this over-allotment option in full, Messrs. Jackson and Davis will
beneficially own shares ( %) and shares ( % ) of the
outstanding Common Stock after the offering.
(3) Includes 50,000 shares issuable upon exercise of stock options exercisable
within 60 days of November 30, 1998. As of November 30, 1998, 122,916 of the
shares held by Mr. Jackson were subject to repurchase by the Company, at
cost, in the event Mr. Jackson ceases to be an employee of the Company. The
right of repurchase lapses at the rate of 1/4 upon the expiration of one
year from the date of grant and 1/48 each month thereafter. The right of
repurchase lapses in part upon consummation of a merger of the Company or a
sale of substantially all of its assets.
(4) Includes 40,000 shares issuable upon exercise of stock options exercisable
within 60 days of November 30, 1998. As of November 30, 1998, 34,584 of the
shares held by Mr. Hoffman were subject to repurchase by the Company, at
cost, in the event Mr. Hoffman ceases to be an employee of the Company. The
right of repurchase lapses at the rate of 1/4 upon the expiration of one
year from the date of grant and 1/48 upon the expiration of each month
thereafter. The right of repurchase lapses in part upon consummation of a
merger of the Company or a sale of substantially all of its assets. Includes
1,826,250 shares held by Mark B. Hoffman, trustee of The Hoffman Family
Trust. Excludes 40,000 shares held by the Annie Eleanor Hoffman 1993
Revocable Trust of which Mr. Hoffman disclaims beneficial ownership.
Excludes 40,000 shares held by the Andrew Mark Hoffman 1993 Revocable Trust
of which Mr. Hoffman disclaims beneficial ownership.
(5) Includes 40,000 shares issuable upon exercise of stock options exercisable
within 60 days of November 30, 1998. As of November 30, 1998, 34,584 of the
shares held by Mr. Davis were subject to repurchase by the Company, at cost,
in the event Mr. Davis ceases to be an employee of the Company. The right of
repurchase lapses at the rate of 1/4 at one year from the date of grant and
1/48 each month thereafter. The right of repurchase lapses in part upon
consummation of a merger of the Company or a sale of substantially all of
its assets. Includes 400,000 shares held by Charles G. Davis, Jr., Trustee
of the Charles G. Davis, Jr., Trust Agreement dated 1/90 and 600,000 shares
held by the Davis Family-54447-LLC. Also, includes 40,000 shares issuable
upon exercise of stock options exercisable within 60 days of November 30,
1998
(6) John V. Balen is a principal of Canaan Equity Partners, L.L.C. the general
partner of Canaan Equity, L.P. Mr. Balen disclaims benficial ownership of
the shares held by Canaan Equity, L.P., except to the extent of his
pecuniary interest arising from his interest as a principal of Canaan Equity
Partners, L.L.C., the general partner of Canaan Equity Partners, L.P. Mr.
Balen is a member of the Board of Directors of the Company.
56
<PAGE>
(7) Includes 30,000 shares issuable upon exercise of stock options exercisable
within 60 days of November 30, 1998. As of November 30, 1998, 73,750 of the
shares held by Mr. Martinelli were subject to repurchase by the Company, at
cost, in the event Mr. Martinelli ceases to be an employee of the Company.
The right of repurchase lapses at the rate of 1/4 upon the expiration of one
year from the date of grant and 1/48 upon the expiration of each month
thereafter. The right of repurchase lapses in part upon consummation of a
merger of the Company or a sale of substantially all of its assets.
(8) Includes 30,000 shares issuable upon exercise of stock options exercisable
within 60 days of November 30, 1998. As of November 30, 1998, 73,750 of the
shares held by Mr. Freed were subject to repurchase by the Company, at cost,
in the event Mr. Freed ceases to be an employee of the Company. The right of
repurchase lapses at the rate of 1/4 at one year from the date of grant and
1/48 each month thereafter. The right or repurchase lapses in part upon
consummation of a merger of the Company or a sale of substantially all of
its assets.
(9) As of November 30, 1998, 136,460 of the shares held by Mr. Pensky were
subject to repurchase by the Company, at cost, in the event Mr. Pensky
ceases to be an employee of the Company. The right of repurchase lapses at
the rate of 1/4 at one year from the date of grant and 1/48 each month
thereafter. The right or repurchase lapses in part upon consummation of a
merger of the Company or a sale of substantially all of its assets.
(10) Includes 30,000 shares issuable upon exercise of stock options exercisable
within 60 days of November 30, 1998. As of November 30, 1998, 30,000 of the
shares held by Mr. Baer were subject to repurchase by the Company, at cost,
in the event Mr. Baer ceases to be an employee of the Company. The right of
repurchase lapses at the rate of 1/4 upon the expiration of one year from
the date of grant and 1/48 upon the expiration of each month thereafter. The
right or repurchase lapses in part upon consummation of a merger of the
Company or a sale of substantially all of its assets.
(11) As of November 30, 1998, 30,000 of the shares held by Ms. Byrnes were
subject to repurchase by the Company, at cost, in the event Ms. Byrnes
ceases to be an employee of the Company. The right of repurchase lapses at
the rate of 1/4 upon the expiration of one year from the date of grant and
1/48 upon the expiration of each month thereafter. The right or repurchase
lapses in part upon consummation of a merger of the Company or a sale of
substantially all of its assets.
(12) Mr. Balen did not hold any shares of the Company's capital stock as of
November 30, 1998 and does not hold any options exercisable within 60 days
of November 30, 1998. Mr. Balen is a principal of Canaan Equity Partners,
L.L.C. the general partner of Canaan Equity, L.P. Mr. Balen disclaims
benficial ownership of the shares held by Canaan Equity L.P., except to the
extent of his pecuniary interest arising from his interest as a principal of
Canaan Equity Partners, L.L.C., the general partner of Canaan Equity
Partners, L.P. Mr. Balen is a member of the Board of Directors of the
Company.
(13) Includes an aggregate of 355,000 shares exercisable within 60 days of
November 30, 1998. Certain of these shares are subject to repurchase at
cost, which right of repurchase lapses at the rate of 1/4th at the end of
one year from the date of grant and 1/48th of each month thereafter. The
right of repurchase lapses in part upon consummation of a merger of the
Company or a sale of substantially all of its assets.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, Intraware will be authorized to issue
250,000,000 shares of Common Stock, $0.0001 par value, and 10,000,000 shares of
undesignated Preferred Stock, $0.0001 par value. The following description of
Intraware's capital stock does not purport to be complete and is subject to and
qualified in its entirety by Intraware's Certificate of Incorporation and
Bylaws, which are included as exhibits to the Registration Statement of which
this Prospectus forms a part, and by the provisions of applicable Delaware law.
COMMON STOCK
As of November 30, 1998, there were 18,975,178 shares of Common Stock
outstanding which were held of record by approximately 155 stockholders, as
adjusted to the forward two-for-one stock split of all outstanding Common Stock,
and conversion of all outstanding shares of convertible preferred stock into an
aggregate of 12,045,628 shares of Common Stock, which will occur upon the
closing of this offering.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of Intraware, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock, if any, then outstanding. The holders of
Common Stock have no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable 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 the closing of
this offering will be fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue Preferred Stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the Common Stock. It is not possible
to state the actual effect of the issuance of any shares of Preferred Stock upon
the rights of holders of the Common Stock until the Board of Directors
determines the specific rights of the holders of such Preferred Stock. However,
the effects might include, among other things, restricting dividends on the
Common Stock, diluting the voting power of the Common Stock, impairing the
liquidation rights of the Common Stock and delaying or preventing a change in
control of Intraware without further action by the stockholders. Immediately
prior to the closing no shares of Preferred Stock will be outstanding, and
Intraware has no present plans to issue any shares of Preferred Stock.
WARRANTS
At November 30, 1998, there were warrants outstanding to purchase 24,000
shares of Series A Preferred Stock, 31,250 shares of Series B Preferred Stock,
and 8,878 shares of Series D Preferred Stock, which are convertible in the
aggregate into 128,256 shares of Common Stock.
REGISTRATION RIGHTS
The holders of 16,783,428 shares of Common Stock and the holders of warrants
to purchase Preferred Stock convertible into 128,256 shares of Common Stock (the
"registrable securities") or their permitted transferees are entitled to certain
rights with respect to registration of such shares under the Securities Act.
These rights are provided under the terms of an agreement between Intraware and
the holders of registrable securities. Under these registration rights,
beginning 180 days following the date of this Prospectus, holders of at least
50% of the then outstanding registrable securities (or at least 60% of the then
outstanding registrable securities issued upon
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<PAGE>
conversion of the Series D Preferred Stock) may require on up to two occasions
that Intraware register their shares for public resale. Intraware is obligated
to register these shares if the holders of at least 50% of such shares (or at
least 60% of the then outstanding registrable securities issued upon conversion
of the Series D Preferred Stock) request registration and only if the
outstanding registrable securities have an anticipated public offering price of
at least $10,000,000. In addition, holders of registrable securities may require
on four separate occasions that Intraware register their shares for public
resale on Form S-3 or similar short-form registration, provided Intraware is
eligible to use Form S-3 or similar short-form registration and provided further
that the value of the securities to be registered is at least $1,000,000.
Furthermore, in the event Intraware elects to register any of its shares of
Common Stock for purposes of effecting any public offering, the holders of
registrable securities are entitled to include their shares of Common Stock in
the registration, subject however to the right of Intraware to reduce the number
of shares proposed to be registered in view of market conditions. [These
registration rights have been waived with respect to the offering made hereby.]
All expenses in connection with any registration (other than underwriting
discounts and commissions) will be borne by Intraware. All registration rights
will terminate four years following the consummation of this offering, or, with
respect to each holder of registrable securities, at such time as Intraware's
shares are publicly traded and the holder is entitled to sell all of its shares
in any 90 day period under Rule 144 of the Securities Act.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and Intraware's Certificate of
Incorporation and Bylaws could make more difficult the acquisition of Intraware
by means of a tender offer, a proxy contest or otherwise and the removal of
incumbent officers and directors. These provisions, summarized below, are
expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
Intraware to first negotiate with Intraware. Intraware believes that the
benefits of increased protection of Intraware's potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure Intraware outweigh the disadvantages of discouraging such proposals
because, among other things, negotiation of such proposals could result in an
improvement of their terms.
ELECTION AND REMOVAL OF DIRECTORS. Effective with the first annual meeting
of stockholders following this offering, the Company's Restated Bylaws provide
for the division of the Company's Board of Directors into three classes, as
nearly equal in number as possible, with the directors in each class serving for
a three-term, and one class being elected each year by the Company's
stockholders. See "Management-Board of Directors and Executive Officers." This
system of electing and removing directors may tend to discourage a third party
from making a tender offer or otherwise attempting to obtain control of the
Company and may maintain the incumbency of the Board of Directors, as it
generally makes it more difficult for stockholders to replace a majority of the
directors.
STOCKHOLDER MEETINGS. Under the Company's Restated Certificate of
Incorporation and Restated Bylaws, only the Board of Directors, the Chairman of
the Board and the President may call special meetings of stockholders.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND
PROPOSALS. The Company's Restated Bylaws establish advance notice procedures
with respect to stockholder proposals and the nomination of candidates for
election as directors, other than nominations made by or at the direction of the
Board of Directors or a committee thereof.
DELAWARE ANTITAKEOVER LAW. Intraware is subject to Section 203 of the
Delaware General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested
59
<PAGE>
stockholder" for a period of three years following the date the person became an
interested stockholder, unless (with certain exceptions) the "business
combination" or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior to the determination of interested
stockholder status, did own) 15% or more of a corporation's voting stock. The
existence of this provision would be expected to have an anti-takeover effect
with respect to transactions not approved in advance by the Board of Directors,
including discouraging attempts that might result in a premium over the market
price for the shares of Common Stock held by stockholders.
ELIMINATION OF STOCKHOLDER ACTION BY WRITTEN CONSENT. The Company's
Restated Certificate of Incorporation eliminates the right of stockholders to
act by written consent without a meeting.
ELIMINATION OF CUMULATIVE VOTING. The Company's Restated Certificate of
Incorporation and Bylaws do not provide for cumulative voting in the election of
directors.
UNDESIGNATED PREFERRED STOCK. The authorization of undesignated Preferred
Stock makes it possible for the Board of Directors to issue Preferred Stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of Intraware. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of Intraware.
AMENDMENT OF RESTATED CHARTER. The amendment of any of the above provisions
would require approval by holders of at least 66 2/3% of the outstanding Common
Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust
Company of California.
NASDAQ NATIONAL MARKET LISTING
The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "INTR," subject to official notice of issuance.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of
Intraware, and there can be no assurance that a significant public market for
the Common Stock will develop or be sustained after this offering. Future sales
of substantial amounts of Common Stock (including shares issued upon exercise of
outstanding options and warrants) in the public market following this offering
could adversely affect market prices prevailing from time to time and could
impair Intraware's ability to raise capital through sale of its equity
securities. As described below, no shares currently outstanding will be
available for sale immediately after this offering because of certain
contractual restrictions on resale. Sales of substantial amounts of Common Stock
of Intraware in the public market after the restrictions lapse could adversely
affect the prevailing market price and the ability of Intraware to raise equity
capital in the future.
Upon completion of this offering, Intraware will have outstanding
shares of Common Stock (based upon shares outstanding as of December 1, 1998),
assuming no exercise of the Underwriters' over-allotment option and no exercise
of outstanding options or warrants that do not expire prior to completion of
this offering. Of these shares, the shares sold in this offering will be
freely tradable without restriction under the Securities Act except for any
shares purchased by "affiliates" of Intraware as that term is defined in Rule
144 under the Securities Act. The remaining 19,534,778 shares of Common Stock
held by existing stockholders are "Restricted Shares" as that term is defined in
Rule 144. All such Restricted Shares are subject to lock-up agreements providing
that, with certain limited exceptions, the stockholder will not offer, sell,
contract to sell or otherwise dispose of any securities of Intraware that are
substantially similar to the Common Stock, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, Common Stock or any such substantially similar securities
(other than pursuant to employee stock option plans existing on, or upon the
conversion or exchange of convertible or exchangeable securities outstanding as
of, the date of the lock-up agreement) for a period of 180 days after the date
of this Prospectus without the prior written consent of Credit Suisse First
Boston. As a result of these lock-up agreements, notwithstanding possible
earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701,
none of these shares will be salable until 181 days after the date of this
Prospectus. Beginning 181 days after the date of this Prospectus, approximately
19,534,778 Restricted Shares will be eligible for sale in the public market, all
of which are subject to volume limitations under Rule 144, except
shares eligible for sale under Rule 144(k) and 2,250,350 shares eligible for
sale under Rule 701 (subject in some cases to repurchase rights in favor of
Intraware). In addition, as of December 1, 1998, there were outstanding
1,494,450 options and warrants to purchase Preferred Stock convertible into
128,256 shares of Common Stock, some of which will be exercised prior to this
offering. All such options and warrants are subject to lock-up agreements.
Credit Suisse First Boston may, in their sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements, however any release shall apply pro-rata to all stockholders subject
to such lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an affiliate) would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of: (i) 1% of the number of shares of Common Stock then outstanding
(which will equal approximately shares immediately after this offering);
or (ii) the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of
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<PAGE>
current public information about Intraware. Under Rule 144(k), a person who is
not deemed to have been an affiliate of Intraware at any time during the three
months preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least two years (including the holding period of any prior owner
except an affiliate), is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the holding
period requirement, of Rule 144. Any employee, officer or director of or
consultant to Intraware who purchased shares pursuant to a written compensatory
plan or contract may be entitled to rely on the resale provisions of Rule 701.
Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this Prospectus before selling
such shares. However, all Rule 701 shares are subject to lock-up agreements and
will only become eligible for sale at the earlier of the expiration of the
180-day lock-up agreements or no sooner than 90 days after the offering upon
obtaining the prior written consent of Credit Suisse First Boston.
Within 90 days following the effectiveness of this offering, Intraware will
file a Registration Statement on Form S-8 registering shares of Common
Stock subject to outstanding options or reserved for future issuance under its
stock plans. As of December 1, 1998, options to purchase a total 1,454,450
shares were outstanding and 103,400 shares were reserved for future issuance
under Intraware's stock plan. Common Stock issued upon exercise of outstanding
vested options or issued pursuant to the Purchase Plan, other than Common Stock
issued to affiliates of Intraware is available for immediate resale in the open
market.
Also beginning six months after the date of this offering, holders of
16,783,428 Restricted Shares and holders of warrants to purchase Preferred Stock
convertible into 128,256 shares of Common Stock will be entitled to certain
rights with respect to registration of such shares for sale in the public
market. See "Description of Capital Stock--Registration Rights." Registration of
such shares under the Securities Act would result in such shares becoming freely
tradable without restriction under the Securities Act (except for shares
purchased by affiliates) immediately upon the effectiveness of such
registration.
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<PAGE>
ADDITIONAL INFORMATION
Intraware has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-1 under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to Intraware and such Common Stock, reference is made to the
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement may be
inspected by anyone without charge at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of all or any portion of the Registration Statement may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, upon payment of prescribed fees. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
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UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1999 (the "Underwriting Agreement"), the
underwriters named below (the "Underwriters"), for whom Credit Suisse First
Boston Corporation, BancBoston Robertson Stephens, Inc. and Hambrecht & Quist
LLC are acting as representatives (the "Representatives"), have severally but
not jointly agreed to purchase from Intraware the following respective numbers
of shares of Common Stock:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Credit Suisse First Boston Corporation.........................................................
BancBoston Robertson Stephens, Inc.............................................................
Hambrecht & Quist LLC..........................................................................
-------
Total......................................................................................
-------
-------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased. The Underwriting Agreement provides that, in the event of a default
by an Underwriter, in certain circumstances the purchase commitments of
nondefaulting Underwriters may be increased or the Underwriting Agreement may be
terminated.
Intraware and the Selling Stockholders have granted to the Underwriters an
option, expiring at the close of business on the 30th day after the date of this
prospectus to purchase up to additional shares at the initial public
offering price less the underwriting discounts and commissions, all as set forth
in the table below. Such option may be exercised only to cover over-allotments
in the sale of shares of Common Stock. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Common
Stock as it was obligated to purchase pursuant to the Underwriting Agreement.
Intraware has been advised by the Representatives that the Underwriters
propose to offer the shares to the public initially at the public offering price
set forth on the cover page of this prospectus and, through the Representatives,
to certain dealers at such price less a concession of $ per share, and the
Underwriters and such dealers may allow a discount of $ per share on sales
to certain other dealers. After the initial public offering, the public offering
price and concession and discount to dealers may be changed by the
Representatives.
The following table summarizes the compensation to be paid to the
Underwriters by Intraware and the Selling Stockholders, and the expenses payable
by Intraware.
<TABLE>
<CAPTION>
TOTAL
------------------------------
WITHOUT OVER- WITH OVER-
PER SHARE ALLOTMENT ALLOTMENT
---------- -------------- --------------
<S> <C> <C> <C>
Underwriting Discounts and Commissions paid by Intraware.............. $ $ $
Expenses payable by the Intraware..................................... $ $ $
Underwriting Discounts and Commissions paid by Selling Stockholders... $ $ $
Expenses payable by the Selling Stockholders.......................... $ $ $
</TABLE>
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<PAGE>
The Representatives have informed Intraware that they do not expect
discretionary sales by the Underwriters to exceed 5% of the shares being offered
hereby.
Intraware, its officers and directors and certain other shareholders have
agreed that they will not offer, sell, contract to sell, announce their
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Commission a registration statement under the Securities Act
relating to, any additional shares of common stock or securities convertible
into or exchangeable or exercisable for any shares of Intraware without the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus, except in the case of issuances by
Intraware pursuant to the exercise of employee stock options outstanding on the
date hereof.
Of the shares of Common Stock to be sold in this offering, the
Underwriters have reserved for sale, at the price to public set forth on the
cover page of this prospectus, up to shares for certain holders of
Intraware Preferred Stock in connection with a preexisting contractual right
between Intraware and such holders. See "Certain Transactions" and "Principal
Shareholders." As a result, the number of shares of Common Stock available for
sale to the general public will be reduced to the extent such persons purchase
the reserved shares. The Underwriters will offer to the general public (on the
same basis as the other shares to be sold in this offering) any reserved shares
that are not so purchased.
Intraware has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriters may be required to make in respect
thereof.
Intraware has applied to list the shares of Common Stock on The Nasdaq
National Market under the symbol "INTR".
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation
between Intraware and the Representatives. The principal factors to be
considered in determining the public offering price include: the information set
forth in this prospectus and otherwise available to the Representatives; the
history and the prospects for the industry in which Intraware will compete; the
ability of Intraware's management; the prospects for future earnings of
Intraware; the present state of Intraware's development and its current
financial condition; the general condition of the securities markets at the time
of this offering; and the recent market prices of, and the demand for, publicly
traded common stock of generally comparable companies.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act. Over-
allotment involves syndicate sales in excess of the offering size, which creates
a syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the securities in
the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Representatives to reclaim a
selling concession from a syndicate member when the securities originally sold
by such syndicate members are purchased in a syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the Common Stock
to be higher than it would otherwise be in the absence of such transactions.
These transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
Hambrecht & Quist LLC purchased an aggregate of 186,916 shares of Series D
Preferred Stock of Intraware which are convertible into 373,832 shares of Common
Stock on the same terms as other investors in the private placement, for a total
purchase price of $1,000,000.60. The purchase of such shares has been deemed by
the National Association of Securities Dealers, Inc. to constitute underwriting
compensation. As a result, such
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<PAGE>
affiliates of Hambrecht & Quist LLC have agreed that they will not sell,
transfer, assign or hypothecate such shares for a period of one year from
, 1998, except to officers or partners (not directors) of the
underwriter and members of the selling group and/or their officers or partners.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of Common Stock are effected. Accordingly, any resale of the Common
Stock in Canada must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction, and which may require resales
to be made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the certain selling
stockholders, as applicable, and the dealer from whom such purchase confirmation
is received that (1) such purchaser is entitled under applicable provincial
securities laws to purchase such Common Stock without the benefit of a
prospectus qualified under such securities laws, (2) where required by law, such
purchaser is purchasing as principal and not as agent, and (3) such purchaser
has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein and the certain selling stockholders, as applicable, may be located
outside of Canada and, as a result, it may not be possible for Canadian
purchasers to effect service of process within Canada upon the issuer or such
persons. All or a substantial portion of the assets of the issuer and such
persons may be located outside of Canada and, as a result, it may not be
possible to satisfy a judgment against the issuer or such persons in Canada or
to enforce a judgment obtained in Canadian courts against such issuer or persons
outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Common Stock to whom the SECURITIES ACT (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Common Stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by the purchaser under relevant Canadian
legislation.
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LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
Intraware by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters will be passed upon for the Underwriters
by Gunderson Dettmer Stough Villenueve Franklin & Hachigian, LLP, Menlo Park,
California. As of the date of this prospectus, WS Investment Company 97A, an
investment partnership composed of certain current and former members of and
persons associated with Wilson Sonsini Goodrich & Rosati, Professional
Corporation as well as certain individual attorneys of this firm, beneficially
own an aggregate of 116,842 shares of Intraware's Common Stock.
EXPERTS
The financial statements as of February 28, 1997 and 1998 and November 30,
1998, and for the period from August 14, 1996 (inception) through February 28,
1997, the year ended February 28, 1998 and the nine month periods ended November
30, 1997 and 1998 included in this Prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
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<PAGE>
INTRAWARE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Balance Sheet.............................................................................................. F-3
Statement of Operations.................................................................................... F-4
Statement of Stockholders' Equity.......................................................................... F-5
Statement of Cash Flows.................................................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The recapitalization described in Note 11 to the financial statements has
not been consummated at December 18, 1998. When it has been consummated, we will
be in a position to furnish the following report:
"To the Board of Directors and Stockholders of
Intraware, Inc.
In our opinion, the accompanying balance sheet and the related
statements of operations, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Intraware, Inc.
at February 28, 1997 and 1998 and November 30, 1998, and the results of its
operations and its cash flows for the period from August 14, 1996
(inception) through February 28, 1997, the year ended February 28, 1998 and
the nine month periods ended November 30, 1997 and 1998 in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted
auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above."
PricewaterhouseCoopers LLP
San Jose, California
December 14, 1998
F-2
<PAGE>
INTRAWARE, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER
-------------------- 30,
ASSETS 1997 1998 1998
--------- --------- ----------- PRO FORMA
STOCKHOLDERS'
EQUITY AT
NOVEMBER
30,
1998
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 303 $ 612 $ 5,413
Accounts receivable, net......................... 2 3,126 11,096
Prepaid license and services..................... 5 10,354 16,770
Other current assets............................. 31 197 3,735
--------- --------- -----------
Total current assets........................... 341 14,289 37,014
Property and equipment, net........................ 662 1,078 1,555
Other assets....................................... 23 17 352
--------- --------- -----------
Total assets $ 1,026 $ 15,384 $ 38,921
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings.................................. $ -- $ 1,754 $ 1,171
Accounts payable................................. 80 9,440 17,779
Accrued expenses................................. 104 781 1,800
Deferred revenue................................. -- 2,450 12,685
Lease obligations, current....................... 71 84 200
--------- --------- -----------
Total current liabilities...................... 255 14,509 33,635
Lease obligations, long-term....................... 189 105 225
--------- --------- -----------
Total liabilities.............................. 444 14,614 33,860
--------- --------- -----------
Commitments (Note 6)
Stockholders' equity:
Convertible Preferred Stock; issuable in series,
$0.0001 par value; 8,000 shares authorized,
actual, 1,500, 3,834 and 6,023 actual shares
issued and outstanding, respectively; 10,000
shares authorized, no shares issued and
outstanding, pro forma (unaudited)............. -- -- -- $ --
Common Stock, $0.0001 par value; 40,000 shares
authorized, actual, 5,250, 5,376 and 6,930
actual shares issued and outstanding,
respectively; 250,000 shares authorized, 18,976
shares issued and outstanding, pro forma
(unaudited).................................... -- -- -- --
Additional paid-in capital....................... 1,526 6,188 19,860 19,860
Unearned compensation............................ -- (492) (2,033) (2,033)
Accumulated deficit.............................. (944) (4,926) (12,766) (12,766)
--------- --------- ----------- -----------
Total stockholders' equity..................... 582 770 5,061 $ 5,061
--------- --------- ----------- -----------
-----------
$ 1,026 $ 15,384 $ 38,921
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
INTRAWARE, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AUGUST 14, 1996
(INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED NOVEMBER 30,
FEBRUARY 28, FEBRUARY 28, --------------------
1997 1998 1997 1998
--------------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Software product sales..................................... $ 6 $ 10,383 $ 5,331 $ 23,027
Online services............................................ -- 4 -- 1,529
------ ------------ --------- ---------
Total net revenues..................................... 6 10,387 5,331 24,556
------ ------------ --------- ---------
Cost of net revenues:
Software product sales..................................... 5 8,348 4,346 19,421
Online services............................................ -- -- -- 470
------ ------------ --------- ---------
Total cost of net revenues............................. 5 8,348 4,346 19,891
------ ------------ --------- ---------
Gross profit....................................... 1 2,039 985 4,665
------ ------------ --------- ---------
Operating expenses:
Sales and marketing........................................ 233 3,496 2,037 8,738
Product development........................................ 253 951 604 1,298
General and administrative................................. 467 1,492 1,016 2,492
------ ------------ --------- ---------
Total operating expenses............................... 953 5,939 3,657 12,528
------ ------------ --------- ---------
Loss from operations......................................... (952) (3,900) (2,672) (7,863)
Interest expense............................................. (12) (103) (52) (154)
Interest and other income, net............................... 20 21 9 177
------ ------------ --------- ---------
Net loss..................................................... $ (944) $ (3,982) $ (2,715) $ (7,840)
------ ------------ --------- ---------
------ ------------ --------- ---------
Net loss per share:
Basic and diluted.......................................... $ (1.36) $ (2.02) $ (1.53) $ (2.25)
------ ------------ --------- ---------
------ ------------ --------- ---------
Weighted average shares.................................... 694 1,972 1,776 3,492
------ ------------ --------- ---------
------ ------------ --------- ---------
Pro forma net loss per share:
Basic and diluted (unaudited).............................. $ (0.51) $ (0.53)
------------ ---------
------------ ---------
Weighted average shares (unaudited)........................ 7,763 14,765
------------ ---------
------------ ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
INTRAWARE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK ADDITIONAL
------------------------ ---------------------- PAID-IN UNEARNED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
----------- ----------- --------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock to Founders.... -- $ -- 5,250 $ -- $ 26 $ -- $ --
Issuance of Series A Convertible
Preferred Stock....................... 1,500 -- -- -- 1,500 -- --
Net loss................................ -- -- -- -- -- -- (944)
----- ----- --------- ----- ----------- ------------- ------------
Balance at February 28, 1997............ 1,500 -- 5,250 -- 1,526 -- (944)
Issuance of Series B Convertible
Preferred Stock....................... 1,651 -- -- -- 2,642 -- --
Issuance of Series C Convertible
Preferred Stock....................... 667 -- -- -- 1,500 -- --
Exercise of Series B warrant............ 16 -- -- -- 25 -- --
Exercise of stock options............... -- -- 126 -- 3 -- --
Unearned compensation................... -- -- -- -- 492 (492) --
Net loss................................ -- -- -- -- -- -- (3,982)
----- ----- --------- ----- ----------- ------------- ------------
Balance at February 28, 1998............ 3,834 -- 5,376 -- 6,188 (492) (4,926)
Issuance of Series D Convertible
Preferred Stock....................... 2,189 -- -- -- 11,714 -- --
Exercise of stock options............... -- -- 1,554 -- 153 -- --
Unearned compensation................... -- -- -- -- 1,805 (1,805) --
Amortization of unearned compensation... -- -- -- -- -- 264 --
Net loss................................ -- -- -- -- -- -- (7,840)
----- ----- --------- ----- ----------- ------------- ------------
Balance at November 30, 1998............ 6,023 $ -- 6,930 $ -- $ 19,860 $ (2,033) $ (12,766)
----- ----- --------- ----- ----------- ------------- ------------
----- ----- --------- ----- ----------- ------------- ------------
<CAPTION>
TOTAL
---------
<S> <C>
Issuance of Common Stock to Founders.... $ 26
Issuance of Series A Convertible
Preferred Stock....................... 1,500
Net loss................................ (944)
---------
Balance at February 28, 1997............ 582
Issuance of Series B Convertible
Preferred Stock....................... 2,642
Issuance of Series C Convertible
Preferred Stock....................... 1,500
Exercise of Series B warrant............ 25
Exercise of stock options............... 3
Unearned compensation................... --
Net loss................................ (3,982)
---------
Balance at February 28, 1998............ 770
Issuance of Series D Convertible
Preferred Stock....................... 11,714
Exercise of stock options............... 153
Unearned compensation................... --
Amortization of unearned compensation... 264
Net loss................................ (7,840)
---------
Balance at November 30, 1998............ $ 5,061
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
INTRAWARE, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 14, 1996
(INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED NOVEMBER 30,
FEBRUARY 28, FEBRUARY 28, --------------------
1997 1998 1997 1998
--------------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $ (944) $ (3,982) $ (2,715) $ (7,840)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization........................... 42 270 182 384
Amortization of unearned compensation................... -- -- -- 264
Provision for doubtful accounts......................... -- 32 25 --
Changes in assets and liabilities:
Accounts receivable................................... (2) (3,156) (1,768) (7,970)
Prepaid license and services.......................... (5) (10,349) (5,105) (6,416)
Other current assets.................................. (31) (166) (261) (3,538)
Other assets.......................................... (23) 6 9 (335)
Accounts payable...................................... 80 9,360 4,486 8,339
Accrued expenses...................................... 104 677 668 1,019
Deferred revenue...................................... -- 2,450 1,338 10,235
------- ------------ --------- ---------
Net cash used in operating activities......................... (779) (4,858) (3,141) (5,858)
------- ------------ --------- ---------
Cash flows from investing activities:
Purchase of property and equipment.......................... (428) (686) (444) (477)
------- ------------ --------- ---------
Cash flows from financing activities:
Proceeds from bank borrowings, net.......................... -- 1,754 750 (583)
Proceeds from Preferred Stock, net.......................... 1,500 4,142 2,642 11,714
Proceeds from Common Stock.................................. 26 28 -- 153
Proceeds from exercise of warrant........................... -- -- 25 --
Principal payments on capital lease obligation.............. (16) (71) (52) (148)
------- ------------ --------- ---------
Net cash provided by financing activities..................... 1,510 5,853 3,365 11,136
------- ------------ --------- ---------
Increase (decrease) in cash and cash equivalents.............. 303 309 (220) 4,801
Cash and cash equivalents at beginning of period.............. -- 303 303 612
------- ------------ --------- ---------
Cash and cash equivalents at end of period.................... $ 303 $ 612 $ 83 $ 5,413
------- ------------ --------- ---------
------- ------------ --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest...................................... $ 12 $ 87 $ 52 $ 154
Non-cash investing activities:
Property and equipment leases............................... $ 276 $ -- $ -- $ 368
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Intraware, Inc. (the "Company") was incorporated in Delaware on August 14,
1996. Intraware is a leading provider of Internet-based business-to-business
software services for IT professionals and business software vendors. Through
the Company's electronic software delivery and outsourcing services
technologies, the Company acts as an objective intermediary in the software
decision-making process. The Company's branded, integrated service offerings
enable software decision-makers to evaluate, purchase, deploy and maintain their
business software assets more effectively. The Company's online services allow
business software vendors to effectively market, sell and distribute products to
a targeted customer base of IT professionals.
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 amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents are
composed primarily of short-term certificates of deposit.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents and accounts
receivable. Cash and cash equivalents are deposited with high credit quality
financial institutions. The Company's accounts receivable are derived from
revenue earned from customers located primarily in the U.S. The Company performs
ongoing credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. The Company maintains an allowance
for doubtful accounts receivable based upon its historical experience and the
expected collectibility of all accounts receivable.
During the period from August 14, 1996 (inception) through February 28, 1997
and the year ended February 28, 1998, no customers accounted for greater than
10% of the total net revenues. During the nine month periods ended November 30,
1997 and November 30, 1998, no customers and one customer accounted for greater
than 10% of the total net revenue, respectively. As of February 28, 1997, no
customers accounted for greater than 10% of the Company's accounts receivable.
As of February 28, 1998 and November 30, 1998, four and three customers
accounted for greater than 10% of the Company's accounts receivable,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable, debt, and capital lease obligations, are
carried at cost, which approximates their fair value because of the short-term
maturity of these instruments.
F-7
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements are stated at historical
cost. Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets, generally three to five years or
the lease term of the respective assets, if shorter.
REVENUE RECOGNITION
Software product sales revenue results from the sale of third party software
products to corporate customers and is recognized when there is evidence of an
arrangement for a fixed and determinable fee that is probable of collection and
the software is available for customer download through intraware.shop. Software
maintenance revenue results from the sale of third-party software maintenance
agreements and is recognized ratably over the service period.
Online services revenue results from software maintenance outsourcing
arrangements with third-party software vendors delivered through SUBSCRIBNET and
from various fee-base subscription research services. Such revenues are
recognized ratably over the service period.
Deferred revenue consists primarily of billings or payments received in
advance of revenue recognition from the sale of maintenance, SUBSCRIBNET and IT
KNOWLEDGE CENTER services.
PRODUCT DEVELOPMENT COSTS
Product development costs include expenses incurred by the Company to
develop, enhance, manage, monitor and operate the Company's website and delivery
services. Product development costs are expensed as incurred.
ADVERTISING EXPENSE
The Company utilizes print and online advertising, trade shows, seminars,
direct mail, online promotions and regional marketing development to expand
brand and product awareness in the IT professional community. Costs incurred for
presence on third-party web sites are recognized ratably over the term of the
arrangements. Costs incurred for Internet page impressions are recognized as
such impressions are delivered. All other advertising costs are expensed as
incurred.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation expense is based on the
difference, if any, on the date of the grant between the fair value of the
Company's stock and the exercise price.
INCOME TAXES
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
The measurement of current and deferred tax liabilities and assets are based on
provisions of the enacted tax law; the effects of future changes in tax laws or
rates are not anticipated.
F-8
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The measurement of deferred tax assets is reduced, if necessary, by the amount
of any tax benefits that, based on available evidence, are not expected to be
realized.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Immediately prior to the effective date of the offering, the conversion rate
for all outstanding shares of Series A, Series B, Series C and Series D
Preferred Stock will automatically change to a ratio of two shares of Common
Stock for each share of Preferred Stock. Simultaneously, the shares of Preferred
Stock will convert into shares of Common Stock at such two-for-one conversion
rate. The pro forma effects of these transactions are unaudited and have been
reflected in the accompanying pro forma Stockholders' Equity at November 30,
1998.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under
the provisions of SFAS No. 128 and SAB 98, basic and diluted net loss per share
is computed by dividing the net loss available to common stockholders for the
period by the weighted average number of shares of Common Stock outstanding
during the period. The calculation of diluted net loss per share excludes
potential common shares if the effect is antidilutive. Potential common shares
are composed of Common Stock subject to repurchase rights and incremental shares
of Common Stock issuable upon the exercise of stock options and warrants and
upon conversion of Series A, Series B, Series C and Series D Convertible
Preferred Stock.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended February 28, 1998 and the
nine months ended November 30, 1998, is computed using the weighted average
number of common shares outstanding, including the pro forma effects of the
automatic change in conversion rate to one share of Preferred Stock for two
shares of Common Stock and conversion of the Company's Series A, Series B,
Series C and Series D Convertible Preferred Stock into shares of the Company's
Common Stock effective upon the closing of the Company's initial public
offering, as if such change in conversion rate and conversion occurred on March
1, 1997 or at date of original issuance, if later. The resulting pro forma
adjustment includes an increase in the weighted average shares used to compute
basic and diluted net loss per share of 5,791,000 and 11,273,000 for the year
ended February 28, 1998 and the nine months ended November 30, 1998,
respectively. The calculation of diluted net loss per share excludes potential
common shares as the effect would be antidilutive. Pro forma potential common
shares are composed of Common Stock subject to repurchase rights and incremental
common shares issuable upon the exercise of stock options and warrants.
INTERIM RESULTS
The interim financial statements as of November 30, 1998 and for the nine
months ended November 30, 1997 and 1998, have been prepared on the same basis as
the annual financial statements and, in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the Company's financial position, results of operations and cash
flows as of November 30, 1998 and for the nine months ended November 30, 1997
and 1998. The
F-9
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
results for the nine months ended November 30, 1998 are not necessarily
indicative of the results to be expected for the year ending February 28, 1999.
COMPREHENSIVE INCOME
Effective March 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which establishes standards for reporting information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company will adopt the provisions of SFAS No. 131 in connection
with the preparation of its financial statements for the fiscal year ending
February 28, 1999.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
is effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software developed
or obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company will adopt the provisions of
SOP 98-1 in its fiscal year ending February 28, 2000, and does not expect such
adoption to have a material effect on the Company's financial statements.
In March 1998, AIPCA issued Statement of Position 98-4, "Deferral of the
Effective Date of a provision of SOP 97-2 ("SOP 98-4"). SOP 98-4 defers for one
year the application of certain provisions of Statement of Position 97-2
"Software Revenue Recognition" ("SOP 97-2"). Different informal and
non-authoritative interpretations of certain provisions of SOP 97-2 have arisen
and, as a result, the AICPA issued SOP 98-9 in December 1998 which is effective
for periods beginning after March 15, 1999. SOP 98-9 extends the effective date
of SOP 98-4 and provides additional interpretive guidance. The adoption of SOP
97-2, SOP 98-4 and SOP 98-9 have not had and are not expected to have a material
impact on the Company's results of operations, financial position or cash flows.
However, due to the uncertainties related to the outcome of proposed amendments,
the impact on the future financial results of the Company is not currently
determinable.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities." ("SFAS 133"), which establishes accounting and reporting
standards of derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The adoption of
F-10
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
SFAS No. 133 is not expected to have an impact on the Company's results of
operations, financial position or cash flows upon the adoption of this standard.
NOTE 2--NETSCAPE COMMUNICATIONS CORP.
ELECTRONIC DISTRIBUTION LICENSE AGREEMENT
Under an Electronic Distribution License Agreement ("Distribution
Agreement"), as amended on October 20, 1998, the Company is authorized to
reproduce, use and electronically distribute Netscape products to end user
customers in the United States and Canada. The Company purchases Netscape
products under standard reseller terms on both a prepaid and per unit basis. The
Distribution Agreement has an initial term of two years and may be renewed by
mutual agreement of the parties for an additional one year period.
NETCENTER SERVICES AGREEMENT
Under a Netcenter Services Agreement ("Netcenter Agreement") effective
September 3, 1998, the Company obtained the right to maintain a content channel
within the Netcenter area of Netscape's Web site targeted at the IT professional
community.
In exchange for the content channel right, the Company paid Netscape $1
million, which is being recognized ratably over the one year term of the
arrangement. In addition, in exchange for a $4 million payment, Netscape agreed
to deliver a minimum cumulative number of impressions or page views promoting
the content channel within Netcenter. The $4 million payment is being recognized
as advertising expense over the one year term of the arrangement as such
impressions or page views are delivered.
SUBSCRIBNET SERVICES AGREEMENT
Under a Services Agreement ("Services Agreement") effective October 1, 1998,
the Company agreed to provide software update and management services through
SUBSCRIBNET to Netscape's worldwide non-consumer customer base. In consideration
for the services to be performed by the Company, Netscape agreed to pay $8
million, which is being recognized ratably over the one year term of the
arrangement. At November 30, 1998, $2 million of the fee is included in accounts
receivable and is scheduled for collection on or before December 31, 1998.
F-11
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
FEBRUARY 28,
-------------------- NOVEMBER 30,
1997 1998 1998
--------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE, NET:
Accounts receivable......................................... $ 2 $ 3,158 $ 11,146
Allowance for doubtful accounts............................. -- (32) (50)
--------- --------- ------------
$ 2 $ 3,126 $ 11,096
--------- --------- ------------
--------- --------- ------------
PROPERTY AND EQUIPMENT, NET:
Computer equipment.......................................... $ 432 $ 857 $ 846
Internal-use software....................................... 175 207 277
Furniture and office equipment.............................. 97 261 988
Leasehold improvements...................................... -- -- 140
Leasehold construction-in-process........................... -- 65 --
--------- --------- ------------
704 1,390 2,251
Less: Accumulated depreciation and amortization............. (42) (312) (696)
--------- --------- ------------
$ 662 $ 1,078 $ 1,555
--------- --------- ------------
--------- --------- ------------
ACCRUED EXPENSES:
Accrued compensation and benefits........................... $ 89 $ 474 $ 1,563
Other....................................................... 15 307 237
--------- --------- ------------
$ 104 $ 781 $ 1,800
--------- --------- ------------
--------- --------- ------------
</TABLE>
Property and equipment includes $276,000, $276,000 and $644,000 of computer
equipment and internal-use software under capital leases at February 28, 1997
and 1998 and November 30, 1998, respectively. Accumulated amortization of assets
under capital leases totaled $15,000, $74,000 and $160,000 at February 28, 1997
and 1998 and November 30, 1998, respectively.
NOTE 4--INCOME TAXES:
At November 30, 1998, the Company had approximately $11,663,000 of federal
and $11,495,000 of state net operating loss carryforwards available to offset
future taxable income which expire in varying amounts beginning in 2012 and
2005, respectively. Under the Tax Reform Act of 1986, the amounts of and
benefits from net operating loss carryforwards may be impaired or limited in
certain circumstances. Events which cause limitations in the amount of net
operating losses that the Company may utilize in any one year include, but are
not limited to, a cumulative ownership change of more than 50%, as defined, over
a three year period. Due to cumulative ownership changes, at November 30, 1998
the Company may utilize approximately $1,100,000 of federal net operating losses
annually to offset future taxable income.
F-12
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--INCOME TAXES: (CONTINUED)
Net deferred assets are composed of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 28,
-------------------- NOVEMBER 30,
1997 1998 1998
--------- --------- -------------
<S> <C> <C> <C>
Net operating loss carryforwards.............................. $ 373 $ 882 $ 4,628
Research and experimentation credit carryforwards............. 20 -- 217
Cumulative temporary differences.............................. -- 1,040 305
Valuation allowance........................................... (393) (1,922) (5,150)
--------- --------- ------
Net deferred tax asset........................................ $ -- $ -- $ --
--------- --------- ------
--------- --------- ------
</TABLE>
Based upon the Company's limited operating history, losses incurred to date
and the difficulty in accurately forecasting the Company's future results,
management does not believe that the realization of the related deferred tax
asset meets the recognition criteria required by generally accepted accounting
principles and, accordingly, a full valuation allowance has been recorded.
NOTE 5--BORROWINGS:
REVOLVING LOAN AGREEMENT
At February 28, 1998 and November 30, 1998, the Company had $1,754,000 and
$1,171,000 of outstanding borrowings under a bank revolving loan agreement.
Borrowings under the revolving loan bear interest of 1% per annum in excess of
the bank's prime rate and are secured by the Company's tangible personal
property. The agreement provides for borrowings of up to $5,000,000 through
July, 1999. Under the agreement, the Company is required to maintain compliance
with certain negative and financial covenants. At November 30, 1998, the Company
was in compliance with all such covenants.
NOTE 6--COMMITMENTS:
The Company leases its office facilities and certain equipment under
noncancelable operating lease agreements which expire at various dates through
2003. The terms of the facility lease provide for rental payments on a graduated
scale. The Company recognizes rent expense on a straight-line basis over the
lease period, and has accrued for rent expense incurred but not paid. The lease
requires that the Company pay all costs of maintenance, utilities, insurance and
taxes. Rent expense under these leases totaled $53,000, $180,000 and $402,155
during the period from August 14, 1996 (inception) through February 28, 1997,
the year ended February 28, 1998 and the nine months ended November 30, 1998,
respectively.
In October 1996, the Company entered into a lease financing agreement that
provides for the lease of computers and office equipment up to $300,000. In July
1998, the Company entered into a second lease financing arrangement with the
same lessor for an amount up to $350,000. Equipment financed under these
agreements are subject to repayment over a three year period. At November 30,
1998, purchases of computers and office equipment under this agreement totaled
$644,000.
F-13
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--COMMITMENTS: (CONTINUED)
Future minimum lease payments under all noncancelable operating and capital
leases at November 30, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
FEBRUARY 28, LEASES LEASES
- ------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1999..................................................................... $ 61 $ 191
2000..................................................................... 256 669
2001..................................................................... 184 690
2002..................................................................... 252
2003..................................................................... 104
----- -----------
Total minimum lease payments............................................. 501 $ 1,906
-----------
-----------
Less: amount representing interest....................................... (76)
-----
Present value of minimum lease payments.................................. 425
Less: current portion.................................................... (200)
-----
Long-term lease obligation............................................... $ 225
-----
-----
</TABLE>
NOTE 7--CONVERTIBLE PREFERRED STOCK:
The following table summarizes Convertible Preferred Stock ($0.0001 par
value) at November 30, 1998 (in thousands):
<TABLE>
<CAPTION>
SHARES
------------------------ LIQUIDATION NET
AUTHORIZED OUTSTANDING AMOUNT PROCEEDS
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Series A.................................... 1,524 1,500 $ 1,500 $ 1,500
Series B.................................... 1,698 1,667 2,667 2,642
Series C.................................... 667 667 1,500 1,500
Series D.................................... 2,205 2,189 11,714 11,714
Undesignated................................ 1,906 -- -- --
----------- ----------- ----------- ---------
8,000 6,023 $ 17,381 $ 17,356
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 8,000,000 shares of $0.0001 par value Preferred Stock in the aggregate.
The rights, privileges and restrictions of holders of Series A, B, C and D
Convertible Preferred Stock ("Series A," "Series B," "Series C" and "Series D,"
respectively) are set forth in the Company's Amended and Restated Certificate of
Incorporation, and are summarized as follows:
VOTING
Each share of Series A, B, C and D has voting rights equal to an equivalent
number of shares of Common Stock into which it is convertible and votes together
as one class with the Common Stock. The holders of Series A, B and D are
entitled, each as a separate class, to elect two directors, one director and one
director, respectively. The holders of Common Stock are entitled, as a separate
class,
F-14
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--CONVERTIBLE PREFERRED STOCK: (CONTINUED)
to elect one director. The holders of Series A, B, C and D together with the
holders of Common Stock are entitled, as a separate class, to elect the
remaining director or directors.
DIVIDENDS
Holders of Series A, B, C and D are entitled to receive noncumulative
dividends at the annual rate of $.14, $.24, $.32 and $.74 per share,
respectively, when and if declared by the Board of Directors, prior to payment
of dividends on Common Stock. The holders of Series A, B, C and D will also be
entitled to participate in dividends declared on Common Stock, when and if
declared by the Board of Directors, based on the number of shares of Common
Stock held on as-if-converted basis. No dividends on Series A, B, C and D or
Common Stock have been declared by the Board from inception through November 30,
1998.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners of
the Company's Common Stock and Convertible Preferred Stock own less than 50% of
the resulting voting power of the surviving entity, the holders of Series A, B,
C and D are entitled to receive an amount of $.50, $.80, $1.125 and $1.783 per
share, respectively, plus any declared but unpaid dividends prior to and in
preference to any distribution to the holders of Common Stock. The remaining
assets, if any, shall be distributed ratably to the holders of Common Stock and
Convertible Preferred Stock, on an as-if-converted into Common Stock basis.
Should the Company's legally available assets be insufficient to satisfy the
liquidation preferences, the funds will be distributed among the holders of
Convertible Preferred Stock in proportion to the liquidation preferences of such
shares then held by them.
CONVERSION
Each share of Series A, B, C and D is convertible, at the option of the
holder, at any time after the date of issuance into shares of Common Stock based
on a conversion rate as defined in the amended and restated Certificate of
Incorporation, which currently results in a conversion rate of one share of
Common Stock for one share of Preferred Stock. Each share of Series A, B, C and
D shall automatically be converted into shares of Common Stock at the then
effective conversion rate upon the closing of an initial public offering of
Common Stock at a price not less than $7.50 per share with gross proceeds of at
least $15,000,000. In addition, each share of (1) Series A and B, (2) Series C
and (3) Series D shall automatically be converted into shares of Common Stock at
then effective conversion rate on the date of which the (1) majority of Series A
and B, (2) the majority of Series C and (3) the holders of more than sixty
percent of Series D, respectively, each voting as a single class, elect to
convert such shares to Common Stock.
PREFERRED STOCK WARRANTS
In October 1996, the Company issued a warrant to purchase 24,000 shares of
Series A Preferred Stock to a creditor in consideration for equipment lease
commitments up to $300,000. The warrant has an exercise price of $1.00 per share
and expires in October 2006. The Company has determined that the warrant had a
nominal fair value at the date of issuance.
F-15
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--CONVERTIBLE PREFERRED STOCK: (CONTINUED)
In July 1997, in connection with a credit facility, the Company issued the
bank a warrant to purchase up to 31,250 shares of Series B Preferred Stock at an
exercise price of $1.60 per share that expire in July 2007. The Company has
determined that the warrants had a nominal fair value at the date of issuance.
In November 1997, a director exercised a warrant granted in July 1997 in
connection with the Company's Series B financing to purchase 15,625 shares of
Series B Preferred Stock at a purchase price of $1.60. The Company has
determined that the warrants had a nominal fair value at the date of issuance.
In July 1998, the Company issued a warrant to purchase 3,671 shares of
Series D Preferred Stock to a creditor in consideration for equipment lease
commitments up to $350,000. The warrant has an exercise price of $5.35 per share
and expires in July 2008. The Company has determined that the warrant had a
nominal fair value at the date of issuance.
In September 1998, in connection with an operating lease agreement, the
Company issued the lessor a warrant to purchase shares of Series D Preferred
Stock. The number of shares and price per share is based on a defined formula,
initially 5,607 shares with an exercise price of $5.35 per share. The warrant
expires in September 2008 or five years from the effective date of the Company's
initial public offering, whichever is shorter. The Company has determined that
the warrant had a nominal fair value on the initial measurement date.
NOTE 8--COMMON STOCK:
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 40,000,000 shares of $0.0001 par value Common Stock.
As of November 30, 1998, approximately 1,319,000 shares of outstanding
founder's Common Stock were subject to repurchase by the Company at the original
purchase price in the event of voluntary or involuntary termination of
employment of the shareholder. The Company's repurchase right lapses generally
over three years. Under certain events of involuntary termination, an additional
one-third of shares may lapse immediately. In the event of a merger or
substantial sale of assets, all remaining shares would immediately lapse. In the
event the repurchase right has lapsed, and in the event of the termination of
the shareholder, the Company has the right to purchase such shares at the fair
market value of the shares as determined by the Board of Directors.
As of November 30, 1998, approximately 1,100,000 shares of outstanding
Common Stock were subject to repurchase by the Company in the event of voluntary
or involuntary termination of employment of the shareholder on stock that was
unvested under the 1996 Stock Option Plan.
F-16
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COMMON STOCK: (CONTINUED)
At November 30, 1998, the Company had reserved shares of Common Stock for
future issuance as follows (in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30,
1998
------------
<S> <C>
Conversion of Series A Preferred Stock.......................................... 3,046
Conversion of Series B Preferred Stock.......................................... 3,396
Conversion of Series C Preferred Stock.......................................... 1,334
Conversion of Series D Preferred Stock.......................................... 4,410
Exercise of options under stock option plan..................................... 3,800
Undesignated.................................................................... 24,014
------------
40,000
------------
------------
</TABLE>
NOTE 9--EMPLOYEE BENEFIT PLANS:
401(K) SAVINGS PLAN
The Company has a savings plan (the "Savings Plan") that qualifies as a
defined contribution arrangement under Section 401(a), 401(k) and 501(a) of the
Internal Revenue Code. Under the Savings Plan, participating employees may defer
a percentage (not to exceed 25%) of their eligible pretax earnings up to the
Internal Revenue Service's annual contribution limit. All employees on the
United States payroll of the Company are eligible to participate in the Plan.
The Company will determine its contributions, if any, based on its current
profits and/or retained earnings, however, no contributions have been made since
the inception of the Savings Plan.
STOCK OPTION PLANS
In October 1996, the Company adopted the 1996 Stock Option Plan (the
"Plan"). The Plan provides for the granting of stock options to employees and
consultants of the Company. Options granted under the Plan may be either
incentive stock options or nonqualified stock options. Incentive stock options
("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to Company employees and consultants. The Company has reserved 6,200,000
shares of Common Stock for issuance under the Plan.
The Plan provides that the options shall be exercisable over a period not to
exceed ten years from the date of the grant; however, in the case of an ISO
granted to a person owning more than 10% of the combined voting power of all
classes of the stock of the Company, the term of the option will be five years
from the date of the grant. Options granted by the Company to date generally
vest 25% one year after the date of grant and the remaining options thereafter
generally vest in equal monthly installments over the following 36 months.
In accordance with the Plan, the stated exercise price shall not be less
than 85% of the estimated fair value of the shares on the date of grant as
determined by the Board of Directors, provided, however, that (i) the exercise
price of an ISO and NSO shall not be less than 100% and 85% of the estimated
fair value of the shares on the date of grant, respectively, and (ii) the
exercise price of an
F-17
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--EMPLOYEE BENEFIT PLANS: (CONTINUED)
ISO and NSO granted to a 10% shareholder shall not be less than 110% of the
estimated fair value of the shares on the date of grant, respectively.
The following table summarizes stock option activity under the Plan (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------
WEIGHTED
OPTIONS AVERAGE
AVAILABLE NUMBER OF EXERCISE
FOR GRANT OPTIONS PRICE
----------- ----------- -----------
<S> <C> <C> <C>
Shares authorized............................................................... 3,000 -- $ --
Options granted................................................................. (846) 846 0.05
Options exercised............................................................... -- -- --
Options canceled................................................................ -- -- --
----------- -----------
BALANCE AT FEBRUARY 28, 1997.................................................... 2,154 846 --
Shares authorized............................................................... 800 -- --
Options granted at fair value................................................... (629) 629 0.07
Options granted below fair value................................................ (1,281) 1,281 0.13
Options exercised............................................................... -- (126) 0.05
Options canceled................................................................ 50 (50) 0.13
----------- -----------
BALANCE AT FEBRUARY 28, 1998.................................................... 1,094 2,580 0.07
Shares authorized............................................................... -- -- --
Options granted below fair value................................................ (1,150) 1,150 0.68
Options exercised............................................................... -- (1,554) 0.10
Options canceled................................................................ 158 (158) 0.16
----------- -----------
BALANCE AT NOVEMBER 30, 1998.................................................... 102 2,018 0.28
----------- -----------
----------- -----------
</TABLE>
The minimum value of options granted during the period from August 14, 1996
(inception) to February 28, 1997 and the year ended February 28, 1998 and the
nine months ended November 30, 1998, was approximately $0.02, $0.02 and $2.45
per share, respectively.
The following table summarizes the information about stock options
outstanding and exercisable as of February 28, 1998 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT FEBRUARY 28, 1998 OPTIONS VESTED
------------------------------------------- AND EXERCISABLE AT
WEIGHTED FEBRUARY 28, 1998
AVERAGE WEIGHTED --------------------------------
REMAINING AVERAGE WEIGHTED
NUMBER CONTRACTUAL EXERCISE NUMBER AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE OUTSTANDING EXERCISE PRICE
- ------------------------------------------ ------------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$0.05..................................... 1,068 8.86 years $ 0.05 98 $ 0.05
0.13...................................... 1,058 9.56 years 0.13 -- --
0.15...................................... 454 9.84 years 0.15 -- --
----- ---
2,580 98
----- ---
----- ---
</TABLE>
F-18
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--EMPLOYEE BENEFIT PLANS: (CONTINUED)
The following table summarizes the information about stock options
outstanding and exercisable as of November 30, 1998 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT NOVEMBER 30, 1998 OPTIONS VESTED
------------------------------------------- AND EXERCISABLE AT
WEIGHTED NOVEMBER 30, 1998
AVERAGE --------------------------------
REMAINING WEIGHTED WEIGHTED
NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
RANGE OF EXERCISABLE PRICES OUTSTANDING LIFE EXERCISE PRICE OUTSTANDING EXERCISE PRICE
- ------------------------------------------ ------------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$0.05..................................... 418 8.11 years $ 0.05 189 $ 0.05
0.13...................................... 352 8.81 years 0.13 129 0.13
0.15...................................... 446 9.09 years 0.15 19 0.15
0.40...................................... 216 9.58 years 0.40 2 0.40
1.00...................................... 514 9.83 years 1.00 -- --
1.50...................................... 72 9.92 years 1.50 -- --
----- ---
2,018 339
----- ---
----- ---
</TABLE>
The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option pricing model as prescribed by SFAS
No. 123 using the following assumptions:
<TABLE>
<CAPTION>
AUGUST 14,
1996
(INCEPTION) NINE MONTHS
THROUGH FEB YEAR ENDED ENDED
28, FEBRUARY 28, NOVEMBER 30,
1997 1998 1998
-------------- ------------ ------------
<S> <C> <C> <C>
Risk-free interest rates............................................ 5.8%-6.4% 5.4%-6.7% 5.4%-6.5%
Expected lives (in years)........................................... 4 4 4
Dividend yield...................................................... 0% 0% 0%
Expected volatility................................................. 0% 0% 0%
</TABLE>
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for the stock option plans
(the "Plan") described above. Accordingly, no fair value compensation cost has
been recognized for the Plan. If compensation cost for the Plan had been
determined consistent with FAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and loss per share would not have been
materially affected.
UNEARNED STOCK-BASED COMPENSATION
In connection with certain stock option grants during the year ended
February 28, 1998 and the nine months ended November 30, 1998, the Company
recognized unearned compensation totaling $492,000 and $1,805,000, respectively,
which is being amortized over the four year vesting periods of the related
options. Amortization expense recognized during the nine months ended November
30, 1998 totaled approximately $264,000 and was allocated to expense categories
based on functional line of service.
F-19
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--EMPLOYEE BENEFIT PLANS: (CONTINUED)
STOCK OPTION GRANTS AND AUTHORIZATION
During the period from December 1, 1998 to December 18, 1998, the Company
granted options to purchase 1,730,470 shares of Common Stock to employees at an
exercise price of $2.50. The Company recognized unearned compensation totaling
$865,000 associated with such grants which will be recognized over the four year
vesting period.
In December 1998, the Board of Directors approved an increase in the number
of shares authorized for issuance under the Company's plan to 6,200,000 shares.
NOTE 10--RELATED PARTY TRANSACTIONS:
At November 30, 1998, the Company held a note receivable from an officer of
the Company totaling $300,000. The note is full recourse, is secured by Common
Stock and bears simple interest at 8% per annum. Principal and interest is due
and payable upon the earliest of 30 days after the Common Shares are eligible
for sale under Rule 144 of the Securities Act of 1933 or pursuant to a
Registration Statement on Form S-1, ninety days after the last date of
employment, 60 days after the sale of the Common Stock associated with a defined
change in control event, or two years from the note date, July 1998.
NOTE 11--SUBSEQUENT EVENTS (UNAUDITED):
RECAPITALIZATION
In December 1998, the Company's Board of Directors authorized a two-for-one
split of the outstanding shares of Common Stock to be effective immediately
prior to the effectiveness this offering. This stock split will result in a
corresponding change in the conversion rate for all outstanding shares of
Preferred Stock to a ratio of two shares of Common Stock for each share of
Preferred Stock. In addition, the Board of Directors approved an increase in the
authorized shares of Common and Preferred Stock to 250 million and 10 million,
respectively. All share and per share information included in these financial
statements have been retroactively adjusted to reflect the stock split. The
change in the Preferred Stock conversion rate and the increased share
authorization have been reflected in the pro forma financial information as of
November 30, 1998. See "Note 1--The Company and its Significant Accounting
Policies."
1998 DIRECTOR OPTION PLAN
In December 1998, the Board adopted the Director Plan which will become
effective immediately prior to the effective date of the offering. The Director
Plan reserves a total of 150,000 shares of the Company's Common Stock for
issuance thereunder. Members of the Board who are not employees of the Company,
of the Company, are eligible to participate in the Director Plan. The option
grants under the Directors Plan are automatic and nondiscretionary, and the
exercise price of the options must be 100% of the fair market value of the
Common Stock on the date of grant. Each eligible director who first becomes a
member of the Board will initially be granted an option to purchase 15,000
shares ("First Option") on the date such director first becomes a director.
Immediately following each Annual Meeting of the Company, each eligible director
will automatically be granted an additional option to purchase 7,500 shares
("Subsequent Option") if such director has served continuously as a member of
the Board for at least the preceding six months. The term of such options is ten
years, provided that
F-20
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--SUBSEQUENT EVENTS (UNAUDITED): (CONTINUED)
they will terminate 3 months following the date the director ceases to be a
director or a consultant of the Company (twelve months if the termination is due
to death or disability). First Options granted under the Directors Plan will
vest as to 12.5% of the shares on the six month anniversary of the date of grant
and as to 2.08% of the shares each month thereafter, provided the optionee
continues as a member of the Board or as a consultant to the Company.
EMPLOYEE STOCK PURCHASE PLAN
In December 1998, the Board adopted the 1998 Employee Stock Purchase Plan
(the "Purchase Plan") which will become effective immediately prior to the
effective date of the offering. The Purchase Plan reserves 600,000 shares of
Common Stock for issuance thereunder. On each March 1 beginning in 2000, the
aggregate number of shares reserved for issuance under the Purchase Plan will be
increased automatically to the lessor of 400,000 shares, 1% of the outstanding
shares on such date or a lessor amount determined by the Board of Directors. The
aggregate number of shares reserved for issuance under the Purchase Plan shall
not exceed 600,000 shares. Employees generally will be eligible to participate
in the Purchase Plan if they are customarily employed by the Company for more
than 20 hours per week and more than five months in a calendar year and are not
(and would not become as a result of being granted an option under the Purchase
Plan) 5% stockholders of the Company. Under the Purchase Plan, eligible
employees may select a rate of payroll deduction up to 15% of their W-2 cash
compensation subject to certain maximum purchase limitations. Each offering
period will have a maximum duration of two years and consists of four six-month
Purchase Periods. The first Offering Period is expected to begin on the first
business day on which price quotations for the Company's Common Stock are
available on The Nasdaq National Market. Depending on the Effective Date, the
first Purchase Period may be more or less than six months long. Offering Periods
and Purchase Periods thereafter will begin on April 1 and October 1. The price
at which the Common Stock is purchased under the Purchase Plan is 85% of the
lesser of the fair market value of the Company's Common Stock on the first day
of the applicable offering period or on the last day of that purchase period.
F-21
<PAGE>
[LOGO]
<PAGE>
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 Intraware in connection with
the sale of Common Stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
SEC registration fee.......................................... $ 19,182
<S> <C>
NASD filing fee............................................... 7,400
Nasdaq National Market listing fee............................ 150,000
Printing and engraving costs.................................. 250,000
Legal fees and expenses....................................... 300,000
Accounting fees and expenses.................................. 175,000
Blue Sky fees and expenses.................................... 10,000
Transfer Agent and Registrar fees............................. 10,000
Miscellaneous expenses........................................ 78,418
-----------
Total......................................................... $ 1,000,000
-----------
-----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article IX of the Registrant's Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if such
person acted in good faith and in a manner reasonably believed to be in and not
opposed to the best interest of the Registrant, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and directors,
and by the registrant of the underwriters for certain liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided in writing by the Underwriters for inclusion in the
Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below. The share
information presented has been adjusted to give effect to the two-for-one
forward stock split of the Registrant's Common Stock approved by the Board of
Directors of the Registrant in December 1998 and effective upon consummation of
the offering:
II-1
<PAGE>
(a) In September 1996, Registrant issued and sold an aggregate of
5,250,000 shares of Common Stock to the founding officers and directors of
the Company for an aggregate purchase price of $26,250.
(b) In September 1996, Registrant issued and sold an aggregate of
1,500,000 shares of Series A Preferred Stock convertible into 3,000,000
shares of Common Stock upon consummation of the two-for-one stock split to
21 investors for consideration of $1.00 per share of Series A Preferred
Stock, or an aggregate of $1,500,000. The foregoing purchases and sales were
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof on the basis that the transaction did not involve a public offering.
(c) In June 1997 and July 1997, Registrant issued and sold an aggregate
of 1,650,999 shares of Series B Preferred Stock, convertible into 3,301,998
shares of Common Stock upon consummation of the two-for-one stock split, to
a total of 26 investors for a consideration of $1.60 per share of Series B
Preferred Stock, or an aggregate of $2,641,600.
(d) In December 1997, Registrant issued and sold an aggregate of 666,667
shares of Series C Preferred Stock, convertible into 1,333,334 shares of
Common Stock upon consummation of the two-for-one stock split to Entities
Associated with Kleiner Perkins Caufield & Byers for a consideration of
$2.25 per share, or an aggregate of $1,500,000.75. The foregoing purchases
and sales were exempt from registration under the Securities Act pursuant to
Section 4(2) thereof on the basis that the transaction did not involve a
public offering.
(e) In April 1998 Registrant issued and sold an aggregate of 2,122,149
shares of Series D Preferred Stock convertible into 4,244,298 shares of
Common Stock to an aggregate price of $11,300,003.
(f) As of November 30, 1998, an aggregate of shares of Common
Stock had been issued upon exercise of options under the Registrant's 1996
Stock Option Plan. Except as indicated above, none of the foregoing
transactions involved any underwriters, underwriting discounts or
commissions, or any public offering, and the Registrant believes that each
transaction was exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereof, Regulation D promulgated thereunder
or Rule 701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients in such
transaction 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. All recipients had
adequate access, through their relationships with the Registrant, to
information about the Registrant.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant to be in effect after the closing of offering made under this Registration
Statement.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Form of Indemnification Agreement between the Registrant and each of its directors and officers.
10.2 Form of 1996 Stock Option Plan and form of agreements thereunder.
10.3 Form of 1998 Employee Stock Purchase Plan and form of agreements thereunder.
10.4 Form of 1998 Director Option Plan and form of agreements thereunder.
10.5 Form of Registration and Information Rights Agreement.
10.6* Security and Loan Agreement dated as of June 5, 1997 between the Registrant and Imperial Bank for up to
$1 million in credit financing.
10.7 Sleepy Hollow Investment Company Office Lease made August 23, 1996 between Sleepy Hollow Investment
Company and Intraware, Inc.
10.8 First Amendment to the Lease for Intraware, Inc. entered into as of May 5, 1997 by and between the
Registrant and Sleepy Hollow Investment Company I.
10.9 Second Amendment to the Lease for Intraware, Inc. entered into as of March 31, 1998 by and between the
Registrant and Sleepy Hollow Investment Company I.
10.10 Master Lease Agreement dated September 9, 1998 between Comdisco, Inc. and Intraware, Inc.
10.11 Addendum and Equipment Schedules to the Master Lease Agreement dated as of September 9, 1998 between
Intraware, Inc., as Lessee and Comdisco, Inc, as Lessor.
10.12* Services Agreement between Netscape Communications Corporation and Intraware, Inc. entered into as of
October 1, 1998. +
10.13* Netcenter Services Agreement between Netscape Communications Corporation and Intraware, Inc. entered
into as of September 3, 1998. +
10.14* Amended and Restated Electronic Distribution License Agreement between Netscape Communications
Corporation and Intraware, Inc. entered into as of March 6, 1997.+
23.1 Consent of Independent Accountants.
23.2* Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedules.
</TABLE>
- ------------------------
+ Certain portions of this exhibit have been granted confidential treatment by
the Commission. The omitted portions have been separately filed with the
Commission.
* To be filed by amendment
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement 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 Securities 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 a director,
officer or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities 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, 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,
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-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ORINDA, STATE OF CALIFORNIA, ON THE 18TH DAY OF DECEMBER, 1998.
<TABLE>
<S> <C> <C>
INTRAWARE, INC.
By /s/ PETER H. JACKSON
------------------------------------------
PETER H. JACKSON,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
EACH PERSON WHOSE INDIVIDUAL SIGNATURE APPEARS BELOW HEREBY AUTHORIZES AND
APPOINTS PETER H. JACKSON AND DONALD M. FREED, AND EACH OF THEM, WITH FULL POWER
OF SUBSTITUTION AND RESUBSTITUTION AND FULL POWER TO ACT WITHOUT THE OTHER, AS
HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT TO ACT IN HIS NAME, PLACE AND
STEAD AND TO EXECUTE IN THE NAME AND ON BEHALF OF EACH PERSON, INDIVIDUALLY AND
IN EACH CAPACITY STATED BELOW, AND TO FILE, ANY AND ALL AMENDMENTS TO THIS
REGISTRATION STATEMENT, INCLUDING ANY AND ALL POST-EFFECTIVE AMENDMENTS AND
AMENDMENTS THERETO AND ANY REGISTRATION STATEMENT RELATING TO THE SAME OFFERING
AS THIS REGISTRATION STATEMENT THAT IS TO BE EFFECTIVE UPON FILING PURSUANT TO
RULE 462(B) UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND TO FILE THE SAME,
WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING, RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT
AND AGENTS OR ANY OF THEM OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE THEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED BELOW ON THE 18TH DAY OF DECEMBER, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ PETER H. JACKSON Officer and Director
- ------------------------------ (Principal Executive December 18, 1998
(PETER H. JACKSON) Officer)
Executive Vice President
/s/ DONALD M. FREED and Chief Financial
- ------------------------------ Officer (Principal December 18, 1998
(DONALD M. FREED) Financial Officer)
/s/ LAURENCE M. BAER
- ------------------------------ Director December 18, 1998
(LAURENCE M. BAER)
/s/ JOHN V. BALEN
- ------------------------------ Director December 18, 1998
(JOHN V. BALEN)
/s/ MARY ANN BYRNES
- ------------------------------ Director December 18, 1998
(MARY ANN BYRNES)
/s/ CHARLES G. DAVIS, JR.
- ------------------------------ Director December 18, 1998
(CHARLES G. DAVIS, JR.)
/s/ MARK B. HOFFMAN
- ------------------------------ Director December 18, 1998
(MARK B. HOFFMAN)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- ----------- ---------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant to be in effect after the closing of offering made under this
Registration Statement.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Form of Indemnification Agreement between the Registrant and each of its directors and officers.
10.2 Form of 1996 Stock Option Plan and form of agreements thereunder.
10.3 Form of 1998 Employee Stock Purchase Plan and form of agreements thereunder.
10.4 Form of 1998 Director Option Plan and form of agreements thereunder.
10.5 Form of Registration and Information Rights Agreement.
10.6* Security and Loan Agreement dated as of June 5, 1997 between the Registrant and Imperial Bank
for up to $1 million in credit financing.
10.7 Sleepy Hollow Investment Company Office Lease made August 23, 1996 between Sleepy Hollow
Investment Company and Intraware, Inc.
10.8 First Amendment to the Lease for Intraware, Inc. entered into as of May 5, 1997 by and between
the Registrant and Sleepy Hollow Investment Company I.
10.9 Second Amendment to the Lease for Intraware, Inc. entered into as of March 31, 1998 by and
between the Registrant and Sleepy Hollow Investment Company I.
10.10 Master Lease Agreement dated September 9, 1998 between Comdisco, Inc. and Intraware, Inc.
10.11 Addendum and Equipment Schedules to the Master Lease Agreement dated as of September 9, 1998
between Intraware, Inc., as Lessee and Comdisco, Inc, as Lessor.
10.12* Services Agreement between Netscape Communications Corporation and Intraware, Inc. entered into
as of October 1, 1998. +
10.13* Netcenter Services Agreement between Netscape Communications Corporation and Intraware, Inc.
entered into as of September 3, 1998. +
10.14* Amended and Restated Electronic Distribution License Agreement between Netscape Communications
Corporation and Intraware, Inc. entered into as of March 6, 1997.+
23.1 Consent of Independent Accountants.
23.2* Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedules.
</TABLE>
- ------------------------
+ Certain portions of this exhibit have been granted confidential treatment by
the Commission. The omitted portions have been separately filed with the
Commission.
* To be filed by amendment
<PAGE>
EXHIBIT 10.1
INTRAWARE, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is entered into as of the ___
day of ________, 199_ by and between Intraware, Inc. a Delaware corporation (the
"COMPANY") and _____________ ("INDEMNITEE").
RECITALS
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, agents
and fiduciaries, the significant increases in the cost of such insurance and
the general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been
severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company may not be willing
to continue to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part,
in order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending
or completed action, suit, proceeding or alternative dispute resolution
mechanism, or any hearing, inquiry or investigation that Indemnitee in good
faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil,
criminal, administrative, investigative or other (hereinafter a "CLAIM") by
reason of (or arising in part out of) any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was
serving at the request of the Company as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint
<PAGE>
venture, trust or other enterprise, or by reason of any action or inaction on
the part of Indemnitee while serving in such capacity (hereinafter an
"INDEMNIFIABLE EVENT") against any and all expenses (including attorneys' fees
and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in, any such
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of such Claim and any federal,
state, local or foreign taxes imposed on Indemnitee as a result of the actual or
deemed receipt of any payments under this Agreement (collectively, hereinafter
"EXPENSES"), including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses. Such payment of
Expenses shall be made by the Company as soon as practicable but in any event no
later than five days after written demand by Indemnitee therefor is presented to
the Company.
(b) REVIEWING PARTY. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "EXPENSE ADVANCE") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitees' obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
-2-
<PAGE>
(c) CHANGE IN CONTROL. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has
been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control) then, with respect to
all matters thereafter arising concerning the rights of Indemnitees to
payments of Expenses and Expense Advances under this Agreement or any other
agreement or under the Company's Certificate of Incorporation or Bylaws as
now or hereafter in effect, Independent Legal Counsel (as defined in Section
10(d) hereof) shall be selected by Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld). Such counsel, among
other things, shall render its written opinion to the Company and Indemnitee
as to whether and to what extent Indemnitee would be permitted to be
indemnified under applicable law and the Company agrees to abide by such
opinion. The Company agrees to pay the reasonable fees of the Independent
Legal Counsel referred to above and to fully indemnify such counsel against
any and all expenses (including attorneys' fees), claims, liabilities and
damages arising out of or relating to this Agreement or its engagement
pursuant hereto.
(d) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section
(1)(a) hereof or in the defense of any claim, issue or matter therein,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee
in connection therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be
paid by the Company to Indemnitee as soon as practicable but in any event no
later than five days after written demand by Indemnitee therefor to the
Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitees' right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be
sought under this Agreement. Notice to the Company shall be directed to the
Chief Executive Officer of the Company at the address shown on the signature
page of this Agreement (or such other address as the Company shall designate
in writing to Indemnitee). In addition, Indemnitee shall give the Company
such information and cooperation as it may reasonably require and as shall be
within Indemnitees' power.
(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea of
NOLO CONTENDERE, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law. In addition, neither the failure
-3-
<PAGE>
of the Reviewing Party to have made a determination as to whether Indemnitee
has met any particular standard of conduct or had any particular belief, nor
an actual determination by the Reviewing Party that Indemnitee has not met
such standard of conduct or did not have such belief, prior to the
commencement of legal proceedings by Indemnitee to secure a judicial
determination that Indemnitee should be indemnified under applicable law,
shall be a defense to Indemnitee's claim or create a presumption that
Indemnitee has not met any particular standard of conduct or did not have any
particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) NOTICE TO INSURERS. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company
has liability insurance in effect which may cover such Claim, the Company
shall give prompt notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of Indemnitee, all amounts payable as a result of
such action, suit, proceeding, inquiry or investigation in accordance with
the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred
by Indemnitee with respect to the same Claim; provided that, (i) Indemnitee
shall have the right to employ Indemnitees' counsel in any such Claim at
Indemnitee expense and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there is a conflict of interest between the Company
and Indemnitee in the conduct of any such defense, or (C) the Company shall
not continue to retain such counsel to defend such Claim, then the fees and
expenses of Indemnitee counsel shall be at the expense of the Company. The
Company shall have the right to conduct such defense as it sees fit in its
sole discretion, including the right to settle any claim against Indemnitee
without the consent of the Indemnitee.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify Indemnitee to
the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of
this Agreement, the Company's Certificate of Incorporation, the Company's
Bylaws or by statute. In the event of any change after the date of this
Agreement in any applicable law, statute or rule which expands the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, agent or fiduciary, it is the intent of the parties hereto
that Indemnitee shall enjoy by this Agreement the greater benefits afforded
by such change. In the event of any change in any
-4-
<PAGE>
applicable law, statute or rule which narrows the right of a Delaware
corporation to indemnify a member of its Board of Directors or an officer,
employee, agent or fiduciary, such change, to the extent not otherwise required
by such law, statute or rule to be applied to this Agreement, shall have no
effect on this Agreement or the parties' rights and obligations hereunder except
as set forth in Section 8(a) hereof.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
4. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee are entitled.
6. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. LIABILITY INSURANCE. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
-5-
<PAGE>
(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for
Indemnitee's acts, omissions or transactions from which Indemnitee or the
Indemnitee may not be relieved of liability under applicable law;
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; PROVIDED, HOWEVER, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with
-6-
<PAGE>
respect to the resulting or surviving corporation as Indemnitee would have with
respect to such constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee, agent or fiduciary of the Company
which imposes duties on, or involves services by, such director, officer,
employee, agent or fiduciary with respect to an employee benefit plan, its
participants or its beneficiaries; and if Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% of the total voting power represented by
the Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other
-7-
<PAGE>
than with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary of the Company or of any other enterprise at the
Company's request.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee counterclaims and cross-claims made in such
action), and shall be entitled to the advancement of Expenses with respect to
such action, unless, as a part of such action, a court having jurisdiction over
such action determines that each of Indemnitee material defenses to such action
was made in bad faith or was frivolous.
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<PAGE>
14. NOTICE. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if delivered by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed if to Indemnitee, at
the Indemnitee address as set forth beneath Indemnitee signatures to this
Agreement and if to the Company at the address of its principal corporate
offices (attention: Secretary) or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. SEVERABILITY. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware, without regard to the conflict
of laws principles thereof.
18. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
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20. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
INTRAWARE, INC.
By:
--------------------------------
Title:
-----------------------------
Address: 25 ORINDA WAY
-------------------------
ORINDA, CA 94563
-------------------------
AGREED TO AND ACCEPTED BY:
- -----------------------------------
Name:
Address:
--------------------------
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<PAGE>
EXHIBIT 10.2
INTRAWARE, INC.
1996 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
(e) "COMMON STOCK" means the Common Stock of the Company.
(f) "COMPANY" means Intraware, Inc., a Delaware corporation.
(g) "CONSULTANT" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any director of the Company whether
compensated for such services or not. If and in the event the Company registers
any class of any equity security pursuant to the Exchange Act, the term
Consultant shall thereafter not include directors who are not compensated for
their services or are paid only a director's fee by the Company.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship with the Company, any Parent or Subsidiary
is not interrupted or terminated. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave. For purposes of Incentive Stock Options, no
such leave may exceed 90 days, unless reemployment upon expiration of
such leave is guaranteed by statute or contract, including Company policies. If
reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed,
<PAGE>
on the 91st day of such leave any Incentive Stock Option held by the Optionee
shall cease to be treated as an Incentive Stock Option and shall be treated for
tax purposes as a Nonstatutory Stock Option.
(i) "EMPLOYEE" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(k) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination, as reported in THE WALL STREET JOURNAL or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the Nasdaq National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(m) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(n) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "OPTION" means a stock option granted pursuant to the Plan.
(p) "OPTIONED STOCK" means the Common Stock subject to an Option.
(q) "OPTIONEE" means an Employee or Consultant who receives an
Option.
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(r) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(s) "PLAN" means this 1996 Stock Option Plan.
(t) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 11 below.
(u) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is 3,100,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) INITIAL PLAN PROCEDURE. Prior to the date, if any, upon which
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or a committee appointed by the Board.
(b) PLAN PROCEDURE AFTER THE DATE, IF ANY, UPON WHICH THE COMPANY
BECOMES SUBJECT TO THE EXCHANGE ACT.
(i) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS.
With respect to grants of Options to Employees who are also officers or
directors of the Company, the Plan shall be administered by (A) the Board if the
Board may administer the Plan in compliance with Rule 16b-3 promulgated under
the Exchange Act or any successor thereto ("Rule 16b-3") with respect to a plan
intended to qualify thereunder as a discretionary plan, or (B) a committee
designated by the Board to administer the Plan, which committee shall be
constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.
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<PAGE>
(ii) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors nor
officers.
(iii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER
EMPLOYEES. With respect to grants of Options to Employees or Consultants who
are neither directors nor officers of the Company, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of incentive stock option plans, if
any, of California corporate and securities laws, of the Code, and of any
applicable stock exchange (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options
may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award granted
hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to amend the terms of any Option previously granted
under the Plan; and
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(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value:
(i) of Shares subject to an Optionee's Incentive Stock Options
granted by the Company, any Parent or Subsidiary, which
(ii) become exercisable for the first time during any calendar
year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(c) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
(d) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 1,000,000 Shares.
(ii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 11.
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(iii) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 11), the canceled Option will be counted against the limit
set forth in Section 5(d)(i). For this purpose, if the exercise price of an
Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company, as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than
ten (10) years from the date of grant thereof. However, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Option shall be five (5) years from the date of grant thereof or such
shorter term as may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
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<PAGE>
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option have been owned by the Optionee for more
than six months on the date of surrender and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the Board
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
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(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the
event that an Optionee's Continuous Status as an Employee or Consultant
terminates (but not in the event of a change of status from Employee to
Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the ninety-first (91st)
day following such change of status) or from Consultant to Employee), other than
upon the Optionee's death or disability, the Optionee may exercise his or her
Option, but only within such period of time as is determined by the
Administrator (but in no event less than thirty (30) days after the date of
termination), and only to the extent that the Optionee was entitled to exercise
it at the date of termination (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant). If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the Shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee as a
result of his or her disability, Optionee may, but only within six (6) months
from the date of such termination (and in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination; provided, however, that if such disability is not a "disability" as
such term is defined in Section 22(e)(3) of the Code, in the case of an
Incentive Stock Option such Incentive Stock Option shall automatically convert
to a Nonstatutory Stock Option on the day three months and one day following
such termination. To the extent that Optionee is not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such Option
to the extent so entitled within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) RULE 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
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(f) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
(other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the total
voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation)
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option may be assumed or an equivalent option
or right may be substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation; provided that, whether or not such
Options are so assumed or substituted, each outstanding Option shall become
vested and exercisable to the extent of the Shares that would have become vested
and exercisable upon December 31 of the year in which the merger or sale of
assets is consummated. If an
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Option becomes vested and exercisable in the event of a merger or sale of assets
for that remaining period between the date of the merger or sale of assets and
December 31 of the same year, the Administrator shall notify the Optionee that
the Option shall be exercisable for a period of fifteen (15) days from the date
of such notice, and the Option will terminate upon the expiration of such
period. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger or sale of assets, the option or right confers
the right to purchase, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option, for each Share
of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the
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requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. AGREEMENTS. Options shall be evidenced by written agreements in such
form as the Board shall approve from time to time.
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
18. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide to
each Optionee, not less frequently than annually, copies of annual financial
statements. The Company shall also provide such statements to each individual
who acquires Shares pursuant to the Plan while such individual owns such Shares.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.
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EXHIBIT 10.3
INTRAWARE, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1998 Employee Stock Purchase
Plan of Intraware, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the common stock of the Company.
(d) "COMPANY" shall mean Intraware, Inc. and any Designated
Subsidiary of the Company.
(e) "COMPENSATION" shall mean all base straight time gross earnings
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first Trading Day of each
Offering Period.
(i) "EXERCISE DATE" shall mean the last Trading Day of each Purchase
Period.
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(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
THE WALL STREET JOURNAL or such other source as the Board deems reliable;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in THE WALL STREET JOURNAL or such
other source as the Board deems reliable;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "OFFERING PERIODS" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after April 15 and
October 15 of each year and terminating on the last Trading Day in the periods
ending twenty-four months later; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
October 15, 2000. The duration and timing of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(l) "PLAN" shall mean this 1998 Employee Stock Purchase Plan.
(m) "PURCHASE PERIOD" shall mean the approximately six month period
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
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(n) "PURCHASE PRICE" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "RESERVES" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "TRADING DAY" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after April 15 and October 15 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
October 15, 2000. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
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5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any,
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which arise upon the exercise of the option or the disposition of the Common
Stock. At any time, the Company may, but shall not be obligated to, withhold
from the participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale or
early disposition of Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 5,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of the Company's Common Stock an Employee may purchase during
each Purchase Period of such Offering Period. Exercise of the option shall
occur as provided in Section 8 hereof, unless the participant has withdrawn
pursuant to Section 10 hereof. The option shall expire on the last day of the
Offering Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on
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such Exercise Date, and continue all Offering Periods then in effect, or (y)
provide that the Company shall make a pro rata allocation of the shares
available for purchase on such Enrollment Date or Exercise Date, as applicable,
in as uniform a manner as shall be practicable and as it shall determine in its
sole discretion to be equitable among all participants exercising options to
purchase Common Stock on such Exercise Date, and terminate any or all Offering
Periods then in effect pursuant to Section 20 hereof. The Company may make pro
rata allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. TERMINATION OF EMPLOYMENT.
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
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12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 600,000 shares, plus an annual increase to be added on the first day of
the Company's fiscal year beginning in 2000 equal to the lesser of (i) 400,000
shares, (ii) 1% of the outstanding shares on such date or (iii) a lesser amount
determined by the Board.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more
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dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION,
MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in
progress shall be shortened by setting a new Exercise Date (the "New Exercise
Date"), and shall terminate immediately prior to the consummation of such
proposed dissolution or liquidation, unless provided otherwise by the Board.
The New Exercise Date shall be before the date of the Company's proposed
dissolution or
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liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that
the participant's option shall be exercised automatically on the New Exercise
Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's
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Compensation, and establish such other limitations or procedures as the Board
(or its committee) determines in its sole discretion advisable which are
consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
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24. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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EXHIBIT A
INTRAWARE, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ______________________ hereby elects to participate in the Intraware, Inc.
1998 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in accordance
with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to 15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):__________
______________________________________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the
<PAGE>
excess of the fair market value of the shares at the time such shares were
purchased by me over the price which I paid for the shares. I HEREBY AGREE
TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY
DISPOSITION OF MY SHARES AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL,
STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE
DISPOSITION OF THE COMMON STOCK. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and
1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to
the extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The remainder
of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
------------------------------------------------
(First) (Middle) (Last)
- ------------------------------- ---------------------------------------------
Relationship
---------------------------------------------
(Address)
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Employee's Social
Security Number:
------------------------------------
Employee's Address:
------------------------------------
------------------------------------
------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
------------------------- ----------------------------------------
Signature of Employee
----------------------------------------
Spouse's Signature (If beneficiary other
than spouse)
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<PAGE>
EXHIBIT B
INTRAWARE, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Intraware, Inc.
1998 Employee Stock Purchase Plan which began on ____________, 19____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
--------------------------------
--------------------------------
--------------------------------
Signature:
--------------------------------
Date:
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<PAGE>
Exhibit 10.4
INTRAWARE, INC.
1998 DIRECTOR OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1998 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" means the common stock of the Company.
(d) "COMPANY" means Intraware, Inc., a Delaware corporation.
(e) "DIRECTOR" means a member of the Board.
(f) "DISABILITY" means total and permanent disability as defined in
section 22(e)(3) of the Code.
(g) "EMPLOYEE" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
<PAGE>
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock for the last market trading day prior to the time of
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Board deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(j) "INSIDE DIRECTOR" means a Director who is an Employee.
(k) "OPTION" means a stock option granted pursuant to the Plan.
(l) "OPTIONED STOCK" means the Common Stock subject to an Option.
(m) "OPTIONEE" means a Director who holds an Option.
(n) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
(o) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(p) "PLAN" means this 1998 Director Option Plan.
(q) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(r) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 150,000 Shares (the "Pool"). The Shares may be authorized,
but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. ADMINISTRATION AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) PROCEDURE FOR GRANTS. All grants of Options to Outside Directors
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
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(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 15,000 Shares (the "First Option") on the date on which such
person first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that an Inside Director who ceases to be an Inside Director
but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 7,500 Shares (a "Subsequent Option") on the date of the
annual meeting of the stockholders of each year provided he or she is then an
Outside Director and if as of such date, he or she shall have served on the
Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10)
years.
(B) the First Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option
shall become exercisable as to 12.5% of the Shares subject to the First Option
on the six-month anniversary of its date of grant, and as to 1/48 of the Shares
subject to the First Option each month thereafter, provided that the Optionee
continues to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder shall
be as follows:
(A) the term of the Subsequent Option shall be ten
(10) years.
(B) the Subsequent Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
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<PAGE>
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent
Option shall become exercisable as to 25% of the Shares subject to the
Subsequent Option on the six-month anniversary of its date of grant, and as to
1/24 of the Shares subject to the Subsequent Option each month thereafter,
provided that the Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the shareholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. FORM OF CONSIDERATION. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
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<PAGE>
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of such termination, and to the extent that the
Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the event Optionee's status as a
Director terminates as a result of Disability, the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to
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<PAGE>
exercise such Option does not exercise such Option (to the extent otherwise so
entitled) within the time specified herein, the Option shall terminate.
9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the
Option or equivalent option shall continue to be exercisable as provided in
Section 4 hereof for so long as the Optionee serves as a Director or a director
of the Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(b) through (d)
above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that
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<PAGE>
the Option shall be fully exercisable for a period of thirty (30) days from the
date of such notice, and upon the expiration of such period the Option shall
terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such
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<PAGE>
Shares, if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.
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<PAGE>
INTRAWARE, INC.
DIRECTOR OPTION AGREEMENT
Intraware, Inc., (the "Company"), has granted to ____________________ (the
"Optionee"), an option to purchase a total of [_________ (___)] shares of the
Company's Common Stock (the "Optioned Stock"), at the price determined as
provided herein, and in all respects subject to the terms, definitions and
provisions of the Company's 1998 Director Option Plan (the "Plan") adopted by
the Company which is incorporated herein by reference. The terms defined in the
Plan shall have the same defined meanings herein.
17. NATURE OF THE OPTION. This Option is a nonstatutory option and is not
intended to qualify for any special tax benefits to the Optionee.
18. EXERCISE PRICE. The exercise price is $_______ for each share of
Common Stock.
19. EXERCISE OF OPTION. This Option shall be exercisable during its term
in accordance with the provisions of Section 8 of the Plan as follows:
(a) RIGHT TO EXERCISE.
(i) This Option shall become exercisable in installments
cumulatively with respect to _______ percent (____%) of the Optioned Stock one
year after the date of grant, and as to an additional _____ percent (____%) of
the Optioned Stock on each anniversary of the date of grant, so that one hundred
percent (100%) of the Optioned Stock shall be exercisable [________] years after
the date of grant; provided, however, that in no event shall any Option be
exercisable prior to the date the stockholders of the Company approve the Plan.
(ii) This Option may not be exercised for a fraction of a
share.
(iii) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written
notice which shall state the election to exercise the Option and the number of
Shares in respect of which the Option is being exercised. Such written notice,
in the form attached hereto as Exhibit A, shall be signed by the
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<PAGE>
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company. The written notice shall be accompanied by payment of the
exercise price.
20. METHOD OF PAYMENT. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check; or
(c) surrender of other shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised; or
(iv) delivery of a properly executed exercise notice together with
such other documentation as the Company and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price.
21. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
22. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The
terms of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
23. TERM OF OPTION. This Option may not be exercised more than ten (10)
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
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<PAGE>
24. TAXATION UPON EXERCISE OF OPTION. Optionee understands that, upon
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the date of exercise of the Option, to the extent
not included in income as described above, will be treated as capital gain or
loss.
DATE OF GRANT:
---------------
INTRAWARE, INC.,
a Delaware corporation
By:
-------------------------------
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated:
-----------------
------------------------------
Optionee
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EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
INTRAWARE, INC.
25 Orinda Way
Orinda, CA 94563
Attention: Corporate Secretary
1. EXERCISE OF OPTION. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of Intraware, Inc. (the "Company") under and pursuant to the Company's
1998 Director Option Plan and the Director Option Agreement dated
_______________ (the "Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Agreement.
3. FEDERAL RESTRICTIONS ON TRANSFER. Optionee understands that the
Shares must be held indefinitely unless they are registered under the Securities
Act of 1933, as amended (the "1933 Act"), or unless an exemption from such
registration is available, and that the certificate(s) representing the Shares
may bear a legend to that effect. Optionee understands that the Company is
under no obligation to register the Shares and that an exemption may not be
available or may not permit Optionee to transfer Shares in the amounts or at the
times proposed by Optionee.
4. TAX CONSEQUENCES. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
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<PAGE>
6. ENTIRE AGREEMENT. The Agreement is incorporated herein by reference.
This Exercise Notice and the Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the subject matter hereof. This
Exercise Notice and the Agreement are governed by California law except for that
body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: INTRAWARE, INC.
By:
--------------------------------
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Its:
--------------------------------
- -----
Address:
Dated: Dated:
------------------------ --------------------------
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<PAGE>
EXHIBIT 10.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AMENDED AND RESTATED
REGISTRATION AND INFORMATION RIGHTS
AGREEMENT
BY AND AMONG
INTRAWARE, INC.
AND
THE HOLDERS OF SERIES A
CONVERTIBLE PREFERRED STOCK
THE HOLDERS OF SERIES B
CONVERTIBLE PREFERRED STOCK
THE HOLDERS OF SERIES C
CONVERTIBLE PREFERRED STOCK
THE HOLDERS OF SERIES D
CONVERTIBLE PREFERRED STOCK
AND
FOUNDERS
--------
PETER JACKSON
DONALD FREED
PAUL MARTINELLI
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- -------------------------------------------------------------------------------
DATED AS OF
APRIL 14, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 2. Restrictions on Transferability . . . . . . . . . . . . . . . . . . .3
Section 3. Restrictive Legend. . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 4. Notice of Proposed Transfers. . . . . . . . . . . . . . . . . . . . .4
Section 5. Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
5.1 Requested Registration. . . . . . . . . . . . . . . . . . . . . . . .4
5.2 Company Registration. . . . . . . . . . . . . . . . . . . . . . . . .7
5.3 Registration on Form S-3. . . . . . . . . . . . . . . . . . . . . . .8
5.4 Expenses of Registration. . . . . . . . . . . . . . . . . . . . . . .9
5.5 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . .9
5.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.7 Information by Holders. . . . . . . . . . . . . . . . . . . . . . . 12
5.8 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . 12
5.9 Transfer of Registration Rights . . . . . . . . . . . . . . . . . . 12
5.10 Termination of Registration Rights. . . . . . . . . . . . . . . . . 13
Section 6. Financial Information . . . . . . . . . . . . . . . . . . . . . . 13
Section 7. Standoff Agreement. . . . . . . . . . . . . . . . . . . . . . . . 14
Section 8. Additional Parties. . . . . . . . . . . . . . . . . . . . . . . . 14
Section 9. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 10. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 11. Aggregation of Entities . . . . . . . . . . . . . . . . . . . . . 15
Section 12. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 13. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 14. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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<PAGE>
AMENDED AND RESTATED REGISTRATION
AND INFORMATION RIGHTS AGREEMENT
This Registration and Information Rights Agreement (the "Agreement") is
made as of the date of purchase of shares of Series D Preferred Stock by each
Series D Preferred Stock Purchaser indicated in Exhibit A to the Series D
Preferred Stock Purchase Agreement by and among Intraware, Inc., a Delaware
corporation (the "Company"), the holders of shares of Series A Preferred
Stock (the "Series A Purchasers"), the holders of shares of Series B
Preferred Stock (the "Series B Purchasers"), the holders of shares of Series
C Preferred Stock (the "Series C Purchasers"), the holders of shares of
Series D Preferred Stock (the "Series D Purchasers") (the Series A
Purchasers, the Series B Purchasers, the Series C Purchasers and the Series D
Purchasers, being hereinafter referred to individually as a "Purchaser" and
together, along with such additional parties as are hereafter deemed
Purchasers pursuant to Section 8 hereof, as the "Purchasers"), and Peter
Jackson, Don Freed and Paul Martinelli (individually, a "Founder" and
collectively, the "Founders"). The Founders, the Series A Purchasers, the
Series B Purchasers, the Series C Purchasers and the Series D Purchasers are
listed on EXHIBIT A hereto.
RECITALS
--------
WHEREAS, the Company, the Founders, and one or more of the Series A
Purchasers, the Series B Purchasers and the Series C Purchasers are parties
to certain Registration and Information Rights Agreements made and entered
into as of September 24, 1996, June 12, 1997, and December 3, 1997 (the
"Prior Agreements"); and
WHEREAS, the Series D Purchasers and the Company have entered into or
concurrently herewith are entering into a Series D Preferred Stock Purchase
Agreement (the "Series D Purchase Agreement"), pursuant to which the Series D
Purchasers are purchasing from the Company shares of its Series D Preferred
Stock (the "Series D Preferred"); and
WHEREAS, the obligations of the Company and the Series D Purchasers
under the Series D Purchase Agreement are conditioned, among other things,
upon the execution and delivery of this Agreement by the Company, the
Founders and the Purchasers; and
WHEREAS, in consideration of the Company's sale and the Series D
Purchasers' purchase of the Series D Preferred, the several parties hereto
wish to grant to the Series D Purchasers the several rights set forth herein,
and to observe the several obligations set forth herein, which rights and
obligations shall terminate and supersede, to the extent not already
terminated and superseded, those set forth in the Prior Agreements;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the Company, the Founders and the Purchasers agree as
follows:
<PAGE>
SECTION 1. CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act.
"CONVERSION STOCK" means the Series A, the Series B, the
Series C and the Series D Preferred Stock, and the Common Stock issued or
issuable pursuant to conversion of the Series A, the Series B, the Series C
and the Series D Preferred Stock.
"HOLDERS" shall mean (i) the Purchasers for so long as
Purchasers hold Conversion Stock or Registrable Securities, (ii) the Founders
for so long as the Founders hold Registrable Securities, and (iii) any person
holding Registrable Securities to whom the rights under this Agreement have
been transferred in accordance with Section 5.9 hereof.
"INITIATING HOLDERS" shall mean any holder or holders of
more than 50% of the Series A Preferred, the Series B Preferred, the Series C
Preferred and the Series D Preferred (and Registrable Securities issued upon
conversion thereof) then outstanding as of the relevant date considered as a
single class; and in the case of up to one registration pursuant to Section
5.1(a), any holder or holders of no less than sixty percent (60%) of the
Series D Preferred (and the Registrable Securities issued upon conversion
thereof) then outstanding as of the relevant date considered as a single
class (such registration referred to herein as the "Series D Registration").
"SERIES A PREFERRED" shall mean the Series A Preferred Stock
of the Company issued pursuant to the Series A Preferred Stock Purchase
Agreement.
"SERIES B PREFERRED" shall mean the Series B Preferred Stock
of the Company issued pursuant to the Series B Preferred Stock Purchase
Agreement.
"SERIES C PREFERRED" shall mean the Series C Preferred Stock
of the Company issued pursuant to the Series C Preferred Stock Purchase
Agreement.
"SERIES D PREFERRED" shall mean the Series D Preferred Stock
of the Company issued pursuant to the Series D Preferred Stock Purchase
Agreement.
"REGISTRABLE SECURITIES" means (i) shares of Common Stock of
the Company issued or issuable in respect of the Conversion Stock upon any
stock split, stock dividend, recapitalization, or similar event, or any
Common Stock otherwise issuable with respect to the Conversion Stock, (ii)
shares of Common Stock which are Conversion Stock, and (iii) shares of Common
Stock which are held by the Founders; provided, however, that shares of
Conversion Stock or other securities shall only be treated as Registrable
Securities if and so long as they have not been sold to or through a broker
or dealer or underwriter in a public distribution or a public securities
transaction.
-2-
<PAGE>
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer
to a registration effected by preparing and filing a registration statement
in compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, except as
otherwise stated below, incurred by the Company in complying with Sections
5.1, 5.2 and 5.3 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses, the
expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company) and the reasonable
fees and disbursements of one counsel for all Holders as appointed by the
Holders (other than the Founders).
"RESTRICTED SECURITIES" shall mean the securities of the
Company required to bear the legend set forth in Section 3 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and, except as set forth under "Registration
Expenses", all reasonable fees and disbursements of counsel for any Holder.
SECTION 2. RESTRICTIONS ON TRANSFERABILITY. The Conversion Stock and
any other securities issued in respect of the Conversion Stock upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar
event, shall not be sold, assigned, transferred or pledged except upon the
conditions specified in this Agreement, which conditions are intended to
ensure compliance with the provisions of the Securities Act. Each Purchaser
will cause any proposed purchaser, assignee, transferee, or pledgee of any
such shares held by such Purchaser to agree to take and hold such securities
subject to the provisions and upon the conditions specified in this Agreement.
SECTION 3. RESTRICTIVE LEGEND. Each certificate representing (i) the
Conversion Stock and (ii) any other securities issued in respect of the
Conversion Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted by
the provisions of Section 4 below) be stamped or otherwise imprinted with a
legend in substantially the following form (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. SUCH
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<PAGE>
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
Each Purchaser and each Holder consents to the Company making a notation
on its records and giving instructions to any transfer agent of the Preferred
Stock or the Common Stock in order to implement the restrictions on transfer
established in this Agreement.
SECTION 4. NOTICE OF PROPOSED TRANSFERS. The holder of each
certificate representing Restricted Securities by acceptance thereof agrees
to comply in all respects with the provisions of this Section 4. Prior to
any proposed sale, assignment, transfer or pledge of any Restricted
Securities (other than (i) a transfer not involving a change in beneficial
ownership, (ii) in transactions involving the distribution without
consideration of Restricted Securities by any Purchaser to any of its
partners, or retired partners, or to the estate of any of its partners or
retired partners, (iii) in transactions involving the transfer without
consideration of Restricted Securities by a Purchaser during his or her
lifetime by way of gift or on death by will or intestacy, or (iv) in
transactions in compliance with Rule 144), unless there is in effect a
registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied, at such holder's expense, by either (i) an unqualified written
opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Company addressed to the Company, to the
effect that the proposed transfer of the Restricted Securities may be
effected without registration under the Securities Act, (ii) a "no action"
letter from the Commission to the effect that the transfer of such securities
without registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, or (iii) other evidence
satisfactory to the Company, whereupon the holder of such Restricted
Securities shall be entitled to transfer such Restricted Securities in
accordance with the terms of the notice delivered by the holder to the
Company. Each certificate evidencing the Restricted Securities transferred
as above provided shall bear, except if such transfer is made pursuant to
Rule 144(k), the appropriate restrictive legend set forth in Section 3 above,
except that such certificate shall not bear such restrictive legend if, in
the opinion of counsel for such holder and the Company, such legend is not
required in order to establish compliance with any provision of the
Securities Act.
SECTION 5. REGISTRATION.
5.1 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall
receive from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to shares of
Registrable Securities with an anticipated aggregate offering
-4-
<PAGE>
price, net of underwriting discounts and commissions, in excess of ten
million dollars ($10,000,000), the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to
effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the
sale and distribution of all or such portion of such Registrable Securities
as are specified in such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such request as
are specified in a written request received by the Company within 20 days
after receipt of such written notice from the Company.
(b) Notwithstanding the foregoing, the Company shall not
be obligated to take any action pursuant to this Section 5.1:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance, unless the
Company is already subject to service in such jurisdiction and except as may
be required by the Securities Act;
(ii) prior to the earlier to occur of: (a) December
31, 2000, or (b) six months after the effective date of the Company's first
registered public offering of shares of its Common Stock;
(iii) during the period starting with the date sixty
(60) days prior to the Company's estimated date of filing of, and ending on
the date six (6) months immediately following the effective date of, any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in
good faith all reasonable efforts to cause such registration statement to
become effective;
(iv) if the Company has effected: (A) two such
registrations pursuant to this subparagraph 5.1(a), (B) four such
registrations pursuant to this subparagraph 5.1(a) or subparagraph 5.3(a)
below or any combination thereof, or (C) one such registration pursuant to
this subparagraph 5.1(a) or subparagraph 5.3 below in the preceding six
months, and such registration(s) have been declared or ordered effective and
remained effective until the earlier to occur of (a) 90 days or (b) the sale
of all the securities offered pursuant to each such registration;
(v) if the Company shall furnish to such Initiating
Holders a certificate signed by the President of the Company stating that in
the good faith judgment of the
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<PAGE>
Board of Directors it would be seriously detrimental to the Company or its
shareholders for a registration statement to be filed in the near future,
then the Company's obligation to use its best efforts to register, qualify or
comply under this Section 5.1 shall be deferred for a period not to exceed
150 days from the date of receipt of written request from the Initiating
Holders, provided that the Company may not exercise this deferral right for
more than once in any one year period;
(vi) if such registration, qualification or
compliance is proposed to be part of a firm commitment underwritten public
offering with underwriters not reasonably acceptable to the Company.
Subject to the foregoing clauses (i) through (vi), the Company shall
file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable after receipt of the
request or requests of the Initiating Holders.
(c) UNDERWRITING. In the event of a registration pursuant
to Section 5.1, the Company shall advise the Holders as part of the notice
given pursuant to Section 5.1(a)(i) that the right of any Holder to
registration pursuant to Section 5.1 shall be conditioned upon such Holder's
participation in the underwriting arrangements required by this Section 5.1,
and the inclusion of such Holder's Registrable Securities in the underwriting
to the extent requested shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting
agreement in customary form with the managing underwriter selected for such
underwriting by a majority in interest of the Initiating Holders, but subject
to the Company's reasonable approval. Notwithstanding any other provision of
this Section 5.1, if the managing underwriter advises the Initiating Holders
in writing that marketing factors require a limitation of the number of
shares to be underwritten, then the Company shall so advise all holders of
Registrable Securities and the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be allocated
among all Holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by such Holders at the time of filing
the registration statement; provided, that no shares held by any Holder other
than a Founder shall be so excluded from such registration until all shares
held by the Founders are excluded from such registration. Notwithstanding
the foregoing, in the event of a Series D Registration, the number of shares
of Registrable Securities that may be included in the registration and the
underwriting shall be allocated among all Holders in proportion, as nearly as
practicable, to the respective aggregate dollar amount of such Holder's
investment in the capital stock of the Company at the time of the filing of
the registration statement; provided that no shares held by any Holder other
than a Founder shall be so excluded from such registration until all shares
held by the Founders are excluded from such registration. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. To facilitate
the allocation of shares in accordance with the above provisions, the Company
or the underwriters may round the number of shares allocated to any Holder to
the nearest 100 shares.
-6-
<PAGE>
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to 180 days after the effective
date of such registration, or such other shorter period of time as the
underwriters may require.
5.2 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time
to time the Company shall determine to register any of its equity securities,
either for its own account or the account of a security holder or holders,
other than (i) a registration relating solely to employee benefit plans, (ii)
a registration relating solely to a Rule 145 transaction, or (iii) a
registration in which the only equity security being registered is capital
stock issuable upon conversion of convertible (or exchange of exchangeable)
debt securities which are also being registered, the Company will:
(i) promptly give to each Holder written notice
thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within twenty (20) days after receipt of
such written notice from the Company, by any Holder.
(b) UNDERWRITING. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the
written notice given pursuant to Section 5.2(a)(i). In such event, the right
of any Holder to registration pursuant to Section 5.2 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of
Registrable Securities in the underwriting shall be limited to the extent
provided herein.
All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by the Company. Notwithstanding any other provision of this Section 5.2, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities to be included in such registration (i) in the case of
the Company's initial public offering, to zero, and (ii) in the case of any
other offering, to an amount no less than 25% of the offering; provided that in
each such case, no shares held by any Holder other than a Founder shall be so
excluded from such registration until all shares held by the Founders are
excluded from such registration. The Company shall so advise all Holders and
other holders distributing their securities through such underwriting and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all the Holders in
proportion, as nearly as practicable, to the
-7-
<PAGE>
respective amounts of Registrable Securities held by such Holders at the time
of filing the Registration Statement. To facilitate the allocation of shares
in accordance with the above provisions, the Company may round the number of
shares allocated to any Holder or holder to the nearest 100 shares.
If any of the Holders disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice
to the Company and the managing underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall
have the right to terminate or withdraw any registration initiated by it
under this Section 5.2 prior to the effectiveness of such registration
whether or not any Holder has elected to include securities in such
registration.
5.3 REGISTRATION ON FORM S-3.
(a) If any of the Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities the reasonably
anticipated aggregate price to the public of which would exceed $1,000,000,
and the Company is a registrant entitled to use Form S-3 to register the
Registrable Securities for such an offering, the Company shall use its best
efforts to cause such Registrable Securities to be registered for the
offering on such form and to cause such Registrable Securities to be
qualified in such jurisdictions as such Holder or Holders may reasonably
request. The Company shall inform other Holders of the proposed registration
and offer them the opportunity to participate. In the event the registration
is proposed to be part of a firm commitment underwritten public offering, the
substantive provisions of Section 5.1(c) shall be applicable to each such
registration initiated under this Section 5.3.
(b) Notwithstanding the foregoing, the Company shall not
be obligated to take any action pursuant to this Section 5.3:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance, unless the
Company is already subject to service in such jurisdiction and except as may
be required by the Securities Act;
(ii) if the Company has effected four such
registrations pursuant to this subparagraph 5.3(a) or subparagraph 5.1(a)
above or any combination thereof, or one such registration pursuant to
subparagraph 5.3(a) above, or subparagraph 5.1(a) above in the preceding six
months, such registration(s) having been declared or ordered effective and
remained effective until the earlier to occur of (a) 90 days or (b) the sale
of all the securities offered pursuant to each such registration;
-8-
<PAGE>
(iii) if the Company, within ten (10) days of the
receipt of the request of the Initiating Holders, gives notice of its BONA
FIDE intention to effect the filing of a registration statement with the
Commission within ninety (90) days of receipt of such request (other than
with respect to a registration statement relating to a Rule 145 transaction,
an offering solely to employees, or any other registration which is not
appropriate for the registration of Registrable Securities);
(iv) during the period starting with the date sixty
(60) days prior to the Company's estimated date of filing of, and ending on
the date six (6) months immediately following, the effective date of any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
offering solely to employees, or any other registration which is not
appropriate for the registration of Registrable Securities), provided that
the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective; or
(v) if the Company shall furnish to such Holder or
Holders a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its shareholders for registration statements to
be filed in the near future, then the Company's obligation to use its best
efforts to file a registration statement shall be deferred for a period not
to exceed 150 days from the receipt of the request to file such registration
by such Holder or Holders, provided that the Company may not exercise this
deferral right more than once in any one year period.
5.4 EXPENSES OF REGISTRATION. All Registration Expenses incurred
in connection with (i) three registrations pursuant to Section 5.1 hereof
(including the Series D Registration), (ii) a total of three (3)
registrations pursuant to Section 5.3 if no registrations pursuant to Section
5.1 have been requested, or four (4) registrations pursuant to Section 5.3 if
no registrations pursuant to Section 5.1 have been paid for by the Company,
and (iii) all registrations pursuant to Section 5.2, shall be borne by the
Company.
Unless otherwise stated, all Selling Expenses relating to securities
registered on behalf of the Holders and all other registration expenses shall
be borne by the Holders of such securities PRO RATA on the basis of the
number of shares so registered.
5.5 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Agreement, the Company will keep each of the Holders advised in writing as to
the initiation of each registration, qualification and compliance and as to
the completion thereof. At its expense the Company will:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for at least one
hundred twenty (120) days or until the distribution described in the
registration statement has been completed, whichever first occurs;
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<PAGE>
(b) furnish to the Holders participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably
request in order to facilitate the public offering of such securities.
5.6 INDEMNIFICATION.
(a) The Company will indemnify each Holder of securities,
each of its officers, directors and partners, and each person controlling
such Holder within the meaning of Section 15 of the Securities Act, with
respect to which registration, qualification or compliance has been effected
pursuant to this Agreement, and each underwriter, if any, and each person who
controls any underwriter within the meaning of Section 15 of the Securities
Act, against all expenses, claims, losses, damages and liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, (commenced or threatened), arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereto, incident to any
such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and will reimburse
each such Holder, each of its officers, directors, and partners, and each
person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses
reasonably incurred, as such expenses are incurred, in connection with
investigating, preparing or defending any such claim, loss, damage, liability
or action, provided that the Company will not be liable in any such case to
the extent that any such claim, loss, damage, liability or expense arises out
of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by such Holder, controlling person or
underwriter specifically for use therein; provided, however, that the
foregoing indemnity agreement is subject to the condition that, insofar as it
relates to any such untrue statement, alleged untrue statement, omission or
alleged omission made in a preliminary prospectus on file with the Commission
at the time the registration statement becomes effective or the amended
prospectus filed with the Commission pursuant to Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of:
(1) any Holder, (i) if there is no underwriter, and a copy of the Final
Prospectus was not furnished to the person asserting the loss, liability,
claim or damage at or prior to the time such action is required by the
Securities Act and the Final Prospectus would have cured the defect giving
rise to the loss, liability, claim or damage (to the extent that such Holder
was obligated by law to provide a copy of the Final Prospectus to such
person), or (ii) to the extent that such untrue statement, alleged untrue
statement, omission or alleged omission is made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
or (2) any underwriter, (i) if a copy of the Final Prospectus was not
furnished to the person asserting the loss, liability, claim or damage at or
prior to the time such action is required by the Securities Act and the Final
Prospectus would have cured the defect giving rise to the loss, liability,
claim or damage, or (ii) to the extent that such untrue statement, alleged
untrue statement, omission or alleged omission is made in reliance on and in
conformity with written
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information furnished to the Company by an instrument duly executed by such
underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers, directors,
and partners, and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, against all expenses, claims, losses,
damages and liabilities (or actions in respect thereof), including any of the
foregoing incurred in settlement of any litigation (commenced or threatened),
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any amendment or supplement thereto,
incident to such registration, qualification or compliance, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and will reimburse
the Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal and any other expenses reasonably incurred, as
such expenses are incurred, in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon
and in conformity with written information furnished to the Company by such
Holder specifically for use therein. Notwithstanding the foregoing, the
liability of each Holder under this subsection 5.6(b) shall be limited in an
amount equal to the gross proceeds received by such Holder from the sale of
shares in such registration, unless such liability arises out of or is based
on willful misconduct by such Holder.
(c) Each party entitled to indemnification under this Section
5.6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Agreement, unless the
failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action, and provided further that the
Indemnifying Party shall not assume the defense for matters as to which there
is a conflict of interest or separate and different defenses, and provided
further that the failure of the Indemnifying Party to assume the defense for
matters as to which there are no conflicts of interest, and to which notice
had adequately been provided, shall not relieve the Indemnifying Party from
its obligations pursuant to Section 5.6 hereof. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the
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consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation.
5.7 INFORMATION BY HOLDERS. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held
by them and the distribution proposed by such Holder or Holders as the
Company may request in writing and as shall be required in connection with
any registration, qualification or compliance referred to in this Agreement.
5.8 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock
of the Company, the Company agrees to use all reasonable efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date that the Company becomes subject to the
reporting requirements of the Securities Act or the Securities Exchange Act
of 1934, as amended;
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended (at any time after it has become
subject to such reporting requirements); and
(c) So long as any of the Holders owns any Restricted
Securities, to furnish to such Holders forthwith upon request a written
statement by the Company as to its compliance with the reporting requirements
of said Rule 144 (at any time after 90 days after the effective date of the
first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the
Securities Exchange Act of 1934 (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company
and other information in the possession of or reasonably obtainable by the
Company as such Holders may reasonably request in availing themselves of any
rule or regulation of the Commission allowing the Holders to sell any such
securities without registration.
5.9 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company
to register securities granted to the Holders under Sections 5.1, 5.2 and 5.3
may be assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by a Purchaser or Founder only if such
transferee or assignee, as appropriate, acquires at least 250,000 shares (as
adjusted for stock splits, stock dividends, recapitalizations and the like) of
the Company's Common Stock or Conversion Stock, provided written notice thereof
is promptly given to the Company and the transferee agrees to be bound by the
provisions of this Agreement. Notwithstanding the foregoing, the rights to
cause the Company to register securities may be assigned to any constituent
partner or retired partner of a Holder which is a partnership, or an affiliate
of a Holder which is a
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corporation, or a family member or trust for the benefit of a Holder who is
an individual, provided written notice thereof is promptly given to the
Company and the transferee agrees to be bound by the provisions of this
Agreement.
5.10 TERMINATION OF REGISTRATION RIGHTS. The rights granted
pursuant to Sections 5.1, 5.2 and 5.3 of this Agreement shall terminate on
the four (4) year anniversary of the Company's initial public offering
pursuant to an effective registration statement under the Securities Act, or
as to any Holder at such time as the Company has registered its shares of
Common Stock under the Securities Exchange Act of 1934, as amended, and such
Holder is able to sell all such Registrable Securities as are held by such
Holder under Rule 144 promulgated under the Securities Act within a 90-day
period.
SECTION 6. FINANCIAL INFORMATION.
(a) The Company will provide the following reports to each
Purchaser for so long as such Purchaser continues to hold at least 250,000
shares of Conversion Stock (as adjusted for stock splits, stock dividends,
recapitalizations and the like):
(i) As soon as practicable after the end of each
fiscal year, and in any event within 120 days thereafter, consolidated
balance sheets of the Company and its subsidiaries, if any, as of the end of
such fiscal year, and consolidated statements of operations and consolidated
statements of cash flows and stockholders' equity of the Company and its
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail and
audited by independent public accountants of national standing selected by
the Company, and a capitalization table in reasonable detail for such fiscal
year;
(ii) As soon as practicable after the end of each
calendar month, and in any event within 30 days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of
each such month, and consolidated statements of operations, consolidated
statements of cash flows of the Company and its subsidiaries for such period
and for the current fiscal year to date, including a comparison between the
actual financial statements and the projected figures according to the
operating budget referenced in clause (iii) below; and
(iii) As soon as practicable following the submission
to and approval by the Board of Directors of the Company and in any event at
least 60 days prior to the end of a given fiscal year, an annual operating
budget and plan for the succeeding fiscal year for the Company in the form
approved by the Board of Directors.
(b) The rights granted pursuant to Section 6 may be
assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by a Purchaser only if such transferee
or assignee, as appropriate, acquires at least 250,000 shares (as adjusted
for stock splits, stock dividends, recapitalizations and the like) of the
Company's Conversion Stock, provided written notice thereof is promptly given
to the Company.
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Notwithstanding the foregoing, the rights to cause the Company to register
securities may be assigned to any constituent partner or retired partner of a
Holder which is a partnership, or an affiliate of a Holder which is a
corporation, or a family member or trust for the benefit of a Holder who is
an individual, provided written notice thereof is promptly given to the
Company.
(c) Each of the Purchasers acknowledge and agree that any
information obtained pursuant to this Section 6 which may be considered
"inside" non-public information will not be utilized by any Purchaser in
connection with purchases or sales of the Company's securities except in
compliance with applicable state and federal securities laws.
(d) The covenants set forth in this Section 6 shall
terminate and be of no further force or effect upon the consummation of a
firm commitment underwritten public offering or at such time as the Company
is required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, whichever shall occur first.
SECTION 7. STANDOFF AGREEMENT. In connection with any initial public
offering of the Company's securities in connection with an effective
registration statement under the Securities Act, each Holder agrees, upon the
request of the Company or the underwriters managing any underwritten offering
of the Company's securities, not to sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise dispose of any Registrable
Securities of the Company (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time, not to exceed one hundred eighty (180)
days (or such lesser period(s) as officers, directors or holders of one
percent (1%) or more of the Company's outstanding capital stock are so
restricted with respect to the transfer of shares of capital stock of the
Company held by them) after the effective date of the registration statement
relating thereto. Each of the Purchasers and each Holder agrees that the
Company may instruct its transfer agent to place stop-transfer notations in
its records to enforce the provisions of this Section 7. Notwithstanding the
foregoing, any waiver, amendment, or termination of such lock-up arrangements
in respect of officers, directors or 1% holders by the Company or the
underwriters which results in lock-up arrangements on such persons that are
less restrictive than those imposed upon the Holders shall result in an
equivalent pro rata (based on the number of shares held) waiver, amendment
or termination of the lock-up arrangements applicable to the Holders
hereunder.
SECTION 8. ADDITIONAL PARTIES. The parties hereto agree that
additional holders of securities of the Company may, with the consent only of
the Company, be added as parties to this Agreement with respect to any or all
securities of the Company held by them, and shall thereupon be deemed for all
purposes "Purchasers" hereunder; provided, however, that from and after the
date of this Agreement, the Company shall not: (i) without the prior written
consent of each Purchaser, enter into any agreement with any holder or
prospective holder of any securities of the Company providing for the grant
to such holder of rights superior to those granted herein or (ii) without the
prior written consent of sixty percent (60%) of the Registrable Securities
held by the Series D Purchasers, amend or otherwise impinge upon the right of
the Series D Purchasers to trigger a Series D Registration. Any such
additional party shall execute a counter-part of this Agreement, and upon
execution by
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such additional party and by the Company, shall be considered a Purchaser for
purposes of this Agreement.
SECTION 9. AMENDMENT. Any provision of this Agreement may be amended
or the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Holders of sixty percent (60%) of the
Registrable Securities held by the Series D Purchasers and a majority of all
other Registrable Securities not held by the Founders; provided that, (i)
subject to the provisions of Section 8 hereof, no such amendment shall
impose or increase any liability or obligation or impair any right of a
Holder without the consent of such Holder; and (ii) subject to the provisions
of Section 8 hereof, no such amendment shall impose or increase any liability
or adversely affect any rights, preferences or privileges of the Founders
without the consent of a majority in interest of the Founders. Any amendment
or waiver effected in accordance with this Section 9 shall be binding upon
each Holder of Registrable Securities at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
SECTION 10. GOVERNING LAW. This Agreement and the legal relations
between the parties arising hereunder shall be governed by and interpreted in
accordance with the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
SECTION 11. AGGREGATION OF ENTITIES. All shares of the Company's stock
held or acquired by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.
SECTION 12. ENTIRE AGREEMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties regarding the matters
set forth herein and terminates and supersedes, to the extent not already
terminated and superseded, in its entirety the Prior Agreements. Except as
otherwise expressly provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon the successors, assigns, heirs, executors and
administrators of the parties hereto.
SECTION 13. NOTICES, ETC. All notices and other communications
required or permitted hereunder shall be in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or three
(3) days after deposit with the United States mail, by registered or
certified mail, postage prepaid, addressed (a) if to a Purchaser, at the
address or addresses of such Purchaser set forth on Exhibit A hereto, as it
may be amended from time to time, or at such other address as the Purchaser
shall have furnished to the Company in writing in accordance with this
Section 13, (b) if to a Founder, at the address of such Founder as it appears
on the books and records of the Company, (c) if to any other holder of
Conversion Stock, at such address as such holder shall have furnished the
Company in writing in accordance with this Section 13, or, until any such
holder so furnishes an address to the Company, then to and at the address of
the last holder thereof who has so furnished an address to the Company, or
(d) if to the Company, at its principal office, with a copy
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addressed to Wilson, Sonsini, Goodrich & Rosati, Professional Corporation,
650 Page Mill Road, Palo Alto, California, 94304-1050, to the attention of
David J. Segre or Robert M. Tarkoff.
SECTION 14. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
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Exhibit 10.7
SLEEPY HOLLOW INVESTMENT COMPANY
OFFICE LEASE
THIS LEASE is made this twenty-third (23rd) day of August 1996, between SLEEPY
HOLLOW INVESTMENT COMPANY, a general partnership, as Landlord, and INTRAWARE
INC., a Delaware Corporation as Tenant, on the following terms and conditions:
1. PREMISES: Landlord hereby leases to Tenant the following described
property, hereinafter called "premises": Suite 101, Vintage Office Building, 25
Orinda Way, Orinda, CA, consisting of approximately 6,466 rentable square feet
which premises are outlined in red on the plan attached hereto and marked
"Exhibit A." Actual square footage is subject to final agreement between the
parties, provided, however, that the Premises shall not include a factor for
"common area" due to the presence of restrooms within the Premises.
2. TERM: The term of this Lease shall be for a period of two (2) years,
commencing on the date possession of the premises is delivered to Tenant by
Landlord with the tenant improvements substantially complete. Within thirty
(30) days of the date of said delivery of possession to Tenant, the parties
hereto agree to enter into a Lease Modification Agreement establishing the date
of the term of this lease and calculated size of the Premises. If for any
reason whatsoever Landlord cannot deliver possession of the premises to Tenant,
this Lease shall not be void or voidable, nor shall Landlord be liable for any
loss or damage resulting therefrom, provided however, if the premises are not
delivered by December 1, 1996, Tenant may cancel this Lease and be refunded its
prepaid rent and deposit.
3. RENT: Tenant shall pay to Landlord as rent in advance on the first
day of each calendar month of the term of this Lease, without deduction, offset,
prior notice or demand, ten thousand six hundred sixty nine and 00/100 Dollars
($10,669.00) ($1.65 per rentable square foot per month) in lawful money of the
United States. Monthly rent shall increase to eleven thousand three hundred
fifteen and 00/100 Dollars ($11,315.00) ($1.75 per rentable square foot per
month) beginning with the thirteenth (13th) month of the lease term. The rent
shall be payable to Landlord and mailed to: Sleepy Hollow Investment Co., 2300
Contra Costa Blvd., Suite 200, Pleasant Hill, CA 94523 or such other address as
shall be designated in writing by Landlord. If the date of commencement or
expiration of the term of this Lease occurs on a day other than the first day of
a calendar month, the rent at the monthly rate shall be prorated upon the basis
which the number of days of the term of this lease of such month bears to the
total number of days in such month.
Receipt of the sum of thirty two thousand six hundred sixty nine and 00/100
Dollars ($32,669.00) is hereby acknowledged. The sum of ten thousand six
hundred sixty nine and 00/100 Dollars ($10,669.00) shall be credited against the
first month's rent. The sum of twenty two thousand and 00/100 Dollars
($22,000.00) is in consideration of the execution of this Lease and shall be
held as a Security Deposit. In the event Tenant shall perform fully all the
terms and conditions of this Lease throughout the term, upon Tenant vacating the
premises and not being in default under this Lease, then Landlord shall return
said sum after first deducting any sum owing to Landlord. If Tenant is not in
default of any of the terms of this Lease, Landlord shall apply ten thousand six
hundred sixty nine and 00/100 Dollars ($10,669.00) of the Security Deposit to
the eighth month's rent. Landlord may apply said sum earlier upon approval of
Tenant's financial condition.
4. USE: Tenant shall use and occupy the premises during the term for
general office purposes and for no other purpose without the prior written
consent of Landlord. Tenant shall not use or permit the premises or any part
thereof to be used for any purpose other than the purpose or purposes for which
the premises are leased.
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No use shall be made or permitted to be made of the premises or acts done
which will increase the existing rate of insurance on the building or cause the
cancellation of any insurance policy covering the building or any part thereof.
If any act on the part of Tenant or use of the premises by Tenant shall cause,
directly or indirectly, any increase of Landlord's insurance, such additional
expense shall be paid by Tenant to Landlord upon demand. Tenant shall not sell
or permit to be kept, used or sold in or about the premises any article which
may be prohibited by the standard form of fire insurance policies.
Tenant shall not commit or suffer to be committed any waste upon the
premises or any public or private nuisance or any other act or thing which may
disturb the quiet enjoyment of any other tenant in the building in which the
premises are located. Tenant shall not use the premises or permit the premises
to be used in whole or in part for any purpose or use that is deemed to be a
violation of any of the laws, ordinances, regulations or rules of any public
authority or organization at any time. A judgment of any court of competent
jurisdiction or the admission by Tenant in any action or proceeding against
Tenant that Tenant has violated any such laws, ordinances, regulations or rules
in the use of the premises shall be deemed to be a conclusive determination of
that fact between Landlord and Tenant.
5. UTILITIES: Landlord at landlord's sole cost and expense, shall
furnish the premises during reasonable business hours, as shall be determined by
landlord by regulations duly adopted by Landlord, and provided Tenant is not in
default under any of the provisions of this Lease, all water, sewage, and
janitorial service used in reasonable amounts on the premises. The interruption
or curtailment of any such services shall not constitute constructive eviction
and shall not entitle Tenant to the abatement of rent or to any other claim
against Landlord. Tenant at Tenant's sole cost and expense, shall contract
directly with gas and electricity providers for all gas and electricity provided
to premises. Premises are metered separately from the rest of the building.
6. ASSIGNMENT: Tenant shall not assign this Lease voluntarily or by
operation of law, or any right hereunder, nor sublet the premises or any part
thereof, without the prior written consent or landlord, which consent shall not
be unreasonably withheld.
7. CONDITION OF PREMISES AND REPAIRS: Tenant shall be deemed to have
agreed by accepting occupancy that the premises are in good order, condition and
repair. Tenant, at Tenant's expense shall keep the premises in good order,
condition and repair, including all fixtures and equipment installed by Tenant.
Tenant waives any statutory right to make repairs at the expense of Landlord.
In the event Tenant fails to maintain the premises in good order and repair,
Landlord shall give Tenant notice to make such repairs. In the event Tenant
fails to do so, Landlord shall have the option to make such repairs at the
expense of Tenant. Landlord shall have no liability to Tenant for any damage,
inconvenience or interference with use of the premises by Tenant as a result of
the making of any such repairs.
8. ALTERATIONS AND LIENS: Tenant shall not make or permit to be made any
alterations, changes in and additions to the premises without the prior written
consent of Landlord. All alterations, changes and additions that may be
required shall be done either by or under the direction of Landlord at the cost
of Tenant, and shall become immediately the property of Landlord and shall
remain upon and be surrendered with the premises at the termination of the term
of this Lease.
Tenant, upon the termination of this Lease or the expiration of the term
hereof, or for any other reason, shall quit and surrender the premises in good
order, condition and repair, reasonable wear and tear and damage by fire, and
act of God or the elements excepted. Upon the termination of this Lease or the
expiration of the term or otherwise, Landlord shall have the option to require
Tenant to remove from the premises, at Tenant's expense, all improvements placed
on the premises by Tenant, with the premises thereafter to be restored to its
previous condition, at the expense of Tenant.
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Tenant shall keep the premises and building of which the premises are a
part free and clear of any liens and shall indemnify, hold harmless and defend
Landlord from any liens and encumbrances arising out of any work performed or
materials furnished by or at the direction of Tenant. In the event any lien is
filed, Tenant shall do all acts necessary to discharge any lien within ten (10)
days of filing, or if Tenant desires to contest any lien, then Tenant shall
deposit with Landlord such security as Landlord shall demand to insure the
payment of the lien claim. In the event Tenant shall fail to pay any lien claim
when due or shall fail to deposit the security with Landlord, then Landlord
shall have the right to expend all sums necessary to discharge the lien claim,
and Tenant shall pay as additional rental, when the next rental payment is due,
all sums expended by Landlord in discharging any lien, including attorneys' fees
and costs.
9. SIGNS: Landlord shall provide building standard signage on the lobby
directory. Subject to review and agreement by Landlord and the City of Orinda,
Tenant shall have the right to place a sign above the lower level entrance to
the Premises. Said signage shall be consistent with the character and style of
the building and shall be at Tenant's sole cost and expense. Tenant shall not
place or permit to be placed in, upon, about or outside the said premises or any
part of the building in which the premises are located, any signs without the
prior written consent of Landlord and the City of Orinda.
10. RIGHT OF ENTRY: Landlord and its agents shall have the right at any
reasonable time to enter upon the premises so long as it does not interfere with
the business activities of Tenant on the premises, for the purpose of
inspection, serving or posting notices, maintaining the premises (including the
erection and maintenance of scaffolding, partitions and repair equipment as
shall be required), complying with laws, ordinances and regulations, protecting
the premises, or for any other lawful purpose, including showing the premises to
prospective purchasers or tenants and placing on the premises usual "for rent"
or "for lease" signs.
11. INDEMNIFICATION: Landlord shall be free of all liabilities and claims
for damage by reason of any injury or death to any person or persons, including
Tenant, or property of any kind whatsoever and to whomsoever belonging,
including Tenant, from any cause or causes whatsoever, including acts or
omissions of other tenants in the building, except any liability and claim
caused solely by the acts of Landlord, its agents or servants, while in, upon or
connected in anyway with the premises, during the term of this Lease or any
extensions or renewal thereof, or any occupancy hereunder, and Tenant hereby
agrees to indemnify, save harmless and defend Landlord from all liability,
damages, loss, costs and obligation, including court costs and counsel fees on
account of or arising out of or alleged to have arisen out of, directly or
indirectly, any such injuries, death or losses, however occurring.
12. INSURANCE: Tenant shall take out and keep in force during the term of
this Lease, at Tenant's expense, public liability and property damage insurance
with coverage in the amount of One Million Dollars ($1,000,000) with companies
and policies and form satisfactory to Landlord. Said policies shall be
presented to Landlord for written approval and said policies shall designate
specifically that Landlord is an additional named insured thereunder.
Tenant shall obtain a written obligation on the part of any such insurance
company to notify Landlord in writing of any delinquency in premium payments and
of any cancellation of any such policy. Tenant agrees if Tenant does not take
out such insurance or keep the same in full force and effect, Landlord may take
the necessary insurance and pay the premium therefor and Tenant shall repay to
Landlord the amount so paid by having such amount deemed to be additional rental
and payable as such in the next rental payment due. Tenant shall take out and
maintain fire insurance covering his stock in trade and furniture and fixtures
in an amount equal to the full insurable value thereof.
Landlord hereby releases Tenant and Tenant hereby releases Landlord and
their respective officers, agents and employees from any and all claims and
demands for loss, damages, expense or injury to the premises, furnishings,
fixtures and equipment located on the premises which is caused by or results
from perils, events or happenings which are the subject of insurance carried by
the respective parties in force at the time of any such loss; provided, however,
that such waiver shall be effective only to the extent
3
<PAGE>
permitted by the insurance covering such loss and to the extent such insurance
is not prejudiced thereby or the expense increased.
13. ESTOPPEL CERTIFICATE: Tenant shall execute, acknowledge and deliver
to Landlord at any time within ten (10) days after request by Landlord, a
statement in writing certifying, if such be the case, that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified), the date of commencement
of this lease, the dates on which rent has been paid, and such other information
as Landlord shall reasonably request. It is acknowledged by Tenant that any
such statement is intended to be delivered by Landlord and relied upon by
prospective purchasers, mortgagees, beneficiaries, under deeds of trust or
assignees thereof.
14. COMPLIANCE WITH LAWS AND RULES: Tenant, at Tenant's sole cost, shall
comply with all laws, ordinances, orders and regulation of all governmental
authorities with respect to the premises and the use and occupation thereof by
Tenant. A judgment of any court of competent jurisdiction or the admission by
Tenant in any action or proceeding against Tenant that Tenant has violated any
such laws, ordinances, orders, or regulations, shall be deemed to be conclusive
as to Landlord and Tenant.
Tenant and Tenant's agents servants and employees, visitors and licensees,
shall observe and comply strictly with the rules and regulations attached hereto
as Exhibit B and with all other reasonable rules adopted or which are adopted
hereafter for the care protection, cleanliness and proper operation of the
building and all the tenants in the building. Landlord shall have no obligation
to Tenant as a result of the violation of any such rules by any tenant or any
other person. Landlord shall maintain a copy of such rules in the office of
Landlord for inspection by Tenant at any reasonable time. All of such rules
shall be deemed a material term in this Lease.
Notwithstanding any provisions in Article 14 and Article 4 to the contrary,
Landlord and Tenant shall have no responsibility or liability for the intended
use by Tenant violating any zoning restrictions by the City of Orinda.
15. DESTRUCTION: In the event of damage causing a partial destruction of
the premises during the term of this Lease from any cause and repairs can be
made within sixty (60) days from the date of the damage under the applicable
laws and regulations of governmental authorities, Landlord shall repair said
damage promptly and within a reasonable time, but such partial destruction shall
not void this Lease, except that Tenant shall be entitled to a proportionate
deduction of rent while such repairs are being made, such proportionate
deduction to be based upon the extent to which the portion of the premises
unusable by Tenant bears to the total area of the premises.
If such repairs cannot be made in sixty (60) days, Landlord may, at its
option, make the same within a reasonable time, this Lease continuing in full
force and effect and the rent to be proportionately rebated as provided in the
previous paragraph. In the event that Landlord does not so elect to make such
repairs which cannot be made in sixty (60) days, or such repairs cannot be made
under such laws and regulations, this Lease may be terminated at the option of
either party.
16. CONDEMNATION: If the whole or any part of the premises shall be taken
for public or quasi-public use by right of eminent domain, with or without
litigation, or transferred by agreement in connection with such public or
quasi-public use, this Lease, as to the part so taken or condemned or
transferred, shall terminate as of the date title shall vest in the condemnor
and the rent payable hereunder shall be adjusted so that Tenant shall be
required to pay for the remainder of term only such portion of the rent as the
area in the part remaining after the taking or condemnation bears to the area of
the entire premises as of the date title shall vest in the condemnor.
In the event of such taking or condemnation by judgment, verdict or
agreement, Landlord shall have the option to terminate this Lease as of said
date, or if all of the demised premises shall be so taken or condemned or such
part thereof be so taken or condemned so that there does not remain a portion
susceptible of occupation hereunder, this Lease shall thereupon terminate.
4
<PAGE>
All compensation awarded upon such condemnation or taking shall go the
Landlord and the Tenant shall have no claim thereto, and Tenant hereby
irrevocably assigns and transfers to the Landlord any right to compensation or
damages to which the Landlord may become entitled during the term hereof by
reason of the condemnation of all or part of the premises.
17. REMEDIES: If (i) Tenant's interest, or any part of his interest, in
this Lease be assigned or transferred, either voluntarily or by operation of
law, except with Landlord's consent, or (ii) a voluntary or involuntary petition
in bankruptcy, or for reorganization, or for an arrangement, be filed by or
against Tenant, or any member of Tenant if Tenant be a partnership or joint
venture, or if Tenant be adjudicated bankrupt or insolvent, or if a receiver be
appointed of the business or of the assets of Tenant, except a receiver
appointed at the instance or request of Landlord, or if Tenant make a general
assignment, or any assignment for the benefit of his creditors, or (iii) Tenant,
after notice, fails to remedy any default (1) in the payment of any sum due
under this Lease for 5 days, or (2) in keeping of any other term, covenant or
condition of this Lease with all reasonable dispatch, then in addition to any
other remedy Landlord may have by operation of law, Landlord shall have the
right, without any further demand or notice, to re-enter the premises and eject
all persons from the premises, using all necessary force to do so, and either
(I) Declare this Lease terminated. On such termination Landlord may
recover from Tenant
(a) The worth at the time of award of the unpaid rent which had been
earned at the time of termination;
(b) The worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided;
(c) The worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss for such period that Tenant proves could be reasonably avoided;
(d) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform his obligations
under this Lease, or which in the ordinary course of things would be likely to
result therefrom.
The "worth of the time of award" of the amounts referred to in
subparagraphs (a) and (b) above, is computed by allowing interest at the rate of
eight percent (8%). The worth at the time of award of the amount referred to in
subparagraph (c) above is computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award, plus one
percent (1%).
(ii) Without terminating this Lease, relet the premises, or any part of
the premises, as the agent and for the account of Tenant upon such terms and
conditions as Landlord may deem advisable, in which event the rents received on
such reletting shall be applied first to the expenses of such reletting and
collection, including necessary renovation and alterations of the premises,
reasonable attorney's fees, any real estate commissions paid, and thereafter to
payment of all sums due or to become due Landlord under Lease, and if a
sufficient sum shall not be thus realized to pay such sums and other charges,
Tenant shall pay Landlord any deficiency monthly, notwithstanding Landlord may
have received rental in excess of the rental stipulated in this Lease in
previous or subsequent months, and Landlord may bring an action therefor as such
monthly deficiency shall arise.
18. ATTORNEY FEE: Tenant agrees that if Landlord is involuntarily made a
party defendant to any litigation concerning this Lease or the demised premises
or the premises of which the demised premises are a part by reason of any act or
omission of Tenant and not because of any act or omission of Landlord, then
Tenant shall hold harmless the Landlord from all liability by reason thereof,
including reasonable attorneys' fees incurred by Landlord in such litigation and
all taxable court costs. If
5
<PAGE>
legal action shall be brought by either of the parties hereto for the unlawful
detainer of the premises, for the recovery of any rent due under the provision
hereof, the party prevailing in said action (Landlord or Tenant, as the case
may be) shall be entitled to recover from the party not prevailing costs of suit
and a reasonable attorney's fee which shall be fixed by the judge of the court.
19. ARBITRATION: Any question, dispute or controversy arising under the
terms of this Lease, at the option of Landlord, shall be determined by
arbitration. Such arbitration shall be conducted pursuant to the provisions of
the laws of the State of California then in force, with the rules of procedure
to be those of the American Arbitration Association or its successor insofar as
said rules of procedure do not conflict with the laws of the State of California
then in force. Any award entered as a result of arbitration shall be entered as
a judgment, with the costs or arbitration to be paid as ordered by the
arbitrator.
21. HOLDING OVER: Any holding over after the expiration of the term of
this Lease by Tenant shall be deemed to be a tenancy from month to month and,
except for the term hereof, shall be on the same terms and conditions specified
herein so far as are applicable.
22. WAIVER: No covenant, term or condition of the breach thereof shall be
deemed waived, except by written consent of Landlord, and any waiver or the
breach of any covenant, term or condition shall not be deemed to be a waiver of
any preceding or succeeding breach of the same or any other covenant, term or
condition. Acceptance of all or any portion of rent at any time shall not be
deemed to be a waiver of any covenant, term or condition except as to the rent
payment accepted.
All covenants to be performed by Tenant under this lease are deemed
conditions.
6
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23. NOTICE: Any notice provided for herein shall be given by registered
or certified United States mail, postage prepaid, addressed, if to Landlord to
it at the address to which the rent is then mailed, and if to Tenant, to it at
the premises. The person and the place to which notices are to be mailed may
be changed by either party by notice to the other party, or additional persons
and/or places may be designated.
In the event any mortgagee shall elect to have this Lease a prior lien to
its mortgage, then and in such event, upon such mortgage notifying the Tenant in
writing to that effect, this lease shall have priority over the lien of such
mortgage to the same extent as if the same had been placed on record prior to
such mortgage. In the event that upon any sale, assignment or hypothecation of
the building of which the demised premises are a part, and/or of any leasehold
interest therein by Landlord, a statement shall be required from Tenant as to
offsets against the Landlord. The Tenant agrees to furnish said statement to
the party demanding the same accurately and promptly. Tenant covenants and
agrees, in the event any proceedings are brought for the foreclosure of, or in
the event of exercise of the power of sale under any mortgage covering the
demised premises, whether or not this Lease is terminated by such foreclosure or
sale, that it will, upon request by the purchaser, attain to the purchaser upon
any foreclosure or sale and recognize such purchaser as the Landlord under this
Lease, it being the intent hereof that if this Lease should be terminated by
such foreclosure or sale, it shall upon request by the purchaser, be reinstated
as a Lease between the purchaser and the Tenant. The Tenant, upon request of
any party in interest, shall execute such instrument or instruments as shall be
requested to carry out the requirements of this paragraph. For purposes of this
paragraph, the terms "mortgage" and "mortgagee" shall include, respectively,
"Deed of Trust" and "beneficiary under a Deed of Trust".
24. PARKING: Tenant and Tenant's owners, employees, agents and invitees
shall have non-exclusive rights to use the parking area serving the building in
which the premises are located on an equal basis with the other tenants of the
building subject to parking rules and regulations implemented by Landlord from
time to time. Current regulations provided Tenant with twenty one (21)
designated employee parking spaces as shown on the attached Exhibit C and
Tenant's proportionate share of visitor parking.
25. OPTION TO EXTEND: Tenant shall have two (2) consecutive option
periods to extend the term for one (1) year each by giving Landlord one hundred
twenty (120) days' prior written notice before expiration of the term then in
effect, on the same terms and conditions except rent for the first and second
option periods. The monthly rental rate payable for the first option period
shall be $1.85 per rentable square foot. The monthly rental rate payable for
the second option period shall be $1.95 per rentable square foot.
26. EXPANSION/TERMINATION: During the initial term of the Lease, Tenant,
with one hundred twenty (120) days prior written notice to Landlord, may
terminate this Lease effective anytime after the end of the twelfth (12th) month
of the initial lease term should Landlord be unable to accommodate Tenant's
growth in the building. Tenant agrees to use reasonable good faith effort to
provide Landlord with an estimate of its requirement for additional space.
Landlord agrees to use reasonable good faith effort to accommodate Tenant growth
in the building based upon mutually acceptable terms.
27. TENANT IMPROVEMENTS: Landlord shall complete the tenant improvements
as substantially set forth on the preliminary space plan dated August 23, 1996
prepared by Hansen and Associates. Tenant acknowledges the scope of these
improvements exceed the Landlord's tenant improvement allowance. In general,
the excess improvements include the four (4) private offices labeled 1, 2, 3 and
4, the low wall partitions, laminate work counters and any additional electrical
beyond that detailed on the attached plan. Upon agreement between Landlord and
Tenant of the amount of such excess, Tenant shall pay Landlord the full amount
of excess in cash in accordance with Landlord's obligation to pay its general
contractor.
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28. MISCELLANEOUS: The captions of the paragraph contained in this Lease
are for convenience only and shall not be deemed in resolving any question of
interpretation or construction of any paragraph of this Lease to be relevant.
All of the terms, convenants and conditions of this Lease shall be binding
upon and inure to the benefit of the parties hereto and their heirs, executors
and administrators, successors and assigns, except that nothing in this
provision shall be deemed to permit any assignment, sub-letting or use of the
premises other than as provided for herein.
This Lease shall be governed and interpreted solely by the laws of the
State of California then in force. Each number, singular or plural, as used in
this Lease, shall include all numbers and each gender shall be deemed to include
all genders.
Time is of the essence of this Lease and of each and every provision
hereof, except as to the conditions relating to the delivery of possession of
the premises to Tenant. All the terms, covenants and conditions contained in
this Lease to be performed by Tenant, if Tenant shall consist of more that one
person or organization, shall be deemed to be joint and several, and all rights
and remedies granted to Landlord by law shall be cumulative and non-exclusive of
any other remedy.
29. APPROVAL: Notwithstanding anything contained in this Lease, the
rights and obligations of the parties hereunder shall be subject to approval of
Tenant and/or Tenant's use of the premises by any public body or its officials
exercising control over the property on which the premises are located.
IN WITNESS WHEREOF, the parties have executed this Office Lease as of the
date first above written.
LANDLORD: SLEEPY HOLLOW INVESTMENT COMPANY
BY: /s/ Adam T. Henderson
--------------------------------------------
TENANT: INTRAWARE, INC., a Delaware Corporation
BY: /s/ Peter H. Jackson
--------------------------------------------
Peter H. Jackson, Chief Executive Officer
--------------------------------------------
--------------------------------------------
8
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EXHIBIT B
RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF THIS LEASE
1. Tenants, their employees or patrons, shall not loiter in the entrances
of corridors, nor in any way obstruct the sidewalks, entry passages, halls,
stairways, and elevators, and shall use the same only as passageways and means
of passage to and from their respective offices.
2. The sash doors, sashes, windows, glass doors, lights and skylights that
reflect or admit light into the halls or other places of the building shall not
be covered or obstructed. The toilets and urinals shall not be used for any
purpose other than those for which they were constructed, and no rubbish,
newspapers or other substances of any kind shall be thrown into them. Waste and
excessive or unusual use of water shall not be allowed. Tenant shall not mark,
drive nails, screw or drill into, paint, nor in any way deface the walls,
ceilings, partitions, floors, wood, stone or iron work. The expense of any
breakage, stoppage or damage resulting from violation of this rule shall be
borne by tenant who has caused such breakage, stoppage or damage.
3. No sign, nor advertisement, nor notice, shall be inscribed, painted or
fixed on or to any part of the outside or inside of the building, except it be
of such color, size and style, and in such place upon or in the building, as may
be designated by Lessor. All signs on doors or window glass will be painted for
tenants by Lessor, but the cost of painting shall be paid by tenant.
4. Electric wiring of every kind shall be introduced and connected as
directed by Lessor and no boring or cutting for wires will be allowed except
with the consent of Lessor. The location of telephones, call boxes, etc. shall
be prescribed by Lessor.
5. Lessor shall prescribe the weight, size and position of all safes and
other property brought into the building, and also the times of moving the same
in and out of the building; and all such moving must be done under the
supervision of Lessor. Lessor will not be responsible for any loss of or damage
to any such safe or property from any cause; but all damage done to the building
by moving or maintaining any such safe or property shall be repaired at the
expense of tenant. All safes shall stand on timbers of such size as shall be
designated by Lessor.
6. No additional lock or locks shall be placed by tenants on any door in
the building unless written consent of Lessor shall have first been obtained.
Two keys will be furnished by Lessor for every room, and any additional key
required must be obtained from lessor, 50 cents for each key to be deposited by
tenant; all keys shall be surrendered to Lessor upon termination of the tenancy.
7. Tenant shall not employ any person or persons other that the janitor of
Lessor for the purpose of cleaning the leased premises without the consent of
Lessor. Lessor shall not be responsible to any tenant for any loss of property
from the leased premises, however occurring, or for any damage done to the
effects of any tenant by the janitor or any other of Lessor's employees, or by
any other person.
8. Tenants, their clerks or servants, shall not make or permit any
improper noises in the building, nor play musical instruments or radios, nor
interfere in any way with other tenants or those having business with them.
Tenants, their clerks or servants, shall not throw substances of any kind out of
the window or doors, not down the passages or skylight of the building, nor sit,
nor place anything upon the window sills, not bring into or keep within the
building any animal or bicycle, motorcycle or other vehicle.
9. All freight must be moved into, within and out of the building under
the supervision of Lessor, and according to such regulations as may be posted in
the office of the building, but Lessor will not be responsible for loss of or
damage to such freight from any cause.
10. The requirements of tenants will be attended to only upon application
at the office of the building. Employees shall not perform any work nor do
anything outside of their regular duties unless under special instructions from
the office, and no employee shall admit any person (tenant or otherwise) to any
office without instructions from the office of the building.
11. No awnings allowed. Draperies are furnished each window by Lessor and
any additional window covering desired by tenant shall be put up at his expense
and must be of such uniform shape, color, material and make as may be prescribed
by Lessor.
12. No physician, surgeon or dentist shall advertise his business in any
manner prohibited by the Code of Ethics of the American Medical Association.
13. Tenant shall not use the name or address of the building complex or
any like phrase, as part of name of any business or occupation carried on in the
lease premises.
14. Ice, mineral water, towels and laundry shall be furnished to tenant
only by such persons as may be satisfactory to Lessor.
15. At any time while the building is in charge of a watchman, any person
entering or leaving the building may be questioned by him as to his business in
the building; and anyone not satisfying the watchman of his right to enter the
building may be excluded by him.
16. Lessor reserves the right to make such other and further rules and
regulations as in his judgment may from time to time be necessary for the safety
and cleanliness of, and for the preservation of good order in the building.
9
<PAGE>
Exhibit 10.8
FIRST AMENDMENT TO THE LEASE
FOR
INTRAWARE, INC.
THIS FIRST AMENDMENT TO THE LEASE (the "First Amendment") is made and entered
into as of this 5th day of May, 1997, by and between Sleep Hollow Investment
Company I, a general partnership ("Landlord") and Intraware, Inc., a Delaware
corporation ("Tenant").
WHEREAS, pursuant to that certain office Lease dated August 23, 1996
(hereinafter referred to as "the Lease"), Landlord leased to Tenant and
Tenant leased from Landlord the premises located at 25 Orinda Way, Suite 101
in the City of Orinda, County of Contra Costa, State of California, all as
more particularly described in the Lease (the "Premises"); and
WHEREAS, Landlord and Tenant desire to amend the Lease to incorporate
additional leased premises commonly known as Suite 310.
NOW, THEREFORE, for a valuable consideration the receipt and sufficiency of
which is hereby acknowledged, Landlord and Tenant agree to further amend the
Lease as follows:
1. Premises: The leased premises shall be increased by
approximately 1,940 rentable square feet
(Suite 310) from 6,466 rentable square feet
(Suite 101) to 8,406 rentable square feet
(Suite 101 + 310).
2. Term/Commencement: The terms of this First Amendment shall
commence July 1, 1997 and shall expire with
the Lease on September 1, 1998.
3. Base Rent: The base monthly rent shall increase for
the period June 1, 1997 through September
30, 1997 by $4,260.00 per month ($2.20 x
1,940 square feet) to $14,929.00 per month.
Effective October 1, 1997 the rent shall
adjust pursuant to the Lease from
$14,929.00 per month to $15,575.00 per
month.
4. Operating Expenses: The 1,940 square feet (Suite 310) of
Tenant's premises shall be full service and
Landlord shall waive the operating expenses
for same.
5. Tenant Improvements: Landlord shall, at Landlord's sole cost and
expense, provide new carpet and paint for
the additional leased premises (Suite 310
only).
6. Parking: Pursuant to the attached parking plan,
Tenant's designated parking shall be
increased by 7 stalls from 21 to a total of
28 spaces.
Except as set forth in this First Amendment to the Lease, the Lease shall
remain unmodified and in full force and effect and is incorporated herein by
reference. In the event of any conflict between the terms of the Lease and
the terms of this First Amendment to the Lease, the terms of this First
Amendment to the Lease shall control.
This First Amendment to the Lease shall be binding upon and shall inure to
the benefit of Landlord and Tenant and their respective successors, assignees
and representatives.
LANDLORD: TENANT:
SLEEPY HOLLOW INVESTMENT CO. I, INTRAWARE, INC.,
a general partnership a Delaware Corporation
By: /s/ Adam T. Henderson By: /s/ Peter H. Jackson
---------------------------- -------------------------------
Adam T. Henderson Peter H. Jackson
Its: President Its: Chief Executive Officer
--------------------------- ------------------------------
Date: 5/27/97 Date: 5/21/97
-------------------------- -----------------------------
<PAGE>
[Map]
<PAGE>
Exhibit 10.9
SECOND AMENDMENT TO THE LEASE
FOR
INTRAWARE, INC.
THIS SECOND AMENDMENT TO THE LEASE (the "Second Amendment") is made and entered
into as of this 31st day of March, 1998, by and between Sleepy Hollow Investment
Company 1, a general partnership ("Landlord") and Intraware, Inc., a Delaware
corporation ("Tenant").
WHEREAS, pursuant to that certain office Lease dated August 23, 1996 and First
Amendment to the Lease dated May 5, 1997 (hereinafter referred to as "the
Lease"), Landlord leased to Tenant and Tenant leased from Landlord the premises
located at 25 Orinda Way, Suite 101 and Suite 310 in the City of Orinda, County
of Contra Costa, State of California, all as more particularly described in the
Lease (the "Premises"); and
WHEREAS, Landlord and Tenant desire to amend the Lease to modify the rent,
incorporate additional leased premises, and extend the Lease term.
NOW, THEREFORE, for a valuable consideration the receipt and sufficiency of
which is hereby acknowledged, Landlord and Tenant agree to further amend the
Lease as follows:
1. Premises: The Premises shall be increased by
approximately 10,256 rentable square feet
from approximately 8,406 rentable square feet
(Suites 101 and 310) to approximately 18,662
rentable square feet (Suites 101, 200, 210,
301, 308, 310, and 320).
2. Term/Commencement: The Lease term is hereby extended through
April 30, 2001. The term of this Second
Amendment shall commence as follows:
a) Rent shall commence April 1, 1998 on
first floor and third floor Premises
consisting of suites 101, 301, 308, 310 and
320 totaling approximately 12,726 rentable
square feet.
b) Rent shall commence May 1, 1998 on
entire Premises consisting of Suites 101,
200, 210, 301, 308, 310 and 320 totaling
approximately 18,662 rentable square feet.
3. Base Rent: The base monthly rent is adjusted as follows:
<TABLE>
<CAPTION>
Month Base Rent
----- ---------
<S> <C>
April, 1998 $26,724.60 per month
May 1, 1998 - March 31, 1999 39,190.20 per month
April 1, 1999 - March 31, 2000 41,056.40 per month
April 1, 2000 - April 30, 2001 43,855.70 per month
</TABLE>
4. Operating Expenses: Approximately 12,196 rentable square feet of
Tenant's premises (Suites 200, 210, 301, 308,
310 and 320) shall be full service and shall
have a 1998 base year for operating expenses;
adjusted for a full twelve (12) months of
occupancy.
5. Tenant Improvements: Landlord shall, at Landlord's sole cost and
expense, provide building standard
improvements pursuant to the attached Exhibit
A. Tenant shall pay for mutually agreed upon
upgrades including design fees. The
upgrades, at this time, include flooring,
doors and hardware for Suite 210 and the main
entry door for Suite 101 only. The upgrade
costs shall not exceed seven thousand five
hundred dollars ($7,500.00).
6. Parking: Pursuant to the attached parking plan,
Tenant's designated parking shall be
increased by 34 stalls from 28 to a total of
62 spaces.
7. Option to Renew: Paragraph 25 of the Lease shall be changed to
the following:
If Tenant is not then and has not been in
default of any of the terms and conditions of
the lease, including timely payment of rent,
Tenant shall have one (1) two (2) year option
to renew this lease at a base rent of forty
five thousand seven hundred twenty one
dollars and 90/100 ($45,721.90) per month for
year one (1) and forty seven thousand five
hundred eighty eight dollars and 10/100
($47,588.10) per month for year two (2).
Tenant shall provide written notification to
Lessor at least 150 days prior to the
<PAGE>
lease expiration. If Tenant does not provide
timely written notice, or has had more than
two (2) late rental payments in any twelve
month period, this option is void.
8. Utilities: Paragraph 5 of the Lease is hereby modified
relative to Suites 200, 210, 301, 308, 310
and 320 to include gas, heat, light,
electricity and air conditioning during
reasonable business hours which are hereby
defined as 6:00 a.m. to 6:00 p.m., Monday
through Friday. Pursuant to discussions with
Tenant and Tenants workstation vendor, Lessor
has provided only standard electrical
circuits (2 circuits per whip/J-box location
for workstations - no isolated or dedicated
isolated grounds have been provided). All
other electrical in the suites is "as-is",
except a dedicated outlet has been provided
on the 3rd floor for a copier. If Lessee's
power demands or requirements exceed that
provided initially, Lessee shall be
responsible for the cost to modify the
electrical to meet its needs and correct any
problems resulting from same, including base
building electrical modifications if
required.
9. Expansion/Termination: Paragraphs 25, 26, and 27 of the Lease are
hereby void and of no further force and
effect.
Except as set forth in this Second Amendment to the Lease, the Lease shall
remain unmodified and in full force and effect and is incorporated herein by
reference. In the event of any conflict between the terms of the Lease and the
terms of this Second Amendment to the Lease, the terms of this Second Amendment
to the Lease shall control.
This Second Amendment to the Lease shall be binding upon and shall inure to the
benefit of Landlord and Tenant and their respective successors, assignees and
representatives.
LANDLORD: TENANT:
SLEEPY HOLLOW INVESTMENT CO. I, INTRAWARE, INC.,
a general partnership a Delaware Corporation
By: /s/ Adam T. Henderson By: /s/ Donald M. Freed
--------------------------------- -----------------------------
Adam T. Henderson Donald M. Freed
Its: President Its: Chief Financial Officer
-------------------------------- ----------------------------
Date: 5/19/98 Date: 5/19/98
------------------------------- ---------------------------
<PAGE>
EXHIBIT 10.10
M A S T E R L E A S E A G R E E M E N T
MASTER LEASE AGREEMENT (the "Master Lease") dated September 9, 1998 by and
between COMDISCO, INC. ("Lessor") and INTRAWARE, INC. ("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree
as follows (all capitalized terms are defined in Section 14.18):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each Summary
Equipment Schedule. In the event of a conflict, the terms of the applicable
Schedule prevail over this Master Lease.
2. TERM.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will
be bound to its rental obligations for each item of Equipment and the term of
a Summary Equipment Schedule will begin and continue through the Initial Term
and thereafter until terminated by either party upon prior written notice
received during the Notice Period. No termination may be effective prior to
the expiration of the Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance on the first day of each Rent Interval at
the address specified in Lessor's invoice. Interim Rent is due and payable
when invoiced. If any payment is not made when due, Lessee will pay a Late
Charge on the overdue amount. Upon Lessee's execution of each Schedule,
Lessee will pay Lessor the Advance specified on the Schedule. The Advance
will be credited towards the final Rent payment if Lessee is not then in
default. No interest will be paid on the Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee that, so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of
the Summary Equipment Schedule any manufacturer's warranties for the
Equipment. LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY
MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE
EQUIPMENT OR ITS FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible
for any liability, claim, loss, damage or expense of any kind (including
strict liability in tort) caused by the Equipment except for any loss or
damage caused by the willful misconduct or negligent acts of Lessor. In no
event is Lessor responsible for special, incidental or consequential damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the rights
of the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes
Lessor, as Lessee's agent, and at Lessor's expense, to prepare, execute and
file in Lessee's name precautionary Uniform Commercial Code financing
statements showing the interest of the Owner, Lessor, and any Assignee or
Secured Party in the Equipment and to insert serial numbers in Summary
Equipment Schedules as appropriate. Lessee will, at its expense, keep the
Equipment free and clear from any liens or encumbrances of any kind (except
any caused by Lessor) and will indemnify and hold the Owner, Lessor, any
Assignee and Secured Party harmless from and against any loss caused by
Lessee's failure to do so, except where such is caused by Lessor.
5.2 RELOCATION OR SUBLEASE. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i)
the Equipment will not be used by an entity exempt from federal income tax,
and (ii) all additional costs (including any administrative fees, additional
taxes and insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor
and the Secured Party. Such consent to sublease will be granted if: (i)
Lessee meets the relocation requirements set out above, (ii) the sublease is
expressly subject and subordinate to the terms of the Schedule, (iii) Lessee
assigns its rights in the sublease to Lessor and the Secured Party as
additional collateral and security, (iv) Lessee's obligation to maintain and
insure the Equipment is not altered, (v) all financing statements required to
continue the Secured Party's prior perfected security interest are filed, and
(vi) Lessee executes sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations
under this Master Lease and the relevant Schedule.
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5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have been
fixed by Lessor in order to permit Lessor to sell and/or assign or transfer
its interest or grant a security interest in each Schedule and/or the
Equipment to a Secured Party or Assignee. In that event, the term Lessor will
mean the Assignee and any Secured Party. However, any assignment, sale, or
other transfer by Lessor will not relieve Lessor of its obligations to Lessee
and will not materially change Lessee's duties or materially increase the
burdens or risks imposed on Lessee. The Lessee consents to and will
acknowledge such assignments in a written notice given to Lessee. Lessee also
agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights,
but will not be obligated to perform any of the obligations of Lessor. The
Secured Party will not disturb Lessee's quiet and peaceful possession and
unrestricted use of the Equipment so long as Lessee is not in default and the
Secured Party continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured
Party, despite any defense or claim which it has against Lessor. Lessee
reserves its right to have recourse directly against Lessor for any defense
or claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent of
the Secured Party's rights in that Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Summary Equipment Schedule constitutes a net lease.
Lessee's obligation to pay Rent and all other amounts due hereunder is
absolute and unconditional and is not subject to any abatement, reduction,
set-off, defense, counterclaim, interruption, deferment or recoupment for any
reason whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all
taxes, fees or any other charges (together with any related interest or
penalties not arising from the negligence of Lessor) accrued for or arising
during the term of each Summary Equipment Schedule against Lessor, Lessee or
the Equipment by any governmental authority (except only Federal, state,
local and franchise taxes on the capital or the net income of Lessor). Lessor
will file all personal property tax returns for the Equipment and pay all
such property taxes due. Lessee will reimburse Lessor for property taxes
within thirty (30) days of receipt of an invoice.
7. CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration,
other than normal wear and tear, and will not use the Equipment for any
purpose other than that for which it was designed. If commercially available
and considered common business practice for each item of Equipment, Lessee
will maintain in force a standard maintenance contract with the manufacturer
of the Equipment, or another party acceptable to Lessor, and will provide
Lessor with a complete copy of that contract. If Lessee has the Equipment
maintained by a party other than the manufacturer or self maintains, Lessee
agrees to pay any costs necessary for the manufacturer to bring the Equipment
to then current release, revision and engineering change levels, and to
re-certify the Equipment as eligible for manufacturer's maintenance at the
expiration of the lease term, provided re-certification is available and is
required by Lessor. The lease term will continue upon the same terms and
conditions until recertification has been obtained.
7.2 INSPECTION BY LESSOR. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents,
warrants and covenants that with respect to the Master Lease and each
Schedule executed hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction
where the Equipment is, or is to be, located) where its ownership or lease of
property or the conduct of its business requires such qualification, except
for where such lack of qualification would not have a material adverse effect
on the Company's business; and has full corporate power and authority to hold
property under the Master Lease and each Schedule and to enter into and
perform its obligations under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease
and each Schedule are not inconsistent with the Lessee's Articles of
Incorporation or Bylaws, do not contravene any law or governmental rule,
regulation or order applicable to it, do not and will not contravene any
provision of, or constitute a default under, any indenture, mortgage,
contract or other instrument to which it is a party or by which it is bound,
and the Master Lease and each Schedule constitute legal, valid and binding
agreements of the Lessee, enforceable in accordance with their terms, subject
to the effect of applicable bankruptcy and other similar laws affecting the
rights of creditors generally and rules of law concerning equitable remedies.
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(c) There are no actions, suits, proceedings or patent claims pending or, to
the knowledge of the Lessee, threatened against or affecting the Lessee in
any court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of
the Lessee to perform its obligations under the Master Lease and each
Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate,
materially adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents,
patent applications, trademarks, trade names, inventions, franchises,
licenses, permits, computer software and copyrights necessary for the
operations of its business as now conducted, with no known infringement of,
or conflict with, the rights of others.
(g) All material contracts, agreements and instruments to which the Lessee
is a party are in full force and effect in all material respects, and are
valid, binding and enforceable by the Lessee in accordance with their
respective terms, subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment.
Upon termination (by expiration or otherwise) of each Summary Equipment
Schedule, Lessee shall, pursuant to Lessor's instructions and at Lessee's
full expense (including, without limitation, expenses of transportation and
in-transit insurance), return the Equipment to Lessor in the same operating
order, repair, condition and appearance as when received, less normal
depreciation and wear and tear. Lessee shall return the Equipment to Lessor
at 6111 North River Road, Rosemont, Illinois 60018 or at such other address
within the continental United States as directed by Lessor, provided,
however, that Lessee's expense shall be limited to the cost of returning the
Equipment to Lessor's address as set forth herein. During the period
subsequent to receipt of a notice under Section 2, Lessor may demonstrate the
Equipment's operation in place and Lessee will supply any of its personnel as
may reasonably be required to assist in the demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest
with labels provided by Lessor. Lessee will keep all Equipment free from any
other marking or labeling which might be interpreted as a claim of ownership.
11. INDEMNITY.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from
and against any and all claims, costs, expenses, damages and liabilities,
including reasonable attorneys' fees, arising out of the ownership (for
strict liability in tort only), selection, possession, leasing, operation,
control, use, maintenance, delivery, return or other disposition of the
Equipment during the term of this Master Lease or until Lessee's obligations
under the Master Lease terminate. However, Lessee is not responsible to a
party indemnified hereunder for any claims, costs, expenses, damages and
liabilities occasioned by the negligent acts of such indemnified party.
Lessee agrees to carry bodily injury and property damage liability insurance
during the term of the Master Lease in amounts and against risks customarily
insured against by the Lessee on equipment owned by it. Any amounts received
by Lessor under that insurance will be credited against Lessee's obligations
under this Section.
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each
item of Equipment in an amount not less than the Casualty Value. All policies
for such insurance will name the Lessor and any Secured Party as additional
insured and as loss payee, and will provide for at least thirty (30) days
prior written notice to the Lessor of cancellation or expiration, and will
insure Lessor's interests regardless of any breach or violation by Lessee of
any representation, warranty or condition contained in such policies and will
be primary without right of contribution from any insurance effected by
Lessor. Upon the execution of any Schedule, the Lessee will furnish
appropriate evidence of such insurance acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such
Equipment has suffered a Casualty Loss. Within fifteen (15) days of a
Casualty Loss, Lessee will provide written notice of that loss to Lessor and
Lessee will, at Lessee's option, either (a) replace the item of Equipment
with Like Equipment and marketable title to the Like Equipment will
automatically vest in Lessor or (b) pay the Casualty Value and after that
payment and the payment of all other amounts due and owing with respect to
that item of
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Equipment, Lessee's obligation to pay further Rent for the item of Equipment
will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when due
if that failure continues for five (5) business days after written notice; or
(b) Lessee's failure to perform any other term or condition of the Schedule
or the material inaccuracy of any representation or warranty made by the
Lessee in the Schedule or in any document or certificate furnished to the
Lessor hereunder if that failure or inaccuracy continues for ten (10)
business days after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure by
Lessee to pay its debts when due, the insolvency of Lessee, the filing by
Lessee or the filing against Lessee of any petition under any bankruptcy or
insolvency law or for the appointment of a trustee or other officer with
similar powers, the adjudication of Lessee as insolvent, the liquidation of
Lessee, or the taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary
Equipment Schedule or other agreement between Lessee and Lessor or its
Assignee or Secured Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default Costs;
(c) with notice and demand, recover all sums due and accelerate and recover
the present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment
fees charged to Lessor by the Secured Party or, if there is no Secured Party,
then discounted at 6%) together with all Rent and other amounts currently due
as liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and repossess the
Equipment without being liable to Lessee for damages due to the repossession,
except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by
law, are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of
Section 13.2, Lessor will use its best efforts in accordance with its normal
business procedures (and without obligation to give any priority to such
Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET
FORTH IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER
CONFERRED BY STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS
DAMAGES OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor
may sell, lease or otherwise dispose of all or any part of the Equipment at a
public or private sale for cash or credit with the privilege of purchasing
the Equipment. The proceeds from any sale, lease or other disposition of the
Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair Market
Value of the Equipment at the expiration of the Initial Term less the Default
Costs; or
(b) if leased, the present value (discounted at three percent (3%) over the
U.S. Treasury Notes of comparable maturity to the term of the re-lease) of
the rentals for a term not to exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums
due to Lessor from Lessee. However, Lessee is liable to Lessor for, and
Lessor may recover, the amount by which the proceeds are less than the
liquidated damages and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 BOARD ATTENDANCE. Upon invitation of Lessee, one representative of
Lessor will have the right to attend Lessee's corporate Board of Directors
meetings and Lessee will give Lessor reasonable notice in advance of any
special Board of Directors meeting, which notice will provide an agenda of
the subject matter to be discussed at such board meeting. Lessee will provide
Lessor with a certified copy of the minutes of each Board of Directors
meeting within thirty (30) days following the date of such meeting held
during the term of this Master Lease.
14.2 FINANCIAL STATEMENTS. As soon as practicable at the end of each month
(and in any event within thirty (30) days), Lessee will provide to Lessor the
same information which
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Lessee provides to its Board of Directors, but which will include not less
than a monthly income statement, balance sheet and statement of cash flows
prepared in accordance with generally accepted accounting principles,
consistently applied (the "Financial Statements"). As soon as practicable at
the end of each fiscal year, Lessee will provide to Lessor audited Financial
Statements setting forth in comparative form the corresponding figures for
the fiscal year (and in any event within ninety (90) days), and accompanied
by an audit report and opinion of the independent certified public
accountants selected by Lessee. Lessee will promptly furnish to Lessor any
additional information (including, but not limited to, tax returns, income
statements, balance sheets and names of principal creditors) as Lessor
reasonably believes necessary to evaluate Lessee's continuing ability to meet
financial obligations. After the effective date of the initial registration
statement covering a public offering of Lessee's securities, the term
"Financial Statements" will be deemed to refer to only those statements
required by the Securities and Exchange Commission.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease
or any Schedule; (ii) Lessee is in default under any loan agreement, the
result of which would allow the lender or any secured party to demand
immediate payment of any material indebtedness; (iii) there is a material
adverse change in Lessee's credit standing; or (iv) Lessor determines (in
reasonable good faith) that Lessee will be unable to perform its obligations
under this Master Lease or any Schedule.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Master
Lease and all relevant Schedules. If Lessor elects to consent to the
assignment, Lessee and its successor will sign the assignment documentation
provided by Lessor. If Lessor elects to terminate the Master Lease and all
relevant Schedules, then Lessee will pay Lessor all amounts then due and
owing and a termination fee equal to the present value (discounted at 6%) of
the remaining Rent for the balance of the Initial Term(s) of all Schedules,
and will return the Equipment in accordance with Section 9. Lessor hereby
consents to any Merger in which the acquiring entity has a Moody's Bond
Rating of BA3 or better or a commercially acceptable equivalent measure of
creditworthiness as reasonably determined by Lessor.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE,
MAY ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE
AMENDMENT IS SOUGHT TO BE ENFORCED.
14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to
constitute a waiver of compliance with any representation, warranty or
covenant contained in this Master Lease or a Schedule. The waiver by Lessor
or Lessee of a breach of any provision of this Master Lease or a Schedule
will not operate or be construed as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the benefit
of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or
in any document delivered in connection with those agreements are for the
benefit of Lessor and any Assignee or Secured Party and survive the
execution, delivery, expiration or termination of this Master Lease.
14.9 NOTICES. Any notice, request or other communication to either party by
the other will be given in writing and deemed received upon the earlier of
(1) actual receipt or (3) three days after mailing if mailed postage prepaid
by regular or airmail to Lessor (to the attention of "the Comdisco Venture
Group") or Lessee, at the address set out in the Schedule, (3) one day after
it is sent by courier or (4) on the same day as sent via facsimile
transmission, provided that the original is sent by personal delivery or mail
by the sending party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE
GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO
RIGHTS OR REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE
WILL BE CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR
A SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this Master Lease
or any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
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14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all
such counterparts together constitute one and the same instrument. If Lessor
grants a security interest in all or any part of a Schedule, the Equipment or
sums payable thereunder, only that counterpart Schedule marked "Secured
Party's Original" can transfer Lessor's rights and all other counterparts
will be marked "Duplicate."
14.13 LICENSED PRODUCTS. Lessee will obtain no title to Licensed Products
which will at all times remain the property of the owner of the Licensed
Products. A license from the owner may be required and it is Lessee's
responsibility to obtain any required license before the use of the Licensed
Products. Lessee agrees to treat the Licensed Products as confidential
information of the owner, to observe all copyright restrictions, and not to
reproduce or sell the Licensed Products.
14.14 SECRETARY'S CERTIFICATE. Lessee will, upon execution of this Master
Lease, provide Lessor with a secretary's certificate of incumbency and
authority. Upon the execution of each Schedule with a purchase price in
excess of $1,000,000, Lessee will provide Lessor with an opinion from
Lessee's counsel in a form acceptable to Lessor regarding the representations
and warranties in Section 8.
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be
in a form satisfactory to Lessor.
14.17 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby agrees
that Lessor shall not, by virtue of its entering into this Master Lease, be
required to remit any payments to any manufacturer or other third party until
Lessee accepts the Equipment subject to this Master Lease.
14.18 DEFINITIONS.
ADVANCE - means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
CASUALTY LOSS - means the irreparable loss or destruction of Equipment.
CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
COMMENCEMENT DATE - is defined in each Schedule.
DEFAULT COSTS - means reasonable attorney's fees and remarketing costs
resulting from a Lessee default or Lessor's enforcement of its remedies.
DELIVERY DATE - means date of delivery of Inventory Equipment to Lessee's
address.
EQUIPMENT - means the property described on a Summary Equipment Schedule and
any replacement for that property required or permitted by this Master Lease
or a Schedule.
EVENT OF DEFAULT - means the events described in Subsection 13.1.
FAIR MARKET VALUE - means the aggregate amount which would be obtainable in
an arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first day of the
first full Rent Interval following the Commencement Date for all items of
Equipment and continuing for the number of Rent Intervals indicated on a
Schedule.
INTERIM RENT - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full
Rent Interval included in the Initial Term.
LATE CHARGE - means the lesser of five percent (5%) of the payment due or the
maximum amount permitted by the law of the state where the Equipment is
located.
LICENSED PRODUCTS - means any software or other licensed products attached to
the Equipment.
LIKE EQUIPMENT - means replacement Equipment which is lien free and of the
same model, type, configuration and manufacture as Equipment.
MERGER - means any consolidation or merger of the Lessee with or into any
other corporation or entity, any sale or conveyance of all or substantially
all of the assets or stock of the Lessee by or to any other person or entity
in which Lessee is not the surviving entity.
NOTICE PERIOD - means not less than ninety (90) days nor more than twelve
(12) months prior to the expiration of the lease term.
OWNER - means the owner of Equipment.
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RENT - means the rent Lessee will pay for each item of Equipment expressed in a
Summary Equipment Schedule either as a specific amount or an amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
RENT INTERVAL - means a full calendar month or quarter as indicated on a
Schedule.
SCHEDULE - means either an Equipment Schedule or a Licensed Products Schedule
which incorporates all of the terms and conditions of this Master Lease.
SECURED PARTY - means an entity to whom Lessor has granted a security
interest for the purpose of securing a loan.
SUMMARY EQUIPMENT SCHEDULE - means a certificate provided by Lessor
summarizing all of the Equipment for which Lessor has received Lessee
approved vendor invoices, purchase documents and/or evidence of delivery
during a calendar quarter which will incorporate all of the terms and
conditions of the related Schedule and this Master Lease and will constitute
a separate lease for the equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or
as of the day and year first above written.
INTRAWARE, INC. COMDISCO, INC.,
as Lessee as Lessor
By: /s/ Donald M. Freed By: /s/ James P. Labe
--------------------------------- -----------------------------------
Title: Executive Vice President Title: President, COMDISCO VENTURES
------------------------------ --------------------------------
and Chief Financial Officer DIVISION
------------------------------ --------------------------------
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EXHIBIT 10.11
ADDENDUM TO THE
MASTER LEASE AGREEMENT DATED AS OF SEPTEMBER 9, 1998
BETWEEN INTRAWARE, INC., AS LESSEE
AND COMDISCO, INC., AS LESSOR
The undersigned hereby agree that the terms and conditions of the
above-referenced Master Lease Agreement are hereby modified and amended as
follows:
1) SECTION 4.2 "WARRANTY AND DISCLAIMER OF WARRANTIES."
First Sentence, line 2, delete the words "Lessee is not in default"
and insert "no Event of Default has occurred and is continuing,
neither Lessor nor any person or entity claiming by or through
Lessor".
2) SECTION 5.1 "TITLE."
Delete the first sentence in its entirety and replace with: "Lessee
shall have no right, title or interest in the Equipment except as
set forth in this Master Lease or in any Schedule."
Third Sentence, line 3, after the words "caused by Lessor", insert
"or parties claiming by or through Lessor".
3) SECTION 5.3 "ASSIGNMENT BY LESSOR."
In Paragraph (a), second sentence, lines 3 and 4, delete the words
"Lessee is not in default and the Secured Party continues to
receive all Rent payable under the Schedule." and replace with "no
Event of Default has occurred and is continuing".
In Paragraph (b), insert the following clause at the beginning
thereof: "Upon written notice from Lessor,".
4) SECTION 6.1 "NET LEASE."
At the end of second sentence insert the following, ";provided,
however, that Lessee's ability to bring suit against Lessor for
breach of this Master Lease shall not be affected by this Section
6.1.".
5) SECTION 6.2 "TAXES AND FEES."
First Sentence, line 3 delete "accrued for or arising" and replace
with "attributable to periods".
-1-
<PAGE>
6) SECTION 7.1 "CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR."
Delete the fourth sentence in its entirety and replace with: "With
Lessor's prior written consent, Lessee may have the Equipment
maintained by a party other than the manufacturer. Lessor approves
Lessee as such maintenance contractor.".
7) SECTION 8 "REPRESENTATIONS AND WARRANTIES OF LESSEE."
Paragraph (f) insert the following at the end thereof: ", except
where the failure to do so would not reasonably be expected to have
a material adverse effect.".
8) SECTION 9 "DELIVERY AND RETURN OF EQUIPMENT."
Second sentence, line 3, after the words "to Lessor's" insert the
word "reasonable".
Fourth sentence, line 1, after the words "under Section 2" insert
",subject to Lessee's security requirements,".
Insert the following sentence at the end of Section 9: "All such
demonstrations will be conducted in such manner as to minimize any
interference with Lessee's operations.".
9) SECTION 11 "INDEMNITY."
Second sentence, in line 3, after the words "negligent acts" insert
"or willful conduct".
10) SECTION 13.1 "DEFAULT."
Paragraph (c), insert the following at the end thereof: "(and any
such involuntary event has not been dismissed or vacated within 30
days)".
11) SECTION 13.2 "REMEDIES."
Paragraph (c), line 5, delete "6%" and insert "U.S. Treasury Notes
of comparable maturity to the remaining term of the defaulted
Schedule".
12) SECTION 13.3 "MITIGATION."
-2-
<PAGE>
Paragraph (b), lines 2 and 3, delete "3 percent (3%) over the U.S.
Treasury Notes of comparable maturity to the term of" and insert,
"the same interest rate implicit in".
13) SECTION 14.1 "BOARD ATTENDANCE"
Delete this section in its entirety.
14) SECTION 14.3 "OBLIGATION TO LEASE ADDITIONAL EQUIPMENT."
In line 3, delete "Lessee is in default" and replace with "an Event
of Default has occurred or is continuing".
In line 6 after the words "material indebtedness" insert "for borrowed
money in an amount in excess of $75,000".
15) SECTION 14.4 "MERGER AND SALE PROVISIONS."
In line 2, delete "sixty (60)" and replace with "twenty (20)".
16) SECTION 14.6 "NO WAIVER."
First sentence, insert the following at the beginning thereof:
"Except for a written waiver,".
17) SECTION 14.7 "BINDING NATURE."
Second sentence, insert the following at the end thereof: "EXCEPT
IN ACCORDANCE WITH SECTION 14.4.".
18) SECTION 14.9 "NOTICES."
Line 3, delete "three (3)" and insert "five (5)"; delete "postage
prepaid by regular or air mail" and insert "certified mail, return
receipt requested".
19) SECTION 14.13 "LICENSED PRODUCTS."
After the first sentence insert: "To the extent that Lessor, by
reason of its ownership of the Equipment, holds any license to a
Licensed Product, Lessor shall obtain the right for Lessee to use
any such Licensed Product for the duration of the lease term.".
Third sentence, line 2, after the word "owner" insert "of such
Licensed Product".
-3-
<PAGE>
20) SECTION 14.18 "DEFINITIONS."
"Delivery Date" revise the word "Inventory" to read "inventory".
"Like Equipment" delete the words "of the same model, type,
configuration, and manufacture as Equipment." and replace with "of
the same manufacture and of a type, model and feature configuration
having a capability and value equal to or greater than the
Equipment being replaced.".
Except as amended hereby, all other terms and conditions of the Master
Lease Agreement remain in full force and effect.
INTRAWARE, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ Donald M. Freed By: /s/ James P. Labe
----------------------------- ---------------------
Title: Executive Vice President Title: President, Comdisco
and Chief Financial Officer Ventures Division
----------------------------- ---------------------
Date: 9/10/98 Date: 9/11/98
----------------------------- ---------------------
-4-
<PAGE>
EQUIPMENT SCHEDULE VL-1
DATED AS OF SEPTEMBER 9, 1998
TO MASTER LEASE AGREEMENT
DATED AS OF SEPTEMBER 9, 1998 (THE "MASTER LEASE")
LESSEE: INTRAWARE, INC. LESSOR: COMDISCO, INC.
ADMIN. CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES:
- ------------------------- ------------------------
Name: Don Freed, CFO 6111 North River Road
Phone: (925) 253-4545 Rosemont, Illinois 60018
Fax: (925) 253-4599 Attn.: Venture Group
Address for Notices:
- --------------------
25 Orinda Way
Orinda, CA 94563
Central Billing Location: Rent Interval: Monthly
- ------------------------- --------------
same as above
Attn.:
Lessee Reference No.: ________
(24 digits maximum)
Location of Equipment: Initial Term: 48 months
- ---------------------- -------------
VARIOUS (Number of Rent Intervals)
Lease Rate Factor: 2.381%
------------------
Attn.:
EQUIPMENT (as defined below): Advance: $11,905.00
--------
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period September 9, 1998 through March 9, 2000
("Equipment Delivery Period"), for which Lessor receives vendor invoices
approved for payment, up to an aggregate purchase price of $500,000.00
("Commitment Amount"); excluding custom use equipment, leasehold
improvements, installation costs and delivery costs, rolling stock, special
tooling, "stand-alone" software, application software bundled into computer
hardware, hand held items, molds and fungible items.
<PAGE>
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by
providing Lessee with Equipment from the fourth category, in an aggregate
value up to the Commitment Amount referred to on the face of this Schedule.
If the Equipment acquired is of category (i), (ii), (iii) below, the
effectiveness of the Schedule as it relates to those items of Equipment is
contingent upon Lessee's acknowledgment at the time Lessor acquires the
Equipment that Lessee has either received or approved the relevant purchase
documentation between vendor and Lessor for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is
obtained from a vendor by Lessee for its use subject to Lessor's
prior approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than October 9,
1998*. Lessor will not perform a Sale-Leaseback Transaction for any
request or accompanying Equipment ownership documents which arrive
after the date marked above by an asterisk (*). Further, any
sale-leaseback Equipment will be placed on lease subject to:
(1) Lessor prior approval of the Equipment; and (2) if approved, at
Lessor's actual net appraised Equipment value pursuant to the
schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
-------------------------- ----------------------------------
<S> <C>
Between 6/11/98 and 9/9/98 100%
Between 4/11/98 and 6/10/98 80%
Between 1/9/98 and 4/10/98 70%
</TABLE>
Lessee represents that it has paid all California sales tax due on the cost
of that portion of Equipment to be installed in California and agrees to
provide evidence of such payment to Lessor, if specifically requested. As a
result of the election, Lessor agrees that it will not invoice Lessee for use
tax on the monthly rental rate. Lessee understands that this is an
irrevocable election to measure the tax by the Equipment Cost and cannot be
changed except prior to installation of the Equipment.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which
is obtained from a third party by Lessee for its use subject to
Lessor's prior approval of the Equipment and at Lessor's appraised
value for such used Equipment.
(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800 Direct
Service, Lessor will purchase new or used Equipment from a third
party or Lessor will supply new or used Equipment from its inventory
for use by Lessee at rates provided by Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the install date as confirmed in writing by Lessee as set
forth on the vendor invoice of which a facsimile transmission will constitute
an original document. The Commencement Date for sale-leaseback Equipment
shall be the date Lessor tenders the purchase price. The Commencement Date
for 800 Number Equipment shall be fifteen (15) days from the ship date, such
ship date to be set forth on the vendor invoice or if unavailable on the
vendor invoice the ship date will be determined by Lessor upon other
supporting shipping documentation Lessor will summarize all approved
invoices, purchase documentation and evidence of delivery, as applicable,
received in the same calendar month into a Summary Equipment Schedule in the
form attached to this Schedule as Exhibit 1, and the Initial Term will begin
the first day of the calendar month thereafter. Each Summary Equipment
Schedule will contain the Equipment location description, serial number(s)
and cost and will incorporate the terms and conditions of the Master Lease
and this Schedule and will constitute a separate lease.
<PAGE>
3. OPTION TO EXTEND
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will have the right to extend the Initial Term of
such Summary Equipment Schedule for a period of one (1) year. In such event,
the rent to be paid during said extended period shall be mutually agreed upon
and if the parties cannot mutually agree, then the Summary Equipment Schedule
shall continue in full force and effect pursuant to the existing terms and
conditions until terminated in accordance with its terms. The Summary
Equipment Schedule will continue in effect following said extended period
until terminated by either party upon not less than ninety (90) days prior
written notice, which notice shall be effective as of the date of receipt.
4. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the
option at the expiration of the Initial Term of Summary Equipment Schedule to
purchase all, but not less than all, of the Equipment listed therein for a
purchase price not to exceed 12.5% of the Equipment cost and upon terms and
conditions to be mutually agreed upon by the parties following Lessee's
written notice, plus any taxes applicable at time of purchase. Said purchase
price shall be paid to Lessor at least thirty (30) days before the expiration
date of the Initial Term or extended term. Title to the Equipment shall
automatically pass to Lessee upon payment in full of the purchase price but,
in no event earlier than the expiration of the fixed Initial Term or extended
term, if applicable. If the parties are unable to agree on the purchase price
or terms and conditions with respect to said purchase, then the Summary
Equipment Schedule with respect to this Equipment shall remain in full force
and effect. Notwithstanding the exercise by Lessee of this option and payment
of the purchase price, until all obligations under the applicable Summary
Equipment Schedule have been fulfilled, it is agreed and understood that
Lessor shall retain a purchase money security interest in the Equipment
listed therein and the Summary Equipment Schedule shall constitute a Security
Agreement under the Uniform Commercial Code of the state in which the
Equipment is located.
5. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule
are hereby modified and amended as follows:
Master Lease: This Schedule is issued pursuant to the Lease identified on
page 1 of this Schedule. All of the terms and condition of the Lease are
incorporated in and made a part of this Schedule as if they were expressly
set forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Lease (including, without limitation, the representations
and warranties set forth in Section 8) except as modified herein by this
Schedule. This Schedule may not be amended or rescinded except by a writing
signed by both parties.
INTRAWARE, INC. COMDISCO, INC.
AS LESSEE AS LESSOR
By: /s/ Donald M. Freed By: /s/ James P. Labe
------------------------ --------------------------------
JAMES P. LABE
PRESIDENT
Title: EVP/CFO Title: COMDISCO VENTURES DIVISION
--------------------- -----------------------------
Date: 9/10/98 Date: SEP 11 1998
---------------------- ------------------------------
<PAGE>
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this
Summary Equipment Schedule constitutes a Schedule for the Equipment on the
attached invoices.
1. FOR PERIOD BEGINNING: AND ENDING:
2. INITIAL TERM STARTS ON: INITIAL TERM:
(Number of Rent Intervals)
3. TOTAL SUMMARY EQUIPMENT COST:
4. LEASE RATE FACTOR:
5. RENT:
6. ACCEPTANCE DOC TYPE:
<PAGE>
EQUIPMENT SCHEDULE VL-2
DATED AS OF SEPTEMBER 9, 1998
TO MASTER LEASE AGREEMENT
DATED AS OF SEPTEMBER 9, 1998 (THE "MASTER LEASE")
<TABLE>
<CAPTION>
LESSEE: INTRAWARE, INC. LESSOR: COMDISCO, INC.
<S> <C>
Admin. Contact/Phone No.: Address for all Notices:
- ------------------------- ------------------------
Name: Don Freed 6111 North River Road
Phone: (925) 253-4545 Rosemont, Illinois 60018
Fax: (925) 253-4599 Attn.: Venture Group
Address for Notices:
- --------------------
25 Orinda Way
Orinda, CA 94563
Central Billing Location: Rent Interval: Monthly
- ------------------------- --------------
same as above
Attn.:
Lessee Reference No.:______________
(24 digits maximum)
Location of Equipment: Initial Term: 48 months
- ---------------------- -------------
VARIOUS (Number of Rent Intervals)
Lease Rate Factor: 2.381%
------------------
Attn.:
EQUIPMENT (as defined below): Advance: $11,905.00
--------
</TABLE>
Software and tenant improvements specifically approved by Lessor, which shall
be delivered to and accepted by Lessee during the period September 9, 1998
through March 9, 2000 ("Equipment Delivery Period") for which Lessor receives
vendor invoices approved for payment, up to an aggregate purchase price of
$500,000.00 ("Commitment Amount"); excluding custom use equipment,
installation costs and delivery costs, rolling stock, special tooling, hand
held items, molds and fungible items.
<PAGE>
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease
to Lessee, either by one of the first three categories listed below or by
providing Lessee with Equipment from the fourth category, in an aggregate
value up to the Commitment Amount referred to on the face of this Schedule.
If the Equipment acquired is of category (i), (ii), (iii) below, the
effectiveness of this Schedule as it relates to those items of Equipment is
contingent upon Lessee's acknowledgment at the time Lessor acquires the
Equipment that Lessee has either received or approved the relevant purchase
documentation between vendor and Lessor for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which
is obtained from a vendor by Lessee for its use subject to Lessor's
prior approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than October 9,
1998 *. Lessor will not perform a Sale-Leaseback Transaction for
any request or accompanying Equipment ownership documents which
arrive after the date marked above by an asterisk (*). Further,
any sale-leaseback Equipment will be placed on lease subject to:
(1) Lessor prior approval of the Equipment; and (2) if approved,
at Lessor's actual net appraised Equipment value pursuant to the
schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
-------------- -------------------------------------
<S> <C>
Between 6/11/98 and 9/9/98 100%
Between 4/11/98 and 6/10/98 80%
Between 1/9/98 and 4/10/98 70%
</TABLE>
Lessee represents that it has paid all California sales tax due on the cost
of that portion of Equipment to be installed in California and agrees to
provide evidence of such payment to Lessor, if specifically requested. As a
result of the election, Lessor agrees that it will not invoice Lessee for use
tax on the monthly rental rate. Lessee understands that this is an
irrevocable election to measure the tax by the Equipment cost and cannot be
changed except prior to installation of the Equipment.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment
which is obtained from a third party by Lessee for its use subject to
Lessor's prior approval of the Equipment and at Lessor's appraised value for
such used Equipment.
(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800
Direct Service, Lessor will purchase new or used Equipment from a third party
or Lessor will supply new or used Equipment from its inventory for use by
Lessee at rates provided by Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the install date as confirmed in writing by Lessee as set
forth on the vendor invoice of which a facsimile transmission will constitute
an original document. The Commencement Date for sale-leaseback Equipment
shall be the date Lessor tenders the purchase price. The Commencement Date
for 800 Number Equipment shall be fifteen (15) days from the ship date, such
ship date to be set forth on the vendor invoice or if unavailable on the
vendor invoice the ship date will be determined by Lessor upon other
supporting shipping documentation Lessor will summarize all approved
invoices, purchase documentation and evidence of delivery, as applicable,
received in the same calendar month into a Summary Equipment Schedule in the
form attached to this Schedule as Exhibit 1, and the Initial Term will begin
the first day of the calendar month thereafter. Each Summary Equipment
Schedule will contain the Equipment location description, serial number(s)
and cost and will incorporate the terms and conditions of the Master Lease
and this Schedule and will constitute a separate lease.
3. MISCELLANEOUS
In consideration of Lessor financing software and tenant improvements
hereunder, Lessee agrees in addition to its last Monthly Rent Payment to
remit to Lessor an amount equal to 12.5% of Lessor's aggregate cost of
software and tenant improvements provided hereunder.
<PAGE>
4. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule
are hereby modified and amended as follows:
(a) SECTION 9. DELIVERY AND RETURN OF EQUIPMENT
Delete second, third and fourth sentences in their entirety.
Master Lease: This Schedule is issued pursuant to the Lease identified on
page 1 of this Schedule. All of the terms and conditions of the Lease are
incorporated in and made a part of this Schedule as if they were expressly
set forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Lease (including, without limitation, the representations
and warranties set forth in Section 8) except as modified herein by this
Schedule. This Schedule may not be amended or rescinded except by a writing
signed by both parties.
INTRAWARE, INC. COMDISCO, INC.
AS LESSEE AS LESSOR
By: /s/ Donald M. Freed By: /s/ James P. Labe
---------------------------- ----------------------------
JAMES P. LABE
Title: EVP/CFO Title: PRESIDENT
------------------------- -------------------------
COMDISCO VENTURES DIVISION
Date: 9/10/98 Date: SEP 11 1998
-------------------------- --------------------------
<PAGE>
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this
Summary Equipment Schedule constitutes a Schedule for the Equipment on the
attached invoices.
<TABLE>
<C> <S> <C>
1. FOR PERIOD BEGINNING: AND ENDING:
2. INITIAL TERM STARTS ON: INITIAL TERM:
(Number of Rent Intervals)
3. TOTAL SUMMARY EQUIPMENT COST:
4. LEASE RATE FACTOR:
5. RENT:
6. ACCEPTANCE DOC TYPE:
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated December 14, 1998,
relating to the financial statements of Intraware, Inc., which appears in such
Prospectus. We also consent to the references to us under the heading "Experts"
in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
December 18, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS INCLUDED IN INTRAWARE, INC. REGISTRATION STATEMENT ON FORM
S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> FEB-28-1998 FEB-28-1999
<PERIOD-START> MAR-01-1997 MAR-01-1998
<PERIOD-END> FEB-28-1998 NOV-30-1998
<CASH> 612 5,413
<SECURITIES> 0 0
<RECEIVABLES> 3,158 11,146
<ALLOWANCES> 32 50
<INVENTORY> 10,354 16,770
<CURRENT-ASSETS> 14,289 37,014
<PP&E> 1,390 2,251
<DEPRECIATION> 312 696
<TOTAL-ASSETS> 15,384 38,921
<CURRENT-LIABILITIES> 14,509 33,635
<BONDS> 1,943 1,596
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 770 5,061
<TOTAL-LIABILITY-AND-EQUITY> 15,384 38,921
<SALES> 10,383 23,027
<TOTAL-REVENUES> 10,387 24,556
<CGS> 8,348 19,421
<TOTAL-COSTS> 8,348 19,891
<OTHER-EXPENSES> 5,939 12,528
<LOSS-PROVISION> 32 0
<INTEREST-EXPENSE> 103 154
<INCOME-PRETAX> (3,982) (7,840)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,982) (7,840)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,982) (7,840)
<EPS-PRIMARY> (2.02) (2.25)
<EPS-DILUTED> (2.02) (2.25)
</TABLE>
