<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 22, 1999
REGISTRATION NO. 333-69261
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
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
ADAM R. DOLINKO WILLIAM A. HOLMES
LINDA M. CUNY KEVIN A. LUCAS
DAVID R. BOWMAN Gunderson Dettmer Stough
Wilson Sonsini Goodrich & Rosati Villeneuve 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. / /
--------------------------
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 FEBRUARY 22, 1999
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>
4,000,000 Shares
[LOGO]
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 $13.00 and
$15.00 per share. The shares have been approved for listing on the Nasdaq
National Market under the symbol "ITRA."
We and certain stockholders have granted the underwriters an option to
purchase a maximum of 600,000 additional shares to cover over-allotments of
shares.
Investing in our common stock involves certain risks. See "Risk Factors"
starting on page 6.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Intraware
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share............................................. $ $ $
Total................................................. $ $ $
</TABLE>
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.
Credit Suisse First Boston
BancBoston Robertson Stephens
Hambrecht & Quist
Prospectus dated February 22, 1999.
<PAGE>
[INSIDE FRONT COVER]
A split screen with depictions of information technology 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 information technology 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 Intraware's several Web-site pages.
[BACK INSIDE COVER]
Logos of software vendors on the right side and information technology
professional and vendor testimonials for Intraware's services on the left side.
CUSTOMER AND VENDOR TESTIMONIALS
"Intraware's services have saved us considerable time and effort. Tailored
to the specific software we use, SUBSCRIBNET provides information to us, rather
than us having to cull through each vendor's site and obtain it ourselves.
COMPARISCOPE is used whenever we're making a "buy" decision based on our unique
requirements. For instance, we were able to evaluate and select a Java
Development Environment in a fraction of the time it would previously have taken
us, because the evaluation criteria has already been defined within
COMPARISCOPE. For Longs Drugs, this translates into a huge saving of staff time
and expense."
- --Dave Klinzman, Director of Enterprise Operations Services, Longs Drugs
"The Intraware SUBSCRIBNET service is a software update and license
management service that notifies us directly about updates specific to our
environment. It takes the labor out of doing the research ourselves and provides
information about the known incompatibilities and benefits of each update. In
our experience, Intraware's services are a far better and faster method of
keeping customers updated with current software revisions than traditional
methods."
- --Scott Langdoc, CIO, Raley's Inc.
"The primary value to Starbucks is that the Intraware SUBSCRIBNET service
provides us with instant updates on bug fixes and new releases. Intraware
ensures we keep a constant pulse on software products, without us having to hunt
for this information. I only wish more vendors would get on board with
Intraware, so that we can have more software applications delivered this
effectively."
- --Michael Hall, Lead Application Architect, MIS Group, Starbucks Coffee Company
"Netscape strongly benefits from the INTRAWARE.SHOP service by its ability
to market the breadth of our server software products in an online environment.
By capitalizing on the Intraware SUBSCRIBNET service, we have entrusted to
Intraware the electronic software update delivery and maintenance of Netscape's
entire product line to our customers worldwide. We recognize Intraware's
expertise in delivering IT knowledge management content. As a result,
Intraware's resource-rich knowledge content prominently resides in our Netcenter
portal. Both companies have benefited from this relationship by
cross-referencing qualified members of the IT community."
- --James Barksdale, President and CEO, Netscape Communications Corporation
"Selecting Intraware's distribution service as our electronic delivery
vehicle was an important element of our program to reach the Linux and NT
software developer community. In the past, we have distributed software to our
developers using CD's. Now, Intraware provides us with an electronic
distribution service that is a cost-effective and a highly efficient way to
communicate and work closely
<PAGE>
with our developer community. Intraware's service enables developers to download
the software and receive software updates proactively, eliminating the waiting
period associated with physical media updates. Taking advantage of distribution
and update technology from Intraware plays a key role in our ability to maintain
strong relationships with our developer community."
- --Diane Fraiman, Vice President of Marketing, Informix Corporation
THESE LOGOS AND CUSTOMER AND VENDOR TESTIMONIALS ARE NOT TO BE CONSTRUED AS
HAVING BEEN PREPARED OR CERTIFIED BY SUCH PERSONS AS "EXPERTS" WITH RESPECT TO
SUCH MATTERS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS OR ANY RULE OR
REGULATION PROMULGATED THEREUNDER.
<PAGE>
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY................ 3
RISK FACTORS...................... 6
USE OF PROCEEDS................... 15
DIVIDEND POLICY................... 15
CERTAIN INFORMATION............... 15
CAPITALIZATION.................... 16
DILUTION.......................... 17
SELECTED FINANCIAL DATA........... 18
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....... 19
BUSINESS.......................... 28
MANAGEMENT........................ 42
CERTAIN TRANSACTIONS.............. 52
PRINCIPAL AND SELLING
STOCKHOLDERS.................... 53
DESCRIPTION OF CAPITAL STOCK...... 56
SHARES ELIGIBLE FOR FUTURE SALE... 59
ADDITIONAL INTRAWARE INFORMATION.. 61
UNDERWRITING...................... 62
NOTICE TO CANADIAN RESIDENTS...... 64
LEGAL MATTERS..................... 65
EXPERTS........................... 65
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 , 1999 (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.
<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 software services
targeted at information technology professionals and business software vendors.
We act as an objective resource by helping our corporate customers evaluate and
purchase business software which we then deliver electronically. Our
technologies also allow our customers to electronically receive software
upgrades and corrected versions of prior software releases. We believe our
services enable our information technology customers to better evaluate,
purchase, deploy and maintain their business software purchases. Our online
services also allow business software vendors to effectively market, sell and
distribute products to a targeted customer base of information technology
professionals.
Our core service offerings include INTRAWARE IT KNOWLEDGE CENTER,
INTRAWARE.SHOP and INTRAWARE SUBSCRIBNET. INTRAWARE IT KNOWLEDGE CENTER is a
dynamic Web site targeted at corporate information technology professionals.
INTRAWARE IT KNOWLEDGE CENTER contains interactive information services and
third party content that help information technology professionals research and
evaluate business software products. INTRAWARE IT KNOWLEDGE CENTER also contains
the INTRAWARE COMPARISCOPE and INTRAWARE RADARSCOPE services. INTRAWARE IT
KNOWLEDGE CENTER is also available on the Computing & Internet Channel of
Netscape's Netcenter portal. The INTRAWARE.SHOP service is both an online
purchasing and delivery service for business software and a forum for software
vendors to market and sell their products. INTRAWARE SUBSCRIBNET is an online
service which enables information technology professionals to keep their
software updated and manage their software licenses. We also offer our
SUBSCRIBNET update and license management capabilities as an outsourcing
solution to business software vendors. We have entered into an agreement with
Netscape to provide the Intraware SUBSCRIBNET service to Netscape customers
worldwide.
Our strategic objective is to be the leading online intermediary resource
for business software purchasers and vendors.
We seek to attain our strategic objective by:
- developing a broad based online information technology community
consisting of corporate information technology professionals and software
vendors,
- expanding our current service offerings and introduce new service
offerings,
- leveraging our customer base and service functionality to capture software
vendor outsourcing opportunities,
- promoting our brands,
- maintaining a focus on leading edge technology, and
- expanding globally.
We have a broad base of members and customers in the information technology
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 information technology professional community
is e-mailed to over 35,000 subscribers on a weekly basis. Included among our
1,700 customers are the following companies: 3Com Corporation, AT&T Corporation,
Boeing Corporation, Charles Schwab & Co., Inc., Daimler Chrysler AG Corporation,
GTE Corporation, Knight Ridder, Inc., Lycos, Inc. and Reuters Group PLC. We have
also established relationships with leading business software vendors, including
primarily Netscape Communications Corporation, as well as Informix Corporation,
RealNetworks, Inc., Infoseek Corporation, and NetDynamics, a wholly-owned
subsidiary of Sun Microsystems, Inc.
3
<PAGE>
INTRAWARE, INC.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered........................ 4,000,000 shares
Common stock to be outstanding
after this offering....................... 23,529,110 shares
Use of proceeds............................. For general corporate purposes, principally
working capital, capital expenditures,
potential acquisitions, geographic
expansion and additional sales and
marketing efforts.
Nasdaq National Market symbol............... ITRA
</TABLE>
- ------------------------
This table is based on shares outstanding as of December 31, 1998. This table
excludes:
- 6,200,000 shares of common stock reserved for issuance under our 1996
stock option plan,
- 150,000 shares of common stock available for issuance under our 1998
director stock option plan, and
- 600,000 shares available for issuance under our 1998 employee stock
purchase plan.
Delivery of the shares of common stock will be made on or about March , 1999,
against payment in immediately available funds.
------------------------
EXCEPT AS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS IS BASED ON THE
FOLLOWING FOUR ASSUMPTIONS:
- A TWO-FOR-ONE FORWARD STOCK SPLIT OF THE COMMON STOCK IMMEDIATELY PRIOR TO
THE EFFECTIVENESS OF THIS OFFERING,
- 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 DECEMBER 31, 1998,
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, AND
- THE FILING, UPON THE APPROVAL OF OUR STOCKHOLDERS, OF THE AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION.
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) (3,967) (2,672) (8,400)
Net loss............................................................ (944) (4,049) (2,715) (8,377)
Net loss per share:
Basic and diluted................................................. $ (1.36) $ (2.05) $ (1.53) $ (2.40)
------- ------------ --------- ---------
------- ------------ --------- ---------
Weighted average shares........................................... 694 1,972 1,776 3,492
------- ------------ --------- ---------
------- ------------ --------- ---------
Pro forma net loss per share:
Basic and diluted (unaudited)..................................... $ (0.52) $ (0.57)
------------ ---------
------------ ---------
Weighted average shares (unaudited)............................... 7,763 14,765
------------ ---------
------------ ---------
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30, 1998
-------------------------
ACTUAL AS ADJUSTED
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 5,413 $ 56,493
Working capital........................................................................ 3,379 54,459
Total assets........................................................................... 38,921 90,001
Lease obligations, long-term........................................................... 225 225
Total stockholders' equity............................................................. 5,061 56,141
</TABLE>
- --------------------------------------------------------------------------------
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.
The as adjusted numbers are adjusted to give effect to receipt of the net
proceeds from the sale of the 4,000,000 shares of common stock offered hereby by
Intraware at an assumed public offering price of $14.00 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.
WE HAVE A HISTORY OF LOSSES, WE EXPECT FUTURE LOSSES AND WE MAY NOT EVER BECOME
PROFITABLE.
We have not achieved profitability, expect to incur net losses in the
foreseeable future and may not ever become profitable in the future. We incurred
net losses of $944,000 for the period from August 14, 1996 through February 28,
1997, $4.0 million for the year ended February 28, 1998, and $8.4 million for
the nine months ended November 30, 1998. As of November 30, 1998, we had an
accumulated deficit of $13.4 million. 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.
We were founded in August 1996, and are an early stage company. We have a
limited operating history that 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 such profitability
on a quarterly or annual basis. For more detailed information regarding our
operating results and financial condition, please 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 AND THE
TERMINATION OF THIS RELATIONSHIP WOULD HAVE A SUBSTANTIAL, IMMEDIATE ADVERSE
EFFECT ON OUR BUSINESS.
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. We cannot assure you that Netscape will continue to
sell its software through us and if Netscape limited or discontinued selling its
software through us, our business would be adversely affected.
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.
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. If Netscape chose to offer its own electronic software delivery,
tracking, maintenance or other services, which it is permitted to do under the
current agreements, it would have a substantial and immediate adverse effect on
our business, results of operations and financial condition.
THE LOSS OF ONE OR MORE OF OUR KEY CUSTOMERS WOULD ADVERSELY AFFECT OUR
REVENUES.
For the nine months ended November 30, 1998, sales to our top ten corporate
and government information technology customers comprised approximately 50% of
our total revenues. We believe that a substantial amount
6
<PAGE>
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. As a
result, we cannot assure you that any of our customers who purchase software
through us will purchase from us in future periods.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS BECAUSE
OF MANY FACTORS, A NUMBER OF WHICH ARE BEYOND OUR CONTROL, AND ANY OF THESE
COULD ADVERSELY AFFECT OUR STOCK PRICE.
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 and as a result, the price of our common stock may
fall. 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 risk 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 electronic software delivery 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 information technology 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. Also, 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 and we are not
able to quickly reduce our spending in response, our operating results would be
adversely affected.
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 cannot assure you that these online services
will result in additional customers and customer loyalty, significant additional
revenues or improved operating margins in future periods. Additionally, we
cannot assure you software vendors will continue
7
<PAGE>
to find it strategically or economically justifiable for us to deliver these
services, particularly SUBSCRIBNET, to their customers.
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
information technology professional customers, and in differentiating our online
service offerings from those of our competitors.
OUR INDUSTRY IS HIGHLY COMPETITIVE AND WE CANNOT ASSURE YOU THAT WE WILL BE ABLE
TO EFFECTIVELY COMPETE.
The market for selling software products and related online services is
highly competitive. We expect competition to intensify as current competitors
expand their product offerings and new competitors enter the market. We have
recently experienced, and expect to continue to experience, price competition on
our software sales, particularly on large sales transactions. 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 adversely affect
our business and results of operations.
Our current competitors include a number of companies offering one or more
solutions for the evaluation, purchase, deployment and maintenance of business
software. Because there 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 have a significant adverse effect on our business and results of
operations.
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 and compete with our
products. We also expect that the competition will increase as a result of
software industry consolidations. As a result, we may not be able to effectively
compete for customers.
WE ARE DEPENDENT ON MARKET ACCEPTANCE OF ELECTRONIC SOFTWARE DELIVERY, AND IF IT
DOES NOT ACHIEVE WIDESPREAD ACCEPTANCE, OUR BUSINESS WILL BE ADVERSELY
AFFECTED.
Our success will depend in large part on acceptance by information
technology professionals of electronic software delivery as a method of buying
business software. If electronic software delivery does not achieve widespread
market acceptance, our business will be adversely affected. Electronic software
delivery is a relatively new method of selling software products and the growth
and market acceptance of electronic software delivery is highly uncertain and
subject to a number of risk 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
electronic software delivery as compared to those
8
<PAGE>
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.
Even if electronic software delivery achieves widespread acceptance, we
cannot be sure that we will overcome the substantial 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 market acceptance of electronic software delivery. Any well-publicized
transmission of a computer virus by us or another company using electronic
software delivery could deter information technology professionals from
utilizing electronic software delivery technology and our business could be
adversely affected.
CONTINUED ADOPTION OF THE INTERNET AS A METHOD OF CONDUCTING BUSINESS IS
NECESSARY FOR OUR FUTURE GROWTH.
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. The failure of the Internet to continue to develop as a
commercial or business medium would adversely affect our business.
FAILURE TO EXPAND INTERNET INFRASTRUCTURE COULD LIMIT OUR FUTURE GROWTH.
The recent growth in Internet traffic has caused frequent periods of
decreased performance, and if Internet usage continues to grow rapidly, its
infrastructure may not be able to support these demands and its performance and
reliability may decline. If outages or delays on the Internet occur frequently
or increase in frequency, overall Web usage including usage of our Web site in
particular could grow more slowly or decline. Our ability to increase the speed
and scope of our services to customers is ultimately limited by and dependent
upon the speed and reliability of both the Internet and our customers' internal
networks. 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
individual customers' networking infrastructures to alleviate overloading and
congestion.
INCREASED SECURITY RISKS OF ONLINE COMMERCE MAY DETER FUTURE USE OF OUR
SERVICES.
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. Our failure to prevent
security breaches could significantly harm our business and results of
operations. We cannot be certain that advances in computer capabilities, new
discoveries in the field of cryptography, or other 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. Anyone 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
breaches. Any well-publicized compromise of security could deter people from
using the Web to conduct transactions that involve transmitting confidential
information or downloading sensitive materials.
WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS IN RECENT PERIODS AND OUR
ABILITY TO MANAGE THIS GROWTH WILL AFFECT OUR BUSINESS.
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. These expansion
efforts could be expensive and put a strain on management, and if we do not
manage growth properly, it could adversely affect our business. 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
9
<PAGE>
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 and we can not assure
you that we will be able to successfully attract and retain a sufficient number
of qualified personnel.
WE NEED TO EXPAND OUR MANAGEMENT SYSTEMS AND CONTROLS IN ORDER TO SUPPORT OUR
ANTICIPATED GROWTH.
Our growth has placed, and our anticipated future growth will continue to
place a significant strain on our management systems and controls. We cannot
assure you that we will be able to adequately expand our technology resources to
support our anticipated growth. We expect that we will need to continue to
improve our financial and managerial controls and reporting systems and
procedures. Furthermore, we expect that we will be required to manage multiple
relationships with various software vendors, customers and other third parties.
WE MAY NOT BE ABLE TO HIRE AND RETAIN SUFFICIENT SALES, MARKETING AND SUPPORT
PERSONNEL THAT WE NEED TO SUCCEED.
If we fail to hire and retain sufficient numbers of sales, marketing and
support personnel, our business and results of operations would be adversely
affected. Competition for qualified sales and marketing and support personnel is
intense, and we might not be able to hire and retain sufficient numbers of
qualified sales and marketing and support personnel. 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 information technology departments
of our prospective customers. We have recently expanded our direct sales force
and plan to hire additional sales 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.
OUR EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS
AND THESE OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE.
Our future success depends upon the continued service of our executive
officers and other key technology, sales, marketing and support personnel and
none of our officers or key employees is bound by an employment agreement for
any specific term. 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 significant 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.
WE INTEND TO EXPAND INTERNATIONAL OPERATIONS AND UNCERTAINTY OF INTERNATIONAL
SALES EFFORTS COULD ADVERSELY AFFECT OUR BUSINESS.
We may not be able to successfully market, sell, deliver and support our
services and our vendors' software products internationally. Our planned
international expansion will require significant management attention and
financial resources. If we are unable to expand our international operations
successfully and in a timely manner, our business and operating results could be
adversely affected.
To date, we have not had 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
10
<PAGE>
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
versions of our services. This may be more difficult or take longer than we
anticipate especially due to international 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
electronic software delivery.
In addition, our contracts with Netscape currently do not allow us to market
or sell Netscape products, other than in connection with 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.
OUR ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE
STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS.
We currently intend to make investments in complementary companies, services
and technologies. These acquisitions and investments could disrupt our ongoing
business, distract our management and employees and increase our expenses. 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. Also, 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 FACE RISKS OF CLAIMS FROM THIRD PARTIES FOR INTELLECTUAL PROPERTY
INFRINGEMENT THAT COULD ADVERSELY AFFECT OUR BUSINESS.
Our services operate in part by making software products and other content
available to our customers. This creates the potential for claims to be made
against us, either directly or through contractual indemnification provisions
with vendors. Any claims 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 claims could be made 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.
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. 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.
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
11
<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. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our services or technology and we cannot be certain
that the steps we have taken will prevent misappropriation of our technology.
POTENTIAL YEAR 2000 PROBLEMS WITH OUR INTERNAL OPERATING SYSTEMS OR THE SOFTWARE
PRODUCTS THAT WE RESELL COULD ADVERSELY AFFECT OUR BUSINESS.
We cannot assure you that we will not experience unanticipated negative
consequences from year 2000 problems, including material costs caused by
undetected errors or defects in the technology used in our internal systems.
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 solve this
problem.
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.
If 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 try to make modifications to our services and systems on a timely
basis. We do not believe that the cost of such modifications will materially
affect our operating results. Yet, we cannot assure you that we will be able to
modify such products, services and systems in a timely and successful manner and
the failure to do so could have a material adverse effect on our operating
results.
Also, even though 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 these software products nevertheless require modification to be
year 2000 compliant, demand for them could decline precipitously if
modifications are not timely made by the software vendors. As a result, these
modifications could adversely affect our business and results of operations. In
addition, if software products we resell are not year 2000 compliant and are
installed at customer sites, we cannot assure you that the indemnities we
receive from our vendors would protect us from customer claims. Any claims could
divert significant management, financial and other resources and our commercial
insurance coverages may not be adequate to cover such claims.
We have no contingency plan to address the effect of year 2000 noncompliance
of software products we resell. In the normal course of our business we seek to
identify additional software products that are year 2000 compliant and to enter
into arrangements to resell these products. We cannot assure you that these
efforts will timely address any revenue shortfalls that could result from
software products of one or more of our software vendors being noncompliant.
SPENDING BY OUR CUSTOMERS TO EVALUATE AND ADDRESS YEAR 2000 COMPLIANCE COULD
RESULT IN LOWER DEMAND FOR OUR PRODUCTS AND SERVICES.
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
12
<PAGE>
suppliers. This could result in a material adverse effect on our business,
operating results and financial condition. Also, 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 these effects 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 AND OUR FUTURE SUCCESS WILL
DEPEND ON OUR ABILITY TO MEET THE CHANGING NEEDS OF OUR INDUSTRY.
Our market is characterized by rapidly changing technology, evolving
industry standards and frequent new product announcements. To be successful, we
must adapt to our rapidly changing market by continually improving the
performance, features and reliability of our services. We could 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.
WE DO NOT HAVE A DISASTER RECOVERY PLAN OR BACK UP SYSTEMS AND A DISASTER COULD
SEVERELY DAMAGE OUR OPERATIONS.
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. A disaster could
severely damage our business and results of operations because our service could
be interrupted for an indeterminate length of time. 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. Orinda and Santa
Clara exist on or near known earthquake fault zones. 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.
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.
ADDITIONAL GOVERNMENT REGULATIONS MAY INCREASE OUR COSTS OF DOING BUSINESS.
The law governing Internet transactions remains largely unsettled, even in
areas where there has been some legislative action. The adoption or modification
of laws or regulations relating to the Internet could adversely affect our
business by increasing our costs and administrative burdens. It may take years
to determine whether and how existing laws such as those governing intellectual
property, privacy, libel and taxation apply to the Internet.
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 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 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. Compliance with any newly adopted laws may prove
difficult for us and may negatively affect our business.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND HOW WE INVEST THESE
PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
The majority of the net proceeds of this offering are not allocated for
specific uses other than working capital and general corporate purposes. Our
management can spend most of the proceeds from this offering in ways with
13
<PAGE>
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 AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THE OFFERING.
Before this offering, there has not been a public market for our common
stock and the trading market price of our common stock may decline below the
initial public offering price. 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. In addition, an active public
market for Intraware's common stock may not develop or be sustained after this
offering.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
After this offering, we will have outstanding 23,529,110 shares of common
stock. The remaining 19,529,110 shares of common stock outstanding after this
offering will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
- ----------------- -----------------------------------
<S> <C>
0 At the date of this prospectus
0 90 days after the date of this
prospectus
19,529,110 180 days after the date of this
prospectus or afterwards
</TABLE>
The above table assumes the effectiveness of certain lock-up arrangements
with the underwriters under which the stockholders have agreed not to sell or
otherwise dispose of their shares of common stock. Most of the shares that will
be available for sale after the 180th day after the date of this prospectus or
afterwards will be subject to certain volume limitations because they are held
by affiliates of Intraware. In addition, we cannot assure you that these lock-up
restrictions will not be removed prior to 180 days after the offering without
prior notice by the underwriters.
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."
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY
UNCERTAIN.
You should not rely on forward-looking statements in this prospectus. This
prospectus also contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify such
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, 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.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the 4,000,000 shares of common stock
offered by us are estimated to be $51,080,000, after deducting:
- the underwriting discount, and
- estimated offering expenses
and assuming:
- a public offering price of $14.00 per share, and
- no exercise of the underwriters' over-allotment option to purchase 350,000
shares from us and 250,000 shares from certain of our stockholders.
We expect to use approximately $15 million of such proceeds for capital
expenditures and the majority of 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 to do so. 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 upon 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.
15
<PAGE>
CAPITALIZATION
The following table sets forth the following information:
- the actual capitalization of Intraware as of November 30, 1998,
- 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
- the pro forma as adjusted capitalization to give effect to the sale of
4,000,000 shares of common stock at an assumed initial public offering
price of $14.00 per share in this offering less underwriting discounts and
commissions Intraware expects to pay in connection with this offering and
estimated offering expenses payable by Intraware.
<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 $ 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.................................................... 1 -- --
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; 22,975,178 shares issued and outstanding, as adjusted.............. 1 2 2
Additional paid-in capital.................................................. 26,002 26,002 77,082
Unearned compensation....................................................... (7,573) (7,573) (7,573)
Accumulated deficit......................................................... (13,370) (13,370) (13,370)
---------- ----------- -----------
Total stockholders' equity.................................................. 5,061 5,061 56,141
---------- ----------- -----------
Total capitalization........................................................ $ 5,286 $ 5,286 $ 56,366
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
This table excludes the following shares:
- 6,950,000 shares of common stock reserved for issuance under Intraware's
stock option, director stock option and employee stock purchase plans,
- 2,017,050 shares subject to outstanding options, 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.
16
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock on 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 our 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 our common stock in this
offering and the net tangible book value per share of our common stock
immediately afterwards. After giving effect to our sale of 4,000,000 shares of
common stock offered by this prospectus and after deducting the underwriting
discount and estimated offering expenses payable by us, our net tangible book
value would have been $56,141,000, or approximately $2.44 per share. This
represents an immediate increase in net tangible book value of $2.17 per share
to existing stockholders and an immediate dilution in net tangible book value of
$11.56 per share to new investors.
<TABLE>
<S> <C> <C>
Assumed public offering price per share...................................... $ 14.00
Pro forma net tangible book value per share as of November 30, 1998........ $ 0.27
Increase per share attributable to new investors........................... $ 2.17
---------
Pro forma net tangible book value per share after the offering............... $ 2.44
---------
Dilution in pro forma net tangible book value per share to new investors..... $ 11.56
---------
---------
</TABLE>
This table excludes all options and warrants that will remain outstanding
upon completion of this offering. See Notes 7 and 9 to Notes to Financial
Statements. The exercise of outstanding options and warrants having an exercise
price less than the offering price would increase the dilutive effect to new
investors.
The following table sets forth, as of November 30, 1998, the differences
between the number of shares of common stock purchased from us, the total price
and average price per share paid by existing stockholders and by the new
investors, before deducting expenses payable by us, assuming a public offering
price of $14.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................ 18,975,178 82.6% $ 19,860,000 26.2% $ 1.05
New investors................................ 4,000,000 17.4 56,000,000 73.8 14.00
------------ ----- ------------- -----
Total.................................... 22,975,178 100.0% $ 75,860,000 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
If the underwriters over-allotment option is exercised in full, the
following will occur:
- the number of shares of common stock held by existing stockholders will
decrease to 18,725,178 or approximately 80.3% of the total number of
shares of common stock outstanding and
- the number of shares held by new public investors will be increased to
4,600,000 or approximately 19.7% of the total number of shares of our
common stock outstanding after this offering.
17
<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 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, 1997 and 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.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
AUGUST 14, 1996 YEAR ENDED NOVEMBER 30,
(INCEPTION) THROUGH 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 8,590
Product development..................................... 253 951 604 1,258
General and administrative.............................. 467 1,492 1,016 2,416
Stock option compensation............................... -- 67 -- 801
------ ------------ --------- ---------
Total operating expenses.............................. 953 6,006 3,657 13,065
------ ------------ --------- ---------
Loss from operations...................................... (952) (3,967) (2,672) (8,400)
Interest expense.......................................... (12) (103) (52) (154)
Interest and other income, net............................ 20 21 9 177
------ ------------ --------- ---------
Net loss.................................................. $ (944) $ (4,049) $ (2,715) $ (8,377)
------ ------------ --------- ---------
------ ------------ --------- ---------
Basic and diluted net loss per share...................... $ (1.36) $ (2.05) $ (1.53) $ (2.40)
------ ------------ --------- ---------
------ ------------ --------- ---------
Weighted average shares................................... 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>
- ------------------------
- - With respect to the calculation of net loss per share and weighted average
shares, Note 1 of Notes to Financial Statements provide an explanation of the
determination of the weighted average shares used to compute net loss per
share.
- - With respect to the calculation of the weighted average shares, all share
information has been adjusted to reflect a forward two-for-one stock split of
common stock effective upon consummation of this offering.
18
<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," "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, 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. INTRAWARE'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS FOR MANY REASONS, INCLUDING THE RISKS FACED BY
INTRAWARE 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, Intraware'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, Intraware began providing online software distribution
services, later branded as INTRAWARE.SHOP, and online software update and
license management services through its SUBSCRIBNET service. In April 1998,
Intraware introduced the COMPARISCOPE service to provide information technology
professionals with comprehensive, objective online analysis of various types of
software. In September 1998, Intraware added IT KNOWLEDGE CENTER to its online
service offerings, providing corporate information technology professionals with
proprietary content, aggregated technical information and related resources.
Intraware incurred net losses of $944,000, $4.0 million and $8.4 million in the
period from August 14, 1996 through February 28, 1997, the year ended February
28, 1998 and the nine months ended November 30, 1998, respectively. Intraware
expects to incur net losses for the foreseeable future.
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. Intraware first recognized revenues from software product sales in
February 1997, and software product sales revenues constituted 100%, 100% and
94% of Intraware'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.
Intraware 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, Intraware generated
over 90% of its software product revenues from the sale of Netscape software
products. While Intraware expects that net revenues derived from the sale of
Netscape products will decrease as a percentage of total revenues in future
periods, Intraware believes that it will remain
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substantially dependent on such sales for the foreseeable future. Intraware has
no assurance that Netscape will continue to sell software products through
Intraware. If Netscape were to discontinue selling its software through
Intraware, there would be a material adverse effect on Intraware'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.
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, Intraware 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, Intraware provides online software update
and license management services to Netscape customers through Intraware's
SUBSCRIBNET service. Netscape has the right, however, to terminate this
agreement upon 90 days notice. Accordingly, Intraware 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
Intraware's SUBSCRIBNET revenues have been generated through this Netscape
agreement, and if Intraware were not able to renew the agreement on satisfactory
terms, there could be a material adverse effect on Intraware's online service
revenues and upon Intraware's business.
Intraware's limited operating history makes it difficult to forecast its
future operating results. Although Intraware's net revenues have grown in recent
quarters, Intraware cannot be certain that its net revenues will increase at a
rate sufficient to achieve and maintain profitability. Even if Intraware were to
achieve profitability in any period, Intraware cannot be certain that it would
sustain or increase profitability on a quarterly or annual basis.
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, Intraware
recognized $1.5 million in initial sales of its online services. Approximately
$1.3 million of these initial online service revenues was attributable to
Intraware'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. Intraware purchases
software products at a discount to the software vendors' established list prices
according 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 Intraware.
Intraware'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
decreased margins on Intraware's software product sales due to increased
competitive pricing pressures, particularly on large sale transactions, were
more 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. Intraware anticipates that it will
continue to experience declining gross margins on software product sales. Gross
margins on Intraware's online
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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 $8.6 million for the nine months
ended November 30, 1998. This increase was primarily attributable to an overall
increase in the scope of Intraware's marketing and branding efforts.
Additionally, during the nine months ended November 30, 1998, Intraware
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 due to expected additional increases in advertising
and promotional activities.
In September 1998, Intraware entered into an agreement with Netscape in
which Intraware'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
Intraware under this agreement is being expensed based on the actual number of
impressions delivered in a given period. In addition, the fees paid by Intraware
to be featured on the Netcenter site are being amortized over the one year term
of the agreement. See Note 2 of Notes to Financial Statements.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses consist primarily of personnel and related
costs associated with Intraware'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 Intraware'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. Intraware 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 $2.4 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.
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.
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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, Intraware incurred net losses for
federal and state tax purposes and has not recognized any tax provision or
benefit. As of November 30, 1998, Intraware 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 Intraware's limited operating history, losses incurred
to date and the difficulty in accurately forecasting Intraware'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. Accordingly, a 100% valuation allowance has been recorded.
Furthermore, as a result of changes in Intraware's equity ownership from
Intraware's convertible preferred stock financings and this offering,
utilization of the net operating losses and tax credits is subject to
substantial annual limitations. This is 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, Intraware recorded aggregate unearned compensation totaling $8.4 million
in connection with certain stock option grants. In addition, subsequent to
November 30, 1998, Intraware recorded additional unearned compensation totaling
$3.3 million 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 $801,000. See Note 9 of Notes to Financial Statements.
THE PERIOD FROM AUGUST 14, 1996 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 Intraware'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 through February 28, 1997 to $8.3 million for the year ended February 28,
1998. This increase reflected the increased software product sales of Intraware.
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.
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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
Intraware'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
Intraware expanded its operations.
STOCK-BASED COMPENSATION
In the year ended February 28, 1998, Intraware recorded aggregate unearned
compensation totaling $1,286,000 in connection with certain stock option grants.
Amortization of unearned compensation was $67,000 for the year ended February
28, 1998. See Note 9 of Notes to Financial Statements.
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QUARTERLY RESULTS OF OPERATION
The following table sets forth, for the periods presented, certain data from
Intraware'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 Intraware's unaudited financial statements. In management's
opinion, these statements 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 any future period. Intraware
has incurred net losses in each quarter since inception and expects to continue
to incur losses for the foreseeable future. Intraware's net loss has increased
each quarter since inception and there can be no assurance that this trend will
not continue.
<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 1,654 2,280 4,656
Product development.............. 131 191 282 347 353 433 472
General and administrative....... 257 353 406 476 578 742 1,096
Stock option compensation........ -- -- -- 67 122 181 498
------- ---------- ------------ ------------ ------- ---------- ------------
Total operating expenses....... 726 1,255 1,676 2,349 2,707 3,636 6,722
------- ---------- ------------ ------------ ------- ---------- ------------
Loss from operations............... (656) (883) (1,134) (1,294) (1,696 ) (2,331) (4,373)
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) $(1,333) $(1,741) $(2,284) $(4,352)
------- ---------- ------------ ------------ ------- ---------- ------------
------- ---------- ------------ ------------ ------- ---------- ------------
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 33 28 41
Product development.............. 42 8 11 7 7 5 4
General and administrative....... 83 15 15 9 12 9 10
Stock option compensation........ -- -- -- 1 2 2 4
------- ---------- ------------ ------------ ------- ---------- ------------
Total operating expenses....... 233 53 63 46 54 44 59
------- ---------- ------------ ------------ ------- ---------- ------------
Loss from operations............... (210) (37) (43) (25) (33 ) (28) (39)
Interest expense................... (5) -- (1) (1) (1 ) (1) --
Interest and other income, net..... -- -- -- -- -- 1 1
------- ---------- ------------ ------------ ------- ---------- ------------
Net loss........................... (215)% (37)% (44)% (26)% (34 )% (28)% (38)%
------- ---------- ------------ ------------ ------- ---------- ------------
------- ---------- ------------ ------------ ------- ---------- ------------
</TABLE>
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LIQUIDITY AND CAPITAL RESOURCES
Intraware has historically satisfied its cash requirements primarily through
private placements of equity securities, bank borrowings and lease financings.
To date, Intraware has raised approximately $17.6 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 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 August 14, 1996 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 for the period from
August 14, 1996 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 August 14, 1996 through February 28, 1997, $5.9 million for the year
ended February 28, 1998 and $11.1 million 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, Intraware's principal sources of liquidity included
$5.4 million of cash and cash-equivalents and $3.8 million available under
Intraware's bank line of credit. Although Intraware 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.
Intraware 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. Intraware's future liquidity and capital requirements will
depend upon numerous factors, including: (a) the pace of expansion of
Intraware's operations, (b) the timing of development of new and enhanced
services, (c) responses to competitive pressures, (d) acquisitions of
complementary businesses or technologies, or (e) unanticipated opportunities.
Intraware'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 factors described above. If Intraware requires additional capital
resources, Intraware 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 Intraware's stockholders.
There can be no assurance that any financing arrangements will be available in
amounts or on terms acceptable to Intraware, 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
software products used by many companies may need to be upgraded to comply with
these year 2000 requirements. Intraware's services, including
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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. Intraware'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 Intraware 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 are 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 Intraware typically has received warranties and indemnities
from its software vendors with respect to year 2000 compliance of the software
products, Intraware 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. Intraware has no contingency plan to address the effect of year 2000
noncompliance of the software products it resells. However, Intraware, in the
normal course of its business, seeks to identify additional software products
that are year 2000 compliant and to enter into arrangements to resell these
products. There can be no assurance that Intraware's efforts to identify and
resell additional software products would timely address revenue shortfalls that
could result from software products of one or more of its vendors being
noncompliant.
Year 2000 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 these
events could result in a material adverse effect on Intraware's business,
operating results and financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
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.
Intraware 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 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. Intraware 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 Intraware's financial statements.
In March 1998, the AIPCA issued Statement of Position 98-4, "Deferral of the
Effective Date of a provision of SOP 97-2." SOP
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98-4 defers for one year the application of certain provisions of Statement of
Position 97-2 "Software Revenue Recognition." 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 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 a
material impact on Intraware'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 Intraware is not
currently determinable.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivates and
Hedging Activities," 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 Intraware's results of operations, financial
position or cash flows.
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BUSINESS
INDUSTRY BACKGROUND
Corporations today rely heavily upon information technology to be
competitive, and software is a critical element of a corporation's information
technology infrastructure. Corporations are spending increasingly large amounts
of their budget on software evaluation, purchase and maintenance. International
Data Corporation estimates that sales of software worldwide will increase from
approximately $119 billion in 1997 to $231 billion in 2002. International Data
Corporation 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 information technology 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, information technology 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 has been made, information technology professionals
must often test the software's effect on the existing information technology
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 these factors, corporate
information technology 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
information technology 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. 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 information technology
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
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vendors are challenged by the costs, logistical complexities and administrative
burden of marketing, selling and distributing software products to a typically
large and dispersed base of computer users.
Vendors must also address their customers' needs to maintain software
assets. Because the number of employees within a corporation who use a typical
software package may be numerous and the software widely distributed and
supported by many information technology professionals, vendors often have
limited information about their customers' software deployments. Without
collecting adequate customer data, software vendors may be unable to: (a)
effectively track licensing programs, (b) fully assess customer satisfaction,
(c) determine feature requirements for subsequent releases, (d) make program
updates quickly available, (e) capture additional sales opportunities, or (f)
develop a proactive maintenance management system. Intraware 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. 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, International Data Corporation estimates the electronic software
delivery market will grow from approximately $200 million in 1997 to
approximately $5.9 billion in 2001. Software support and maintenance services
are also expected to be increasingly conducted online. International Data
Corporation 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. Intraware currently competes in both the
electronic software delivery market with its INTRAWARE.SHOP service, and the
electronic support and software update and license management services market
with its SUBSCRIBNET service.
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 information technology 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 software 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, Intraware
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: (a)
enhanced Web site development and performance requirements, (b) increased
customer demand for electronic software availability and support, (c)
integration of the Web site with existing internal software systems, (d)
electronic licensing demands and (e) constantly changing export restrictions.
Intraware 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. Intraware 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.
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INTRAWARE SOLUTION
Intraware provides a suite of complementary, Internet-based services for the
benefit of both information technology professionals and business software
vendors. Intraware's services help information technology professionals make
more informed business software purchase decisions, and also help them deploy
and manage their software more effectively. At the same time, Intraware's online
services provide software vendors with an efficient means of marketing, selling
and delivering their products directly to business software purchasers.
Intraware believes that, as a trusted intermediary serving the interests of
information technology professionals and business software vendors, Intraware
can offer a unique set of benefits to both groups of customers.
BENEFITS TO CORPORATE INFORMATION TECHNOLOGY PROFESSIONALS
FACILITATES A MORE INFORMED EVALUATION AND PURCHASE DECISION. Intraware's
knowledge services allow information technology 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 information technology 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 electronic software
delivery capabilities are tailored to corporate purchasing, deployment and
tracking requirements. In addition, Intraware's information management services
provide 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 INFORMATION TECHNOLOGY PROFESSIONAL
COMMUNITY. Intraware's unique market position allows Intraware to objectively
mediate and enhance the relationship between information technology
professionals and software vendors. Intraware has focused on improving the
quality of information available to both information technology 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 Intraware'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 electronic software
delivery engine reduces the costs and logistical complexities associated with
software distribution. Intraware'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 Intraware. 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.
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INTRAWARE STRATEGY
Intraware's objective is to be the leading online intermediary resource for
the business software industry, aggregating information, software and services
for information technology professionals and software vendors. Key elements of
Intraware's strategy include:
DEVELOP A BROAD-BASED ONLINE INFORMATION TECHNOLOGY COMMUNITY CONSISTING OF
CORPORATE INFORMATION TECHNOLOGY PROFESSIONALS AND SOFTWARE VENDORS. Through
its position as an objective resource for software decision making, Intraware
helps meet the information needs of information technology 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 information technology professionals. Intraware's
services for software evaluation, purchasing, deployment and maintenance further
enhance the Intraware community experience for information technology
professionals, and drives them to Intraware's site. Intraware believes this
approach deepens its relationship with information technology 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.
EXPAND 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 information
technology professional customers through the further development of existing
services and introduction of additional online services. Intraware initially
introduced SUBSCRIBNET, a service that provides information technology
professionals with pro-active and centralized update and license management
services. Intraware also recently introduced COMPARISCOPE, a premium
subscription service designed to provide information technology professionals
with objective in-depth technical evaluations. Although these services, as well
as the other subscription-based services of Intraware, have not generated
significant revenues to date, Intraware anticipates that these services will
represent an increasing proportion of its revenue base. Intraware believes that
its market position and integrated service offerings will enable it to continue
to develop, market and sell service offerings that address the needs of the
information technology professional community. Intraware 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
information technology 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 information technology
professionals, Intraware believes that software vendors will benefit from new
outsourcing services offered by Intraware. In addition, software vendors may
benefit from improved features and functionality of Intraware's existing
services. Intraware plans to continue forging relationships with software
vendors to provide its information technology professionals with a broader
selection of software products and complementary Intraware services.
PROMOTE INTRAWARE BRAND AWARENESS. Intraware believes that, due to the
competitive nature of online commerce and services targeted at the information
technology 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 public relations campaign, advertising in print media and on Web sites
targeted at information technology professionals. In addition, Intraware
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
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products through its electronic software delivery engine by using leading edge
technologies. Intraware's development group is able to rapidly add new services
and features to Intraware's existing service offerings. By developing on open
standards, Intraware 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
Intraware to offer its services to a worldwide community of information
technology professionals and software vendors. Although Intraware had not
actively targeted the international information technology 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. Intraware believes that the global opportunity to market
its services will continue to grow rapidly. Intraware intends to address this
opportunity by selectively enhancing its global pricing, currency and language
capabilities. In addition, Intraware intends to access international markets
through a combination of: (a) global online services, (b) online and traditional
marketing efforts, (c) partnerships and (d) 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 dynamic Web site containing software-focused
content for information technology professionals. It includes featured articles,
career information, an 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 information technology professionals to rank the importance of and
compare various software product features. COMPARISCOPE is available for a fee.
PREMIER CONTENT is a collection of tools, models, templates and other
resources available to facilitate the evaluation and selection of software
products. PREMIER CONTENT is available for a fee.
"ASK JAMES" is an online service designed to provide personalized answers to
customers' information technology-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. Intraware 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
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packages, as well as additional licenses, renewals and add-on products.
Currently, Intraware does not charge its information technology professional
customers for access to INTRAWARE.SHOP, but does typically charge software
vendors for the inclusion of their products in the INTRAWARE.SHOP. Intraware
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 Intraware'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 Intraware.
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 information technology
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 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. Intraware is able to track the type and version
of software products licensed to customers.
MAINTENANCE SERVICES: SUBSCRIBNET
SUBSCRIBNET is a multivendor online software update and license management
service. This Web based service provides end-users with proactive, customized
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 information technology professionals, SUBSCRIBNET provides proactive
notification, on-demand downloads, and a central repository for software
licenses, subscriptions and product release archiving. SUBSCRIBNET automatically
notifies appropriate information technology professionals within 24 hours of any
product update, including corrections of minor application errors and other
major and minor releases. These notifications are personalized to the user's
product, version and platform. Information technology 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
Intraware 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 Intraware, software vendors can: (a)
off-load some of the costs and burdens associated with physical distribution of
updates, (b) minimize technical support
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resources devoted to updates and patches and (c) increase the productivity of
their own information technology and sales departments by reducing after-sales
management efforts.
The SUBSCRIBNET update and license management service supports all of the
software products sold by Intraware. SUBSCRIBNET may be purchased with any
software product offered by Intraware for an additional fee. Additionally,
Intraware is seeking contracts with software vendors whose products Intraware
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 Intraware'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 Intraware has entered into license agreements with these vendors
which allow Intraware to offer these vendors' software products through one or
more of Intraware 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 Intraware. 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 and the Termination of This Relationship
Would Have a Substantial, Immediate Adverse Effect on Our Business."
CUSTOMERS
As of November 30, 1998, Intraware served almost 1,700 organizations in a
wide range of industries, including finance, retail, high technology,
telecommunications and transportation. Set forth below is a list of our
customers who have been billed for purchases of over $100,000 of software
products or online services from Intraware. Sales to these customers represented
approximately 50% of our total revenues for the nine month period ended November
30, 1998.
TECHNOLOGY
3Com Corporation
Loral Space Systems
LSI Logic*
Lycos, Inc.
Mentor Graphics
National Semiconductor
Seagate Technology*
United Webs, Inc.
Zilog, Inc.
TELECOMMUNICATIONS
AT&T Corporation
AT&T Local Services
Frontier Corporation*
GTE Enterprise Solutions
INFORMATION SERVICES
Gentrobe
Knight-Ridder, Inc.
Reuters Information Technology
SRI
When.Com*
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MANUFACTURING
Boeing--Materials and Support Service
DaimlerChrysler AG*
International Rectifier*
Modus Media International
Raytheon Aircraft Company
FINANCIAL SERVICES
Banc One Services Corporation*
Charles Schwab & Co., Inc.*
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 Intraware.
CUSTOMER CASE STUDIES
DAIMLERCHRYSLER AG
DaimlerChrysler AG, formed by the recent merger between Daimler-Benz AG and
Chrysler Corporation, is an international transportation and services company
that ranks as the world's third largest automobile company. Prior to the merger,
Chrysler became an Intraware COMPARISCOPE customer in April 1998. Chrysler's
internal processes require business groups acquiring new technology to submit a
report detailing the reasons why specific solutions were chosen. The Chrysler
Rapid Application Development team and the Intranet Architecture Group purchased
a 10-user COMPARISCOPE license to assist in their evaluation of application
servers. Chrysler found the service very helpful, and has also used COMPARISCOPE
for subsequent product pilot selections.
AT&T CORPORATION, NETWORK COMPUTING SERVICES/BUSINESS MARKETING DIVISION
AT&T Corporation's business service manager group was researching the market
for application servers that would assist it in developing the customer service
portion of its new service application. By utilizing COMPARISCOPE, the division
was able to evaluate and weigh competing web-based technologies. With the
knowledge and research it gained through the use of COMPARISCOPE and Intraware's
systems engineering personnel, the division was able to make an informed
purchase decision in a timely manner. Following the purchase decision, which was
executed through the INTRAWARE.SHOP service, the Intraware systems engineering
group worked closely with the division during design and development of a
prototype to demonstrate the products' applicability and functionality.
The foregoing customer case studies, which have been prepared by Intraware,
are descriptions of the relationships between Intraware and selected customers.
These customer case studies are not to be construed as having been prepared or
certified by such persons as "experts" with respect to such matters within the
meaning of the federal securities laws, or any rule or regulation promulgated
thereunder.
SALES STRATEGY
Intraware sells its services into two major customer constituencies:
information technology 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
information technology 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. Intraware currently
uses two distinct sales organizations to accomplish these goals.
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SALES TO INFORMATION TECHNOLOGY PROFESSIONALS
As of November 30, 1998, Intraware'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 Intraware's knowledge services, including
Gold Membership, an annual subscription service, and generating software product
sales opportunities for Intraware's field sales force. Intraware's field sales
professionals interact directly with information technology decision-makers at
large corporations to promote both Intraware's services and its software
vendors' products.
Intraware'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 in Orinda, California, Intraware 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 information technology professional customers have
grown as a result of its coordinated sales effort, combining the benefits of
online sales opportunities with a direct sales force.
SALES TO SOFTWARE VENDORS
Intraware 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, Intraware employed ten business development professionals focused in this
area. The process of having vendors outsource their update and license
management functions to Intraware is lengthy, as many of the features of the
services need to be tailored to the specific requirements of Intraware's
software vendor partners. Intraware intends to hire additional specialized
outsourcing sales professionals to address this sales effort.
JOINT MARKETING RELATIONSHIPS
Partnerships are an integral part of Intraware's sales strategy. Intraware
has established relationships with each of the vendors whose products are
offered through INTRAWARE.SHOP. Intraware'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 the Computing & Internet
Channel of Netscape's Netcenter portal. This relationship provides additional
opportunities to reach a broad audience of information technology professionals.
Intraware intends to develop additional partnerships with Internet traffic
aggregators to offer its services to a large, targeted group of information
technology professionals.
Intraware also intends to develop relationships with information technology
content providers who are of interest to Intraware's targeted user base, so as
to enhance the value of Intraware's IT KNOWLEDGE CENTER service offerings.
Intraware's partnership with EarthWeb, Inc. allows IT KNOWLEDGE CENTER
subscribers access to EarthWeb's content through Intraware's Web site. Intraware
intends to leverage partnerships with information technology 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
information technology professionals which has contributed to additional
Intraware membership registrations.
In February 1999, Intraware entered into a non-binding letter of intent with
PeopleSoft, Inc., a supplier of enterprise application software for business and
government. Under the terms of this letter of intent, Intraware would provide to
PeopleSoft's customers Intraware's SUBSCRIBNET service for one year in exchange
for $2.6 million.
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The letter of intent, however, is not binding on either Intraware or PeopleSoft,
and a commercial relationship between the two companies is subject to
negotiation and execution of a definitive agreement. Intraware cannot assure you
that it will be able to successfully negotiate a definitive agreement with
Peoplesoft or that if it enters into a definitive agreement with PeopleSoft, the
terms of such agreement will be favorable to Intraware.
Intraware has recently entered into an agreement with Nettgain Solutions
Limited, a United Kingdom based consulting firm, to offer Intraware's services
to prospective customers in the United Kingdom, and intends to develop
additional partnerships to address international markets.
MARKETING
Intraware 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.
Intraware 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 further
penetrate the information technology professional community in mid-to-large
corporations and governmental agencies. Intraware also distributes SUBSCRIBNEWS,
its weekly Web technology news and product information email subscription
newsletter, to over 35,000 information technology professionals and other
interested members. Intraware markets its SUBSCRIBNET service both to corporate
software decision makers and to business software developers.
As of November 30, 1998, Intraware's marketing department consisted of ten
individuals, all of whom are located at Intraware's Orinda, California
headquarters. The marketing department supports both domestic and international
marketing efforts. Domestically, efforts are focused on stimulating demand for
Intraware's Web-based services and generating sales leads for its direct sales
force. Lead generation activities internationally are designed to assist our
direct sales force and consulting and distribution partners in sale and resale
of our services.
Intraware promotes its products and outsourcing services through a variety
of fixed and variable fee programs. Intraware promotes its IT KNOWLEDGE CENTER
services in part through its Gold Membership program. By bundling many of its
free services with paid services, Intraware 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 information technology
professionals within corporate and governmental information technology
departments.
Intraware markets its Gold Membership through a number of vehicles including
its own Web site, the Netcenter IT KNOWLEDGE CENTER site, traditional direct
mail, online advertising and Internet-based direct marketing.
Intraware's sales force and systems engineers provide ongoing customer
service to Intraware 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 telephone number is also available. Customer
service professionals post frequently asked questions, reference documents, and
links to useful information on relevant parts of Intraware's Web sites.
STRATEGIC RELATIONSHIP WITH NETSCAPE
Intraware plans to pursue strategic relationships to expand Intraware's
product and service offerings, increase access to customers, and build brand
recognition. To date, Intraware has established a strategic relationship with
Netscape as described below:
Intraware and Netscape entered into an agreement effective September 1998
under which Intraware provides its IT KNOWLEDGE CENTER services as a co-branded
site within the Computing & Internet Channel of the Netcenter portal. Intraware
receives significant exposure
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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. Intraware has additionally made a $1.0 million payment to
Netscape in exchange for the right to maintain the IT KNOWLEDGE CENTER on the
Computing & Internet Channel of Netscape's Netcenter portal. Intraware generates
direct revenue from this site in the form of banner advertisement revenue
sharing. Revenues generated from banner advertising will be recorded as earned.
This agreement has a one year term, subject to a one year renewal option on
terms to be mutually agreed upon.
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 the Intraware
SUBSCRIBNET service. This agreement has a one year term, subject to two
additional one year renewal periods upon mutual agreement unless terminated by
either party. This agreement is terminable by Netscape upon 90 days notice.
IT KNOWLEDGE CENTER
Under the terms of Intraware'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
& 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.
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 through the use of the Internet. Intraware's services, including
SUBSCRIBNET, INTRAWARE.SHOP, VIRTUALEXPRESS, COMPARISCOPE, RADARSCOPE, and IT
KNOWLEDGE CENTER, are developed, enhanced, and maintained by Intraware's
internal information technology 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 Intraware's electronic
software delivery engine, library of content, email list management, and common
reporting tools. Intraware 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. Intraware's internally developed
electronic software delivery engine is the mechanism used to deliver software
over the Internet and is used by several of Intraware's services, including
SUBSCRIBNET, VIRTUALEXPRESS, and INTRAWARE.SHOP. Intraware's electronic software
delivery 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 electronic software delivery 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 stock keeping unit. Serial numbers and license keys can be
uniquely generated and included in each customer's download image. Intraware's
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electronic software delivery 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 stopped. The
engine also enables Intraware to track download effectiveness and throughput,
scale network connectivity or server capacity, and verify delivery.
ARCHITECTURE AND SCALABILITY. Intraware 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 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. Intraware intends to continue partnering with
leading Internet connectivity and hosting providers to maintain and enhance the
scalability of Intraware's services.
CONTENT MANAGEMENT. Intraware'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 information technology department. These applications, accessible to
internal and external users, feed the data sources that are accessed through
Intraware's services. Intraware uses Infoseek software, integrated into its
database, for Library URL content management and retrieval.
REPORTING. Intraware'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. Using
third-party software from Business Objects and net.Genesis, Intraware 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. Intraware 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 Intraware 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. Intraware believes that Intraware
competes effectively as a result of Intraware's centralized, information
technology-focused, Internet-enabled solution coupled with its commitment to
providing high-quality solutions that yield a rapid return on investment for its
corporate information technology professional customers.
Intraware's current and potential competitors in the market include: (a)
information providers to information technology professionals; (b) online
distributors, resellers and value-added resellers; and (c) software update and
license management services and technology providers. Intraware's competitors
may operate in one or more of these areas.
With respect to information providers, Intraware 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 of the information
technology professional community. Intraware
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believes the competitive factors in this marketplace include the following: (a)
objectivity, (b) timeliness and comprehensiveness of information, (c) breadth of
product and service offerings targeted at information technology professionals
and (d) expertise in Internet-based technologies. Intraware 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.
Intraware 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, Intraware currently
competes primarily with traditional software resellers, other online software
resellers and other vendors. In the online market, Intraware competes with
companies that sell and distribute software products through 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. Although Intraware believes it
is well positioned given its services, 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 Intraware's business and operating results.
In the update and license management market, Intraware primarily competes
with software vendors that do not outsource these services. Principal
competitive factors in this market include: (a) the existing relationships
software vendors have with their customers, (b) the comprehensiveness of the
services offered and (c) price. Intraware 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.
Many of Intraware's competitors have already established supplier
relationships with divisions of Intraware's 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 Intraware products with their products. Many of
Intraware's competitors have longer operating histories, significantly greater
resources and name recognition and a larger installed base of customers than
Intraware has. As a result, these competitors may have greater credibility with
Intraware's existing and potential customers. They also may be able to devote
greater resources to the development, promotion and sale of their products than
Intraware can to its, which would allow them to respond more quickly than
Intraware could 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 Intraware relies on
copyright, trade secret and trademark law to protect its technology, Intraware
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. Intraware 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 Intraware's technology.
Intraware 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
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mark. While Intraware does not believe it has infringed any rights, and it has
received no notice of any claims of infringement, Intraware can make no
assurance that certain of these companies may not claim superior rights to
"Intraware" or other marks used in Intraware's business.
Intraware 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 Intraware's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use Intraware's
products or technology. Policing unauthorized use of Intraware's products is
difficult, and there can be no assurance that the steps taken by Intraware will
prevent misappropriation of its technology, particularly in foreign countries
where the laws may not protect Intraware'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 Intraware expects that software products may be
increasingly subject to third-party infringement claims as the number of
competitors in Intraware's industry segments grows and the functionality of
products in different industry segments overlaps. Any such claims could be
time-consuming to defend, result in costly litigation, divert management's
attention and resources, cause product and service delays or require Intraware
to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to Intraware,
if at all. A successful claim of infringement against Intraware and failure or
inability of Intraware to license the infringed or similar technology could have
a material adverse effect on Intraware's business, financial condition and
results of operations.
In addition, Intraware sells certain high encryption software domestically.
Federal regulations prohibit the exportation of these types of encryption
software to certain countries. Intraware has established internal procedures to
ensure that the high encryption software is sold only to domestic customers.
However, if these procedures are not followed by Intraware's personnel, or are
otherwise circumvented, resulting in the sale by Intraware of high encryption
software to a prohibited foreign customer, then Intraware could be at risk for
violating these federal export regulations.
EMPLOYEES
As of November 30, 1998, Intraware had 126 full-time employees, 23 of whom
were engaged in product development, 71 in sales and marketing, and 26 in
finance, administration and operations. Intraware's future success depends, in
part, 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 Intraware will be able to recruit
and retain sufficient numbers of qualified personnel. None of Intraware's
employees is represented by a labor union. Intraware has not experienced any
work stoppages and considers its relations with its employees to be good.
FACILITIES
Intraware leases approximately 18,000 square feet of office space in a
single office building located in Orinda, California. Intraware 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 January 31, 1999.
<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.................... 49 Vice President of Finance
Manfred J. Krikke......................... 30 Vice President of Intraware International
James A. Brentano......................... 40 Vice President of Knowledge Services
David L. Dunlap........................... 31 Vice President of Operations
Frost R. R. Prioleau...................... 38 Vice President of SUBSCRIBNET
Mark B. Hoffman........................... 52 Director, Chairman of the Board
Charles G. Davis, Jr...................... 64 Director, Vice Chairman of the Board
Laurence M. Baer.......................... 41 Director
John V. Balen............................. 38 Director
Mary Ann Byrnes........................... 42 Director
Ronald E. F. Codd......................... 42 Director
</TABLE>
- --------------------------------------------------------------------------------
Messrs. Davis and Balen comprise Intraware's audit committee. Mr. Hoffman and
Ms. Byrnes comprise Intraware's compensation committee.
PETER H. JACKSON co-founded Intraware 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 Intraware in August 1996 and has served as
Senior Vice President and Chief Technology Officer since its inception. 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 Intraware 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 director for
Vanstar Corporation, a computer hardware and services company. From May 1994 to
May 1996, Mr. Freed served as Senior Vice President of Business Development for
Dataflex
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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
Intraware since its inception in August 1996. From May 1994 to August 1996, 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 Intraware 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 Intraware 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 Intraware 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 Intraware 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 Intraware 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 Information
Technology 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 Intraware 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.
FROST R. R. PRIOLEAU joined Intraware as the Vice President of SUBSCRIBNET
in December 1998. From March 1989 to October 1998, Mr. Prioleau served
successively as Vice President and President and Chief Executive Officer of P2
Holdings Corporation, a rapid prototyping and services provider. P2 Holdings
Corporation filed for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code in
December 1998. Mr. Prioleau holds a B.S.E. in Engineering Management Systems
from Princeton University.
MARK B. HOFFMAN has served as Chairman of the Board of Directors of
Intraware 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 Intraware 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 Intraware 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 M.B.A. from Harvard University and an A.B. in Political Science
from the University of California, Berkeley.
JOHN V. BALEN has served as a Director of Intraware since April 1998. Since
September 1995 Mr. Balen has served as a Principal at Canaan Partners, a
nationally focused, 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 Intraware since January 1998.
Ms. Byrnes founded Corsair Communications, a provider of 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.
RONALD E. F. CODD has served as a Director of Intraware since January 1999.
Mr. Codd has served as the President and Chief Executive Officer of Momentum
Business Applications, Inc., a public company engaged in software application
development activities, since January 1999. Prior to that, Mr. Codd served as
Senior Vice President of Finance and Administration of PeopleSoft, Inc., a
developer and marketer of enterprise application software, from 1994 until
December 1998 and as Vice President and Chief Financial Officer from September
1991 to 1994. Mr. Codd holds an Masters in Management from the J.L. Kellogg
Graduate School of Management at Northwestern University and a B.S. in Business
from the University of California, Berkeley.
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CLASSIFIED BOARD
Intraware'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 Intraware'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, Laurence Baer and Ronald Codd 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 among any of the directors, officers or key
employees of Intraware.
BOARD COMMITTEES
Intraware established an audit committee and compensation committee in
December 1998.
Intraware's 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 Intraware's independent accountants.
Intraware's 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 Intraware.
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 Intraware's board of
directors or compensation committee.
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation from Intraware for
their service as members of the board of directors. Under Intraware'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. In January 1999, the board granted options to purchase an
aggregate of 30,000 shares to Mr. Codd.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below summarizes 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 $100,000 during
the fiscal year ended February 28, 1998. These executives are referred to as the
Named Executive Officers elsewhere in this prospectus.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL -------------
COMPENSATION SECURITIES
-------------------------- UNDERLYING
NAME AND PRINCIPAL POSITIONS YEAR SALARY($) BONUS($) OPTIONS(#)
- ------------------------------------------------------------ --------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter H. Jackson............................................ 1998 $ 230,833 60,000 100,000
President and Chief Executive Officer 1997 103,125 -- --
Paul A. Martinelli.......................................... 1998 101,250 5,000 60,000
Senior Vice President and Chief Technology Officer 1997 48,750 -- --
Donald M. Freed............................................. 1998 115,417 5,000 60,000
Executive Vice President and Chief Financial Officer 1997 56,250 -- --
Norman A. Pensky............................................ 1998 125,000 37,500 30,000
Vice President of Sales 1997 31,250 12,500 220,000
</TABLE>
- --------------------------------------------------------------------------------
The fiscal year 1997 compensation figures are for the seven month period
beginning August 13, 1996 and ending February 28, 1997.
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OPTION GRANTS DURING LAST FISCAL YEAR
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, including the potential realizable value over the ten-year
term of the options, based on assumed rates of stock appreciation of 5% and 10%,
compounded annually. These assumed rates of appreciation comply with the rules
of the Securities and Exchange Commission 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 Intraware's common stock.
In fiscal 1998, Intraware granted options to purchase up to an aggregate of
1,909,000 shares to employees, directors and consultants. All options were
granted under Intraware's 1996 stock option plan at exercise prices at or above
the fair market value of Intraware's common stock on the date of grant, as
determined in good faith by the board of directors. All options have a term of
ten years. Optionees may pay the exercise price by cash, check, promissory note
or delivery of already-owned shares of Intraware's common stock. All options are
immediately exercisable upon grant; however, any unvested shares are subject to
repurchase by Intraware at their cost in the event of the optionee's termination
of employment. All option shares vest over four years, with 25% of the option
shares vesting one year after the option grant date, and the remaining option
shares vesting ratably each month thereafter. In September 1998, Messrs.
Jackson, Martinelli and Freed were granted options to purchase 50,000, 30,000
and 30,000 shares of common stock, respectively, at an exercise price of $1.00
per share.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM
OPTIONS IN LAST PRICE EXPIRATION --------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% 10%
- -------------------------------------- ----------- --------------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Peter H. Jackson...................... 100,000 5.2% $ 0.125 10/21/2007 $ 7,861 $ 19,922
Paul A. Martinelli.................... 60,000 3.1 0.125 10/21/2007 4,717 11,953
Donald M. Freed....................... 60,000 3.1 0.125 10/21/2007 4,717 11,953
Norman A. Pensky...................... 30,000 1.6 0.125 10/21/2007 2,358 5,977
</TABLE>
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AGGREGATE OPTION EXERCISES DURING THE LAST FISCAL YEAR AND FISCAL YEAR-END
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.
The "Value of Unexercised In-the-Money Options at February 28, 1998" is
based on a value of $0.15 per share, the fair market value of Intraware's common
stock as of February 28, 1998, as determined by the board of directors, less the
per share exercise price of $0.125, multiplied by the number of shares issued
upon exercise of the option. All options were granted under Intraware's 1996
stock option plan. All options are immediately exercisable; however, as a
condition of exercise, the optionee must enter into a stock restriction
agreement granting Intraware the right to repurchase the shares issuable by such
exercise at their cost in the event of the optionee's termination of employment.
The shares vest over four years, with 25% of the shares vesting one year after
the grant date and the remaining shares vesting ratably each month thereafter.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT
FEBRUARY 28, 1998 (#) FEBRUARY 28, 1998 ($)
-------------------------- --------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter H. Jackson.......................................... 100,000 -- $ 2,500 --
Paul A. Martinelli........................................ 60,000 -- 1,500 --
Donald M. Freed........................................... 60,000 -- 1,500 --
Norman A. Pensky.......................................... 250,000 -- 22,750 --
</TABLE>
48
<PAGE>
INCENTIVE STOCK PLANS
401(K) PLAN
In 1996, Intraware adopted a 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.
Consequently, 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. Consquently, contributions by Intraware, if any, will be
deductible by Intraware when made. Employees may elect to reduce up to 20% of
their current compensation by up to the statutorily prescribed annual limit,
which was $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 (AS AMENDED ON DECEMBER 17, 1998)
Intraware's 1996 stock option plan, as amended on December 17, 1998,
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, and for
the granting to employees and consultants of nonstatutory stock options. The
stock option plan was approved by the board of directors and the stockholders in
October 1996. Unless terminated sooner, the stock option plan will terminate
automatically in 2006. A total of 6,200,000 shares of common stock is reserved
for issuance, plus annual increases equal to the lesser of: (a) 750,000 shares,
or (b) 2% of the outstanding shares on such date or a lesser amount determined
by the Board.
The stock option plan may be administered by the board of directors or a
committee of the board. The board or a committee of the board which 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.
The stock option plan provides that in the event of a merger of Intraware
with or into another corporation, or the sale of substantially all of
Intraware'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
Intraware's 1998 employee stock purchase plan was adopted by the board of
directors in December 1998 and by the stockholders in January 1999. A total of
600,000 shares of common stock has been reserved for issuance under the purchase
plan, plus annual increases equal to the lesser of: (a) 400,000 shares, or (b)
1% of the outstanding shares on such date or a lesser amount determined by the
board on the first day of each fiscal year starting in 2000.
The 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 employed by Intraware or
any participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, the following employees may not be granted
options to purchase stock under the purchase plan:
- any employee who 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 Intraware, or
49
<PAGE>
- any employee whose rights to purchase stock under all employee stock
purchase plans of Intraware accrues at a rate which exceeds $25,000 worth
of stock for each calendar year.
Participants may purchase common stock through payroll deductions of up to
15% of the participant's compensation. 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 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.
The purchase plan provides that, in the event of a merger of Intraware with
or into another corporation or a sale of substantially all of Intraware'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 purchase plan will terminate in 2008. The board of directors has the
authority to amend or terminate the purchase plan, except that no such action
may adversely affect any outstanding rights to purchase stock.
1998 DIRECTOR OPTION PLAN
Non-employee directors are entitled to participate in the 1998 director
option plan. The director plan was adopted by the board of directors in December
1998 and approved by the stockholders in January 1999, 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 to each non-employee director on the date on which such person
first becomes a non-employee director. After the 15,000 share option is granted
to the non-employee director, he or she shall automatically be granted an option
to purchase 7,500 shares each year on the date of the annual stockholder's
meeting of Intraware, if on such date he or she shall have served on the board
for at least six months. Each option shall have a term of ten years. The 15,000
share 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 7,500 share 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 Intraware or the sale of substantially all of
the assets of Intraware, 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. 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 Intraware, or within twelve months after such director's termination by death
or disability, but not later than the expiration of the option's ten year term.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
Intraware has not entered into employment agreements with its executive
officers, and their employment may be terminated at any time at the discretion
of Intraware's board of directors.
Under Intraware's stock option plan, whether or not the options are assumed
or
50
<PAGE>
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 transaction 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: (a) any
breach of their duty of loyalty to the corporation or its stockholders, (b) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) unlawful payments of dividends or unlawful stock
repurchases or redemptions, or (d) any transaction from which the director
derived an improper personal benefit. This 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 expenses, judgments, fines and
settlement amounts incurred by any such person in any action or proceeding
arising out of such person's services as a director or executive officer of
Intraware or 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.
51
<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, Intraware 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 Intraware's common
stock. WI Harper Group, as a result of this transaction, became beneficial owner
of over 5% of Intraware'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 Kleiner Perkins Caufield & Byers
which through this transaction became a beneficial owner of over 5% of
Intraware'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.
Attractor Ventures LLC purchased 560,748 shares, Canaan Equity Partners, L.L.C.
purchased 560,748 shares, Kleiner Perkins Caufield & Byers purchased 93,458
shares and Technology Crossover Management II, L.L.C. purchased 560,748 shares.
Mr. Balen, a partner of Canaan, is a member of Intraware's Board of Directors.
Kleiner Perkins Caufield & Byers beneficially owned more than 5% of Intraware's
outstanding capital stock at the time of this financing while each of Attractor,
Canaan and Technology Crossover Management became beneficial owners of more than
5% of Intraware's outstanding capital stock as a result of this transaction. The
holders of Series D preferred stock are entitled through agreement with
Intraware 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 Intraware.
The note bears interest at the rate of 8%, and interest and principal on the
note are due and payable on the earlier of (a) 30 days following this offering,
(b) 90 days following his last day of employment with Intraware or (c) 60 days
following the sale of his shares in Intraware in connection with a change in
control of Intraware. Unless earlier repaid, the note 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. These transactions, if any, will be on
terms no less favorable to Intraware than could be obtained from unaffiliated
third parties.
52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The table on the following page sets forth information regarding the
beneficial ownership of Intraware's common stock as of December 31, 1998, by the
following individuals or groups:
- each person or entity who is known by Intraware to own beneficially more
than 5% of Intraware's outstanding stock
- each of the Named Executive Officers
- each director of Intraware
- all directors and executive officers as a group
- all other selling stockholders
Unless otherwise indicated, the address for each stockholder listed in the
following table is c/o Intraware, Inc., 25 Orinda Way, Orinda California 94563.
Except as otherwise indicated, and subject to applicable community property
laws, the persons named in the table have sole voting and investment power with
respect to all shares of common stock held by them.
Applicable percentage ownership in the following table is based on
19,529,110 shares of common stock outstanding as of December 31, 1998, as
adjusted to reflect the conversion of all outstanding shares of preferred stock
upon the closing of this offering.
To the extent that any shares are issued upon exercise of options, warrants
or other rights to acquire Intraware's capital stock that are presently
outstanding or granted in the future or reserved for future issuance under
Intraware's stock plans, there will be further dilution to new public investors.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option. Intraware, Peter H. Jackson and Charles G.
Davis, Jr. have granted the underwriters an option to purchase up to 350,000
shares, 200,000 shares and 50,000 shares, respectively, to cover
over-allotments, if any. . If the underwriters exercise this over-allotment
option in full, Mr. Jackson and Mr. Davis will beneficially own 3,439,800 shares
(14.4%) and 1,240,000 shares (5.2%), respectively, of the outstanding common
stock after the offering. If the underwtriters do not exercise the over-
allotment option, neither Mr. Jackson nor Mr. Davis will sell any common stock
in the offering. Mr. Jackson is President, Chief Executive Officer and a member
of the board of directors of Intraware. Mr. Davis is Vice Chairman of the board
of directors of Intraware.
53
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS TABLE
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
------------------------- -------------------------
NAME AND ADDRESS NUMBER PERCENTAGE NUMBER PERCENTAGE
- ---------------------------------------------------------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Peter H. Jackson(1)............................................. 3,639,800 18.6% 3,639,800 15.4%
Mark B. Hoffman(2).............................................. 1,866,250 9.5 1,866,250 7.9
Kleiner Perkins Caufield & Byers 1,520,250 7.8 1,520,250 6.5
2750 Sand Hill Road
Menlo Park, CA 94025..........................................
Charles G. Davis, Jr.(3)........................................ 1,290,000 6.6 1,290,000 5.5
Attractor Ventures L.L.C. 1,121,496 5.7 1,121,496 4.8
110 Burlingame Avenue
Burlingame, CA 94010..........................................
Canaan Equity Partners, L.L.C.(4) 1,121,496 5.7 1,121,496 4.8
2884 Sand Hill Road, Suite 115
Menlo Park, CA 94025..........................................
Technology Crossover Management II, L.L.C. 1,121,496 5.7 1,121,496 4.8
575 High Street, Suite 400
Palo Alto, CA 94301...........................................
WI Harper Group 1,000,000 5.1 1,000,000 4.3
50 California Street, Suite 2920
San Francisco, CA 94111.......................................
Paul A. Martinelli(5)........................................... 840,000 4.3 840,000 3.6
Donald M. Freed(6).............................................. 598,346 3.1 598,346 2.5
Norman A. Pensky(7)............................................. 250,000 1.3 250,000 1.1
Laurence M. Baer(8)............................................. 30,000 * 30,000 *
Mary Ann Byrnes(9).............................................. 30,000 * 30,000 *
Ronald E. F. Codd(10)........................................... 30,000 * 30,000 *
John V. Balen(11)............................................... -- -- -- --
All directors and officers as a group (17 persons)(12).......... 9,631,872 48.5 9,631,872 40.4
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 50,000 shares issuable upon exercise of stock options exercisable
within 60 days of December 31, 1998. Also includes 70,834 shares held from
the exercise of stock options which were unvested and subject to Intraware's
repurchase option as of December 31, 1998, should Mr. Jackson's employment
with Intraware terminate. In addition, includes 3,489,800 shares subject to
a restricted stock purchase agreement, of which 583,334 were unvested and
subject to Intraware's repurchase option as of December 31, 1998, should Mr.
Jackson's employment with Intraware terminate. Mr. Jackson is Intraware's
President, Chief Executive Officer and a member of the board of directors.
(2) Includes 40,000 shares issuable upon exercise of stock options exercisable
within 60 days of December 31, 1998. 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. Mr. Hoffman is a member of the board of directors of Intraware.
(3) Includes 40,000 shares issuable upon exercise of stock options exercisable
within 60 days of December 31, 1998. Includes 400,000 shares held by Charles
G. Davis, Jr. Trustee of the Charles
54
<PAGE>
G. Davis, Jr. Trust Agreement dated 1/90 and 600,000 shares held by the
Davis Family-54447-LLC. Mr. Davis is Vice Chairman of the board of directors
of Intraware.
(4) 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 Intraware.
(5) Includes 30,000 shares issuable upon exercise of stock options exercisable
within 60 days of December 31, 1998. Also includes 42,500 shares held from
the exercise of stock options which were unvested and subject to Intraware's
repurchase option as of December 31, 1998 should Mr. Martinelli's employment
with Intraware terminate. In addition, includes 750,000 shares subject to a
restricted stock purchase agreement, of which 187,500 were unvested and
subject to Intraware's repurchase option as of December 31, 1998, should Mr.
Martinelli's employment with Intraware terminate. Mr. Martinelli is
Intraware's Senior Vice President and Chief Technology Officer.
(6) Includes 30,000 shares issuable upon exercise of stock options exercisable
within 60 days of December 31, 1998. Also includes 42,500 shares held from
the exercise of stock options which were unvested and subject to Intraware's
repurchase option as of December 31, 1998, should Mr. Freed's employment
with Intraware terminate. In addition, includes 499,000 shares subject to a
restricted stock purchase agreement, of which 125,000 were unvested and
subject to Intraware's repurchase option as of December 31, 1998, should Mr.
Freed's employment with Intraware terminate. Mr. Freed is Intraware's
Executive Vice President and Chief Financial Officer.
(7) Includes 131,250 shares held from the exercise of stock options which were
unvested and subject to Intraware's repurchase option as of December 31,
1998, should Mr. Pensky's employment with Intraware terminate. Mr. Pensky is
Intraware's Vice President of Sales.
(8) Includes 30,000 shares issuable upon exercise of stock options exercisable
within 60 days of December 31, 1998. Mr. Baer is a member of the Intraware's
board of directors.
(9) Includes 30,000 shares held from the exercise of stock options which were
unvested and subject to Intraware's repurchase option as of December 31,
1998, should Ms. Byrnes' employment with Intraware terminate. Ms. Byrnes is
a member of Intraware's board of directors.
(10) Includes 30,000 shares issuable upon exercise of stock options exercisable
within 60 days of December 31, 1998. Mr. Codd is a member of the Intraware's
board of directors.
(11) Mr. Balen did not hold any shares of Intraware's capital stock as of
December 31, 1998, and does not hold any options exercisable within 60 days
of December 31, 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 Intraware.
(12) Includes an aggregate of 655,000 shares exercisable within 60 days of
December 31, 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.
55
<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 December 31, 1998, there were 19,529,110 shares of common stock
outstanding which were held of record by approximately 156 stockholders, as
adjusted for 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. Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel to Intraware, shall opine that the shares of common stock to be issued
upon the closing of this offering, when issued and sold in the manner described
in this prospectus and in accordance with the resolutions adopted by the board
of directors, 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, 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: (a) restricting dividends on the common
stock, (b) diluting the voting power of the common stock, (c) impairing the
liquidation rights of the common stock and (d) delaying or preventing a change
in control of Intraware without further action by the stockholders. Upon 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 December 31, 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 16,758,928 shares of common stock and the holders of warrants
to purchase preferred stock convertible into 128,256 shares of common stock (the
"registrable securities") 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. Beginning 180 days following the date of this prospectus, holders of
at least 50% of the then outstanding registrable securities or at least
56
<PAGE>
60% of the then outstanding registrable securities issued upon 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 only if the outstanding registrable securities have an anticipated
public offering price of at least $10,000,000. Also, 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 if 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, but
Intraware may reduce the number of shares proposed to be registered in view of
market conditions. These registration rights have been waived with respect to
this offering. 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 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 the following more difficult:
- the acquisition of Intraware by means of a tender offer,
- acquisition of Intraware by means of a proxy contest or otherwise, or
- the removal of Intraware's incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain types
of coercive takeover practices and inadequate takeover bids. These provisions
are also designed to encourage persons seeking to acquire control of Intraware
to first negotiate with Intraware's board. Intraware believes that the benefits
of increased protection of its 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 negotiation of
such proposals could result in an improvement of their terms.
ELECTION AND REMOVAL OF DIRECTORS. Intraware's board of directors is divided
into three classes. The directors in each class will serve for a three-year
term, one class being elected each year by Intraware'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 Intraware because it
generally makes it more difficult for stockholders to replace a majority of the
directors.
STOCKHOLDER MEETINGS. Under Intraware's 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. Intraware's 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 of the board.
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 stockholder" for a period of three years
following the date the person became an interested stockholder, unless 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
57
<PAGE>
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 may 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. Intraware's
certificate of incorporation eliminates the right of stockholders to act by
written consent without a meeting.
ELIMINATION OF CUMULATIVE VOTING. Intraware's 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 CHARTER PROVISIONS. 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
Intraware's shares have been approved for listing on the Nasdaq National
Market under the symbol "ITRA."
58
<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 23,529,110
shares of common stock based upon shares outstanding as of December 31, 1998,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants prior to completion of this offering. Of
these shares, the 4,000,000 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 19,529,110 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 common stock or any securities that are
convertible into common stock 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 resellable until 181 days after the date of this prospectus. Beginning
181 days after the date of this prospectus, approximately 19,529,110 Restricted
Shares will be eligible for sale in the public market, all of which are subject
to volume limitations under Rule 144, except 3,661,998 shares eligible for sale
under Rule 144(k) and 1,104,682 shares eligible for sale under Rule 701. In
addition, as of December 31, 1998, there were outstanding 1,800,158 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 the lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person 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: (a) 1% of the number of
shares of common stock then outstanding which will equal approximately 250,000
shares immediately after this offering; or (b) 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 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.
59
<PAGE>
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 under 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 31, 1998, options to purchase a total 1,800,158
shares were outstanding and 3,766,360 shares were reserved for future issuance
under Intraware's stock plan. common stock issued upon exercise of outstanding
vested options or issued under Intraware's 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
16,758,928 Restricted Shares and holders of warrants to purchase preferred stock
convertible into 128,256 shares of common stock will be entitled to certain
registration rights 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.
60
<PAGE>
ADDITIONAL INTRAWARE INFORMATION
Intraware has filed with the Securities and Exchange Commission a
registration statement on Form S-1 with respect to the common stock offered by
this prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement or the exhibits and schedules which are part of the registration
statement. For further information with respect to Intraware and its common
stock, see the registration statement and the exhibits and schedules thereto.
Any document Intraware files may be read and copied at the Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information about the
public reference rooms. Intraware's filings with the Commission are also
available to the public from the Commission's Web site at http://www.sec.gov.
Upon completion of this offering, Intraware will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, accordingly, will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the
Commission's public reference rooms, and the Web site of the Commission referred
to above.
61
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1999, the underwriters named below, for whom
Credit Suisse First Boston Corporation, BancBoston Robertson Stephens Inc. and
Hambrecht & Quist LLC are acting as 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...................................................................................... 4,000,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the underwriters
are subject to certain conditions 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 600,000 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 according 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 selling group members at such price less a concession of $ per
share, and the underwriters and such selling group members may allow a discount
of $ per share on sales to certain other broker/ 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 Intraware......................................... $ $ $
Underwriting discounts and commissions paid by the selling
stockholders........................................................ $ $ $
Expenses payable by the selling stockholders.......................... $ $ $
</TABLE>
62
<PAGE>
The representatives have informed Intraware that they do not expect
discretionary sales by the underwriters to exceed 5% of the shares being offered
in this offering.
Intraware, its officers and directors and certain other stockholders 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 upon the exercise of employee stock options outstanding on the date
hereof.
Of the 4,000,000 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 200,000 shares as follows: (1) at
Intraware's request, up to 80,000 shares for Intraware's directors, officers,
employees and business associates and (2) up to an additional 120,000 shares for
certain holders of Intraware's preferred stock in connection with a preexisting
contractual agreement between Intraware and those holders. 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.
The shares have been approved for listing on The Nasdaq National Market
under the symbol "ITRA."
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 may
63
<PAGE>
be deemed by the National Association of Securities Dealers, Inc., to constitute
underwriting compensation. As a result, such 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 January 29, 1999, except to officers or partners,
but not to 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 Intraware 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 under 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 Intraware, 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 in 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 Intraware. 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
64
<PAGE>
the purchaser under relevant Canadian legislation.
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 Villeneuve 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 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.
65
<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 February 22, 1999. 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.
(the "Company") 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.
As more fully described in Note 9 to the financial statements, the
Company has revised from those previously reported compensation amounts in
its financial statements for the year ended February 28, 1998 and the nine
month period ended November 30, 1998, related to accounting for stock
options."
PricewaterhouseCoopers LLP
San Jose, California
February 22, 1999
F-2
<PAGE>
INTRAWARE, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------- NOVEMBER 30,
1997 1998 1998
------ ------- ------------
PRO FORMA
STOCKHOLDERS'
EQUITY AT
NOVEMBER 30,
1998
------------
(UNAUDITED)
ASSETS
<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)................................................................ -- -- 1 $ --
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).......... 1 1 1 2
Additional paid-in capital......................................................... 1,525 6,981 26,002 26,002
Unearned compensation.............................................................. -- (1,219) (7,573) (7,573)
Accumulated deficit................................................................ (944) (4,993) (13,370) (13,370)
------ ------- ------------ ------------
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 8,590
Product development........................................ 253 951 604 1,258
General and administrative................................. 467 1,492 1,016 2,416
Stock option compensation.................................. -- 67 -- 801
------ ------------ --------- ---------
Total operating expenses............................... 953 6,006 3,657 13,065
------ ------------ --------- ---------
Loss from operations......................................... (952) (3,967) (2,672) (8,400)
Interest expense............................................. (12) (103) (52) (154)
Interest and other income, net............................... 20 21 9 177
------ ------------ --------- ---------
Net loss..................................................... $ (944) $ (4,049) $ (2,715) $ (8,377)
------ ------------ --------- ---------
------ ------------ --------- ---------
Net loss per share:
Basic and diluted.......................................... $ (1.36) $ (2.05) $ (1.53) $ (2.40)
------ ------------ --------- ---------
------ ------------ --------- ---------
Weighted average shares.................................... 694 1,972 1,776 3,492
------ ------------ --------- ---------
------ ------------ --------- ---------
Pro forma net loss per share:
Basic and diluted (unaudited).............................. $ (0.52) $ (0.57)
------------ ---------
------------ ---------
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 $ 1 $ 25 $ -- $ --
Issuance of Series A convertible
preferred stock....................... 1,500 -- -- -- 1,500 -- --
Net loss................................ -- -- -- -- -- -- (944)
----- ----- --------- ----- ----------- ------------- ------------
Balance at February 28, 1997............ 1,500 -- 5,250 1 1,525 -- (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................... -- -- -- -- 1,286 (1,286) --
Amortization of unearned compensation... -- -- -- -- -- 67 --
Net loss................................ -- -- -- -- -- -- (4,049)
----- ----- --------- ----- ----------- ------------- ------------
Balance at February 28, 1998............ 3,834 -- 5,376 1 6,981 (1,219) (4,993)
Issuance of Series D convertible
preferred stock....................... 2,189 1 -- -- 11,713 -- --
Exercise of stock options............... -- -- 1,554 -- 153 -- --
Unearned compensation................... -- -- -- -- 7,155 (7,155) --
Amortization of unearned compensation... -- -- -- -- -- 801 --
Net loss................................ -- -- -- -- -- -- (8,377)
----- ----- --------- ----- ----------- ------------- ------------
Balance at November 30, 1998............ 6,023 $ 1 6,930 $ 1 $ 26,002 $ (7,573) $ (13,370)
----- ----- --------- ----- ----------- ------------- ------------
----- ----- --------- ----- ----------- ------------- ------------
<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................... --
Amortization of unearned compensation... 67
Net loss................................ (4,049)
---------
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... 801
Net loss................................ (8,377)
---------
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) $ (4,049) $ (2,715) $ (8,377)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization........................... 42 270 182 384
Amortization of unearned compensation................... -- 67 -- 801
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............................... -- 5,660 1,050 2,359
Payments on bank borrowings................................. -- (3,906) (300) (2,942)
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. was incorporated in Delaware on August 14, 1996. Intraware
is a leading provider of Internet-based business-to-business software services
for information technology professionals and business software vendors. Through
Intraware's electronic software delivery and outsourcing services technologies,
Intraware acts as an objective intermediary in the software decision-making
process. Intraware's branded, integrated service offerings enable software
decision-makers to evaluate, purchase, deploy and maintain their business
software assets more effectively. Intraware's online services allow business
software vendors to effectively market, sell and distribute products to a
targeted customer base of information technology 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
Intraware 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 Intraware 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. Intraware's accounts receivable are derived from revenue earned
from customers located primarily in the U.S. Intraware performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. Intraware 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, the year ended February 28, 1998 and the nine month period ended November
30, 1997, no customers accounted for greater than 10% of total net revenue.
During the nine month period ended November 30, 1998, two customers each
accounted for greater than 10% of the total net revenue. These customers
accounted for $2.9 million and $2.6 million of total net revenue.
As of February 28, 1997, no customer accounted for greater than 10% of
Intraware's accounts receivable. As of February 28, 1998 and November 30, 1998
four and three customers accounted for greater than 10% of Intraware's accounts
receivable, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Intraware'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
Deferred revenue consists primarily of billings or payments received in
advance of revenue recognition from the sale of maintenance, SUBSCRIBNET and IT
KNOWLEDGE SERVICES and is recognized as revenue ratably over the service period.
PREPAID LICENSES AND SERVICES
Prepaid license and services consist primarily of orders for license and
subscription services in advance of resell and is expensed when the related
revenue is recognized. In addition to these orders, prepaid services consist of
third party maintenance that has been deferred, such maintenance costs will be
recognized over the service period.
PRODUCT DEVELOPMENT COSTS
Product development costs include expenses incurred by Intraware to develop,
enhance, manage, monitor and operate Intraware's website and delivery services.
Product development costs are expensed as incurred.
ADVERTISING EXPENSE
Intraware utilizes print and online advertising, trade shows, seminars,
direct mail, online promotions and regional marketing development to expand
brand and product awareness in the information technology 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
Intraware 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
F-8
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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
Intraware'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 Intraware'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. 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
Intraware 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.
F-9
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The following table sets forth the computation of basic and dilutive net
loss per share for the periods indicated, (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>
Numerator
Net loss............................................. $ (944) $ (4,049) $ (2,715) $ (8,377)
Denominator
Weighted average shares.............................. 4,512 5,274 5,250 5,772
Weighted average unvested common shares subject to
repurchase......................................... (3,818) (3,302) (3,474) (2,280)
Denominator for basic and diluted calculation........ 694 1,972 1,776 3,492
Net loss per share:
Basic................................................ $ (1.36) $ (2.05) $ (1.53) $ (2.40)
Diluted.............................................. $ (1.36) $ (2.05) $ (1.53) $ (2.40)
</TABLE>
The following table sets forth common stock equivalents that are not
included in the diluted net income per share calculation above because to do so
would be anti dilutive for the periods indicated:
<TABLE>
<S> <C> <C> <C> <C>
Weighted average effect of common stock equivalents:
Series A Preferred Stock.................. 1,271 1,500 1,500 1,500
Series B Preferred Stock.................. -- 1,235 1,099 1,651
Series C Preferred Stock.................. -- 161 -- 667
Series D Preferred Stock.................. -- -- -- 1,819
Preferred Stock warrants.................. 17 43 47 58
Unvested common shares subject to
repurchase.............................. 3,818 3,302 3,474 2,280
Employee Stock Options.................... 305 1,640 1,390 2,077
------- ------- --------- ---------
5,411 7,881 7,510 10,052
</TABLE>
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 Intraware's Series A, Series B, Series
C and Series D convertible preferred stock into shares of Intraware's common
stock effective upon the closing of Intraware'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.
F-10
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 Intraware'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 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, Intraware 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, Intraware 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. Intraware is in the process of determining what impact, if any, the
adoption of the provisions of SFAS No. 131 will have on the preparation of its
financial statements for the fiscal year ended 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. Intraware 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 Intraware'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 Intraware's results of operations, financial position or cash flows.
However, due to
F-11
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the uncertainties related to the outcome of proposed amendments, the impact on
the future financial results of Intraware 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 SFAS
No. 133 is not expected to have an impact on Intraware'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, Intraware is authorized to
reproduce, use and electronically distribute Netscape products to end user
customers in the United States and Canada. Intraware 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, Intraware obtained the right to maintain a content channel
within the Netcenter area of Netscape's Web site targeted at the information
technology professional community.
In exchange for the content channel right, Intraware paid Netscape $1
million, which is being recognized ratably over the one year term of the
arrangement. In addition, in exchange for a $4.0 million payment, Netscape
agreed to deliver a minimum cumulative number of impressions or page views
promoting the content channel within Netcenter. The $4.0 million payment is
being recognized as advertising expense over the one year term of the
arrangement as such impressions or page views are delivered. At November 30,
1998, the prepaid advertising amount, included in other current assets, was $3.4
million.
SUBSCRIBNET SERVICES AGREEMENT
Under a Services Agreement ("Services Agreement") effective October 1, 1998,
Intraware 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 Intraware, Netscape agreed to pay $8
million, which is being recognized ratably over the one year term of the
arrangement. At November 30, 1998, $2.5 million of the fee is included in
accounts receivable and is scheduled for collection on or before June 1999. At
November 30, 1998, deferred revenue under this agreement was $6.7 million.
F-12
<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 $ 880
Customer deposits........................................... -- -- 561
Other....................................................... 15 307 359
--------- --------- ------------
$ 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, Intraware 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 Intraware 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 Intraware
may utilize approximately $1,100,000 of federal net operating losses annually to
offset future taxable income.
F-13
<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 Intraware's limited operating history, losses incurred to date
and the difficulty in accurately forecasting Intraware'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, Intraware 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 Intraware's tangible personal property.
The agreement provides for borrowings of up to $5,000,000 through July, 1999.
Under the agreement, Intraware is required to maintain compliance with certain
negative and financial covenants. At November 30, 1998, Intraware was in
compliance with all such covenants.
NOTE 6--COMMITMENTS:
Intraware 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. Intraware 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 Intraware 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, Intraware entered into a lease financing agreement that
provides for the lease of computers and office equipment up to $300,000. In July
1998, Intraware 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-14
<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>
Intraware's certificate of incorporation, as amended, authorize Intraware 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 Intraware'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, to elect
F-15
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--CONVERTIBLE PREFERRED STOCK: (CONTINUED)
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 Intraware,
including a merger, acquisition or sale of assets where the beneficial owners of
Intraware'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 Intraware'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, Intraware 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. Intraware has determined that the warrant had a
nominal fair value at the date of issuance.
F-16
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--CONVERTIBLE PREFERRED STOCK: (CONTINUED)
In July 1997, in connection with a credit facility, Intraware 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. Intraware 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 Intraware's Series B financing to purchase 15,625 shares of
Series B preferred stock at a purchase price of $1.60. Intraware has determined
that the warrants had a nominal fair value at the date of issuance.
In July 1998, Intraware 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. Intraware 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,
Intraware 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 Intraware's
initial public offering, whichever is shorter. Intraware has determined that the
warrant had a nominal fair value on the initial measurement date.
NOTE 8--COMMON STOCK:
Intraware's Articles of Incorporation, as amended, authorize Intraware 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 Intraware at the original
purchase price in the event of voluntary or involuntary termination of
employment of the shareholder. Intraware'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, Intraware 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 Intraware in the event of voluntary
or involuntary termination of employment of the shareholder on stock that was
unvested under the 1996 Stock Option Plan. These shares are in addition to the
outstanding founder's common stock subject to repurchase as discussed above.
F-17
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COMMON STOCK: (CONTINUED)
At November 30, 1998, Intraware 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
Intraware 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 Intraware are eligible to participate in the Plan.
Intraware 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, Intraware adopted the 1996 Stock Option Plan (the "Plan").
The Plan provides for the granting of stock options to employees and consultants
of Intraware. Options granted under the Plan may be either incentive stock
options or nonqualified stock options. Incentive stock options ("ISO") may be
granted only to Intraware employees (including officers and directors who are
also employees). Nonqualified stock options ("NSO") may be granted to Intraware
employees and consultants. Intraware has reserved 6,200,000 shares of common
stock for issuance under the Plan, plus annual increases equal to the lesser of
(a) 750,000 shares (b) 2% of the outstanding shares on such date or (c) a lesser
amount determined by the board.
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 Intraware, the term of the option will be five years
from the date of the grant. Options granted by Intraware 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 (a) 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 (b) the
exercise price of an
F-18
<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 0.05
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 0.10
Shares authorized............................................................... -- -- --
Options granted below fair value................................................ (1,150) 1,150 0.68
Options exercised............................................................... -- (1,554) 0.10
Options canceled................................................................ 159 (159) 0.16
----------- -----------
BALANCE AT NOVEMBER 30, 1998.................................................... 103 2,017 0.42
----------- -----------
----------- -----------
</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-19
<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..................................... 431 8.24 years $ 0.05 192 $ 0.05
0.13...................................... 338 8.83 years 0.13 137 0.13
0.15...................................... 445 9.24 years 0.15 19 0.15
0.40...................................... 216 9.56 years 0.40 2 0.40
1.00...................................... 515 9.82 years 1.00 -- --
1.50...................................... 72 9.91 years 1.50 -- --
----- ---
2,017 350
----- ---
----- ---
</TABLE>
Intraware 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>
Intraware 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," Intraware's net loss and loss per share would not have been
materially affected.
UNEARNED STOCK-BASED COMPENSATION
In previously issued financial statements, Intraware estimated the fair
market value of its common stock in connection with the accounting for stock
options during the year ended February 28, 1998 and the nine months ended
November 30, 1998 which resulted in unearned compensation totaling $492,000 and
$1,805,000, respectively. As a result of discussions with the Securities and
Exchange Commission immediately prior to the effective date of Intraware's
initial public offering registration statement, Intraware revised the estimates
of the fair market value assessment at various dates and has recognized
additional compensation amounts. Revised compensation amounts recognized for the
year ended February 28, 1998 and the nine months ended November 30, 1998 total
$1,286,000 and $7,155,000,
F-20
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--EMPLOYEE BENEFIT PLANS: (CONTINUED)
respectively. The following table sets forth a reconciliation of the changes to
net loss and loss per share (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, NINE MONTHS ENDED
1998 NOVEMBER 30, 1998
---------------- ------------------
<S> <C> <C>
Previous net loss...................................... $ (3,982) $ (7,840)
Revised net loss....................................... $ (4,049) $ (8,641)
Previous loss per share................................ $ (2.02) $ (2.25)
Revised loss per share................................. $ (2.05) $ (2.47)
Previous pro forma net loss per share.................. $ (0.51) $ (0.53)
Revised pro forma net loss per share................... $ (0.52) $ (0.57)
</TABLE>
NOTE 10--RELATED PARTY TRANSACTIONS:
At November 30, 1998, Intraware held a note receivable from an officer of
Intraware 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:
STOCK OPTION GRANTS AND AUTHORIZATION
During December 1998, Intraware granted options to purchase 347,690 shares
of common stock to employees at exercise prices of $2.50 -- $4.00. Intraware
recognized unearned compensation totaling $3,338,000 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 Intraware's plan to 6,200,000 shares.
RECAPITALIZATION
In December 1998, Intraware'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 of 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."
F-21
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--SUBSEQUENT EVENTS: (CONTINUED)
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 Intraware's common stock for issuance
thereunder. Members of the board who are not employees of Intraware, 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 Intraware, 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 they
will terminate 3 months following the date the director ceases to be a director
or a consultant of Intraware (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 Intraware.
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 Intraware 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 Intraware. 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 Intraware'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 Intraware's common stock on the first day of the applicable
offering period or on the last day of that purchase period.
F-22
<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>
<S> <C>
SEC registration fee.......................................... $ 19,182
NASD filing fee............................................... 7,400
Nasdaq National Market listing fee............................ 150,000
Printing and engraving costs.................................. 250,000
Legal fees and expenses....................................... 350,000
Accounting fees and expenses.................................. 175,000
Blue Sky fees and expenses.................................... 10,000
Transfer Agent and Registrar fees............................. 10,000
Miscellaneous expenses........................................ 28,418
-----------
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:
(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 Registrant for an aggregate purchase price of $26,250.
II-1
<PAGE>
(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 $1.00 per share 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 $1.60 per share, or an aggregate of $2,641,600.
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.
(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 $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 upon consummation of the two-for-one stock split) for $5.35 per
share, or an aggregate of $11,300,003. 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.
(f) As of November 30, 1998, an aggregate of 1,679,550 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
transactions represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. 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** Restated Certificate of Incorporation of the Registrant to be in effect after the closing of the
offering made under this Registration Statement.
3.2** Restated Bylaws of the Registrant to be in effect after the closing of the 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** 1996 Stock Option Plan (as amended on December 17, 1998) and form of agreements thereunder.
10.3** 1998 Employee Stock Purchase Plan and form of agreements thereunder.
10.4** 1998 Director Option Plan and form of agreements thereunder.
10.5** Form of Registration and Information Rights Agreement.
10.6** Loan Agreement entered into as of July 29, 1998 between the Registrant and Imperial Bank and related
General Security Agreement and Collateral Assignment as Collateral, Patent Mortgage and Security
Agreement.
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.
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.
** Previously filed.
(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.
II-3
<PAGE>
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 NO. 3 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 22ND DAY OF FEBRUARY, 1999.
<TABLE>
<S> <C> <C>
INTRAWARE, INC.
By /s/ PETER H. JACKSON
------------------------------------------
PETER H. JACKSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED BELOW.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ PETER H. JACKSON Officer and Director
- ------------------------------ (Principal Executive February 22, 1999
(PETER H. JACKSON) Officer)
Executive Vice President
/s/ DONALD M. FREED and Chief Financial
- ------------------------------ Officer (Principal February 22, 1999
(DONALD M. FREED) Financial Officer)
*
- ------------------------------ Director February 22, 1999
(LAURENCE M. BAER)
*
- ------------------------------ Director February 22, 1999
(JOHN V. BALEN)
*
- ------------------------------ Director February 22, 1999
(MARY ANN BYRNES)
*
- ------------------------------ Director February 22, 1999
(CHARLES G. DAVIS, JR.)
*
- ------------------------------ Director February 22, 1999
(MARK B. HOFFMAN)
*
- ------------------------------ Director February 22, 1999
(RONALD E. F. CODD)
</TABLE>
<TABLE>
<S> <C> <C>
/s/ PETER H. JACKSON
------------------------------------
(PETER H. JACKSON)
* By ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- ---------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation of the Registrant to be in effect after the closing of
the offering made under this Registration Statement.
3.2** Restated Bylaws of the Registrant to be in effect after the closing of the 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** 1996 Stock Option Plan (as amended on December 17, 1998) and form of agreements thereunder.
10.3** 1998 Employee Stock Purchase Plan and form of agreements thereunder.
10.4** 1998 Director Option Plan and form of agreements thereunder.
10.5** Form of Registration and Information Rights Agreement.
10.6** Loan Agreement entered into as of July 29, 1998 between the Registrant and Imperial Bank and
related General Security Agreement and Collateral Assignment as Collateral, Patent Mortgage
and Security Agreement.
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.
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.
** Previously filed.
<PAGE>
4,000,000 Shares
INTRAWARE, INC.
Common Stock, par value $0.0001 per share
UNDERWRITING AGREEMENT
February [___], 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
HAMBRECHT & QUIST LLC
BANCBOSTON ROBERTSON STEPHENS INC.
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. INTRODUCTORY. Intraware, Inc., a Delaware corporation ("Company"),
proposes to issue and sell 4,000,000 shares ("Firm Securities") of its Common
Stock, par value $0.0001 per share ("Securities"), and Peter Jackson and Charles
Davis (each a "Selling Stockholder" and together, the "Selling Stockholders")
propose to sell to the Underwriters, at the option of the Underwriters, an
aggregate of not more than 200,000 and 50,000 outstanding shares of the
Securities, respectively, and the Company also proposes to issue and sell to the
Underwriters, at the option of the Underwriters, an aggregate of not more than
350,000 additional shares of its Securities (such aggregate 600,000 shares of
Securities being hereinafter referred to as the "Optional Securities") as set
forth below. The Firm Securities and the Optional Securities are herein
collectively called the "Offered Securities". The Company and the Selling
Stockholders hereby agree with the several Underwriters named in Schedule A
hereto ("Underwriters") as follows:
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS.
(a) The Company represents and warrants to, and agrees with, the several
Underwriters that:
(i) A registration statement (No. 333-69261) relating to the
Offered Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("Commission") and either (a) has been
declared effective under the Securities Act of 1933 ("Act") and is not
proposed to be amended or (b) is proposed to be amended by amendment or
post-effective amendment. If such registration statement ("initial
registration statement") has been declared effective, either (a) an
additional registration statement ("additional registration statement")
relating to the Offered Securities may have been filed with the Commission
pursuant
<PAGE>
to Rule 462(b) ("Rule 462(b)") under the Act and, if so filed, has become
effective upon filing pursuant to such Rule and the Offered Securities all
have been duly registered under the Act pursuant to the initial
registration statement and, if applicable, the additional registration
statement or (b) such an additional registration statement is proposed to
be filed with the Commission pursuant to Rule 462(b) and will become
effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (a) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (b) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission. If
an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect
to such additional registration statement means the date and time as of
which such registration statement is filed and becomes effective pursuant
to Rule 462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the date
of the Effective Time thereof. The initial registration statement, as
amended at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of the
initial registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form on
which it is filed and including all information (if any) deemed to be a
part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter
referred to as the "Initial Registration Statement". The additional
registration statement, as amended at its Effective Time, including the
contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"Registration Statements" and individually as a "Registration Statement".
The form of prospectus relating to the Offered Securities, as first filed
with the Commission pursuant to and in accordance with Rule 424(b)
("Rule 424(b)") under the Act or (if no such filing is required) as
included in a Registration Statement, is hereinafter referred to as the
"Prospectus". No document has been or will be prepared or distributed in
reliance on Rule 434 under the Act.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (a) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all material respects to the requirements of the Act
and the rules and regulations of the Commission ("Rules and Regulations")
and did not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not
2
<PAGE>
misleading, (b) on the Effective Date of the Additional Registration
Statement (if any), each Registration Statement conformed, or will conform,
in all material respects to the requirements of the Act and the Rules and
Regulations and did not include, or will not include, any untrue statement
of a material fact and did not omit, or will not omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and (c) on the date of this Agreement,
the Initial Registration Statement and, if the Effective Time of the
Additional Registration Statement is prior to the execution and delivery of
this Agreement, the Additional Registration Statement each conforms, and at
the time of filing of the Prospectus pursuant to Rule 424(b) or (if no such
filing is required) at the Effective Date of the Additional Registration
Statement in which the Prospectus is included, each Registration Statement
and the Prospectus will conform, in all material respects to the
requirements of the Act and the Rules and Regulations, and neither of such
documents includes, or will include, any untrue statement of a material
fact or omits, or will omit, to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
If the Effective Time of the Initial Registration Statement is subsequent
to the execution and delivery of this Agreement: on the Effective Date of
the Initial Registration Statement, the Initial Registration Statement and
the Prospectus will conform in all material respects to the requirements of
the Act and the Rules and Regulations, neither of such documents will
include any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and no Additional Registration Statement
has been or will be filed. The two preceding sentences do not apply to
statements in or omissions from a Registration Statement or the Prospectus
based upon written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein, it being
understood and agreed that the only such information is that described as
such in Section 7(b) hereof.
(iii) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
condition (financial or other), business, properties, or results of
operations of the Company taken as a whole (a "Material Adverse Effect").
(iv) The Company has no subsidiaries.
(v) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement on each Closing Date (as defined below), such Offered Securities
will have been, validly issued, fully paid and nonassessable and will
conform to the description thereof contained in the Prospectus; and except
as disclosed in the Prospectus, the stockholders of the Company have no
preemptive rights with respect to the Securities.
(vi) The Offered Securities have been approved for listing the
Nasdaq Stock Market's National Market subject to notice of issuance.
(vii) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and such
as may be required under state securities laws.
3
<PAGE>
(viii) The execution, delivery and performance of this Agreement, and
the issuance and sale of the Offered Securities will not result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over
the Company or any of its properties, or any agreement or instrument to
which the Company is a party or by which the Company is bound or to which
any of the properties of the Company is subject, or the charter or by-laws
of the Company, and the Company has full power and authority to authorize,
issue and sell the Offered Securities as contemplated by this Agreement.
(ix) This Agreement has been duly authorized, executed and
delivered by the Company.
(x) Except as disclosed in the Prospectus, the Company has good
and marketable title to all properties and assets owned by it, in each case
free from liens, encumbrances and defects that would materially affect the
value thereof or materially interfere with the use made or to be made
thereof by it; and except as disclosed in the Prospectus, the Company holds
any leased real or personal property under valid and enforceable leases
with no exceptions that would materially interfere with the use made or to
be made thereof by them.
(xi) The Company possesses adequate certificates, authorities or
permits issued by appropriate governmental agencies or bodies necessary to
conduct the business now operated by it, except for such certificates,
authorities, or permits the failure of which to obtain would not have a
Material Adverse Effect and the Company has not received any notice of
proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the
Company, would individually or in the aggregate have a Material Adverse
Effect.
(xii) No labor dispute with the employees of the Company exists or,
to the knowledge of the Company, is imminent that might have a Material
Adverse Effect.
(xiii) Except as disclosed in the Prospectus, the Company owns,
possesses or can acquire on reasonable terms, adequate trademarks, trade
names and other rights to inventions, know-how, patents, copyrights,
confidential information and other intellectual property (collectively,
"intellectual property rights") necessary to conduct the business now
operated by it, or presently employed by it, and has not received any
notice of infringement of or conflict with asserted rights of others with
respect to any intellectual property rights that, if determined adversely
to the Company, would individually or in the aggregate have a Material
Adverse Effect.
(xiv) Except as disclosed in the Prospectus, the Company is not in
violation of any statute, any rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to
the use, disposal or release of hazardous or toxic substances or relating
to the protection or restoration of the environment or human exposure to
hazardous or toxic substances (collectively, "environmental laws"), owns
or operates any real property contaminated with any substance that is
subject to any environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any
claim relating to any environmental laws, which violation, contamination,
liability or claim would individually or in the aggregate have a Material
Adverse Effect, and the Company is not aware of any pending investigation
which might lead to such a claim.
(xv) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company, or any of
its properties that, if determined adversely to the Company, would
individually or in the aggregate have a Material Adverse Effect, or would
materially and adversely affect the ability of the Company to perform its
obligations
4
<PAGE>
under this Agreement, or which are otherwise material in the context of the
sale of the Offered Securities; and no such actions, suits or proceedings
are threatened or, to the Company's knowledge, contemplated.
(xvi) The financial statements included in each Registration
Statement and the Prospectus present fairly the financial position of the
Company as the dates shown and its results of operations and cash flows for
the periods shown, and, except as otherwise disclosed in the Prospectus,
such financial statements have been prepared in conformity with the
generally accepted accounting principles in the United States applied on a
consistent basis; the financial schedules included in each Registration
Statement present fairly the information required to be stated therein.
(xvii) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company taken as a
whole (a "Material Adverse Change"), and, except as disclosed in or
contemplated by the Prospectus, there has been no dividend or distribution
of any kind declared, paid or made by the Company on any class of its
capital stock.
(xviii) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment company"
as defined in the Investment Company Act of 1940.
(xix) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes and the Company
agrees to comply with such Section if prior to the completion of the
distribution of the Offered Securities it commences doing such business.
(b) Each Selling Stockholder, severally and not jointly, represents and
warrants to, and agrees with, the several Underwriters that:
(i) Each of the representations and warranties contained in
Section 2(a) are true and correct.
(ii) Such Selling Stockholder has and on the Optional Closing Date
hereinafter mentioned will have valid and unencumbered title to the
Optional Securities to be delivered by such Selling Stockholder on the
Optional Closing Date and full right, power and authority to enter into
this Agreement and to sell, assign, transfer and deliver the Optional
Securities to be delivered by such Selling Stockholder on the Optional
Closing Date hereunder; and upon the delivery of and payment for the
Offered Securities on each Optional Closing Date hereunder the several
Underwriters will acquire the Optional Securities to be delivered by such
Selling Stockholder free of adverse claims, assuming that the Underwriters
purchase such shares in good faith and without notice of adverse claims.
(iii) There are no contracts, agreements or understandings between
such Selling Stockholder and any person that would give rise to a valid
claim against the Company or any Underwriter for a brokerage commission,
finder's fee or other like payment.
(iv) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder and is a valid and
binding agreement of such Selling Stockholder, enforceable in accordance
with its terms, except as rights to indemnification
5
<PAGE>
hereunder may be limited by applicable law and except as the enforcement
hereof may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting the rights and remedies of
creditors or by general equitable principles.
(v) Each of the (a) Custody Agreement signed by such Selling
Stockholder and Harris Trust Company of California, as custodian (the
"Custodian"), relating to the deposit of the Optional Securities to be sold
by such Selling Stockholder (the "Custody Agreement") and (b) power of
attorney ("Power of Attorney") appointing certain individuals named therein
as the Selling Stockholder's attorneys-in-fact (each, an
"Attorney-in-Fact") to the extent set forth therein relating to the
transactions contemplated hereby and by the Prospectus, of such Selling
Stockholder has been duly authorized, executed and delivered by such
Selling Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(vi) The execution and delivery by such Selling Stockholder of, and
the performance by such Selling Stockholder of his obligations under, this
Agreement, the Custody Agreement and the Power of Attorney or the
consummation by such Selling Stockholder or any of the other transactions
contemplated hereby, will not contravene or conflict with, result in a
breach of, or constitute a default under, or require the consent of any
other party to any agreement or instrument to which such Selling
Stockholder is bound or under which he is entitled to any right or benefit,
any provision of applicable law or any judgment, order, decree or
regulation applicable to such Selling Stockholder of any court, regulatory
body, administrative agency, governmental body or arbitrator having
jurisdiction over such Selling Stockholder. No consent, approval,
authorization or other order of, or registration or filing with, any court
or other governmental authority or agency, is required for the consummation
by such Selling Stockholder of the transactions contemplated in this
Agreement, except such as have been obtained or made and are in full force
and effect under the Act, applicable state securities or blue sky laws and
from the NASD.
(vii) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price
of the Securities to facilitate the sale or resale of the Securities.
3. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $[_____________] per share, the
respective numbers of shares of Firm Securities set forth opposite the names of
the Underwriters in SCHEDULE A hereto.
The Company will deliver the Firm Securities to the Representatives for the
accounts of the Underwriters, against payment of the purchase price in Federal
(same day) funds by official bank check or checks or wire transfer to an account
at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC") drawn
to the order of the Company at the office of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, CA 94304, at
10:00 A.M., New York time, on February __, 1999, or at such other time not later
than seven (7) full business days thereafter as CSFBC and the Company determine,
such time being herein referred to as the "First Closing Date". For purposes of
Rule 15c6-1 under the Securities Exchange Act of 1934, the First Closing Date
(if later than the otherwise applicable settlement date) shall be the settlement
date for payment of funds and delivery of securities for all the Offered
Securities sold pursuant to the offering. The certificates for the Firm
Securities
6
<PAGE>
so to be delivered will be in definitive form, in such denominations and
registered in such names as CSFBC requests and will be made available for
checking and packaging at the above office of [_____________] at least 24 hours
prior to the First Closing Date.
Certificates in negotiable form for the Optional Securities to be sold by
each Selling Stockholder hereunder have been placed in custody, for delivery
under this Agreement, under the Custody Agreement made with Custodian. Each
such Selling Stockholder agrees that the shares represented by the certificates
held in custody for such Selling Stockholder under such Custody Agreement is
subject to the interests of the Underwriters hereunder, that the arrangements
made by such Selling Stockholder for such custody are to that extent
irrevocable, and that the obligations of such Selling Stockholder hereunder
shall not be terminated by operation of law, whether by the death of such
Selling Stockholder or the occurrence of any other event, or in the case of a
trust, by the death of any trustee or trustees or the termination of such trust.
If such Selling Stockholder or any such trustee or trustees should die, or if
any other such event should occur, or if any of such trusts should terminate,
before the delivery of the Optional Securities hereunder, certificates for such
Optional Securities shall be delivered by the Custodian in accordance with the
terms and conditions of this Agreement as if such death or other event or
termination had not occurred, regardless of whether or not the Custodian shall
have received notice of such death or other event or termination.
In addition, upon written notice from CSFBC given to the Company and the
Selling Stockholder from time to time not more than thirty (30) days subsequent
to the date of the Prospectus, the Underwriters may purchase all or less than
all of the Optional Securities (rounded up or down, as determined by CSFBC in
its discretion to avoid fractions) at the purchase price per Security to be paid
for the Firm Securities. The Company and each Selling Stockholder, severally,
agree to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities in proportion as the number of shares of
Optional Securities to be sold by the Company and each such Selling Stockholder
as described in Section 1 above bears to the total number of Optional
Securities. Such Optional Securities shall be purchased for the account of each
Underwriter in the same proportion as the number of shares of Firm Securities
set forth opposite such Underwriter's name bears to the total number of shares
of Firm Securities (subject to adjustment by CSFBC to eliminate fractions) and
may be purchased by the Underwriters only for the purpose of covering
over-allotments made in connection with the sale of the Firm Securities. No
Optional Securities shall be sold or delivered unless the Firm Securities
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Optional Securities or any portion thereof may be exercised from
time to time and to the extent not previously exercised may be surrendered and
terminated at any time upon notice by CSFBC to the Custodian and the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company and the Custodian
will deliver the Optional Securities being purchased on each Optional Closing
Date to the Representatives for the accounts of the several Underwriters,
against payment of the purchase price therefor in Federal (same day) funds by
official bank check or checks or wire transfer to an account at a bank
acceptable to CSFBC drawn to the order of the Company and such Selling
Stockholder, at the above office of Wilson Sonsini Goodrich & Rosati,
Professional Corporation. The certificates for the Optional Securities being
purchased on each Optional Closing Date will be in definitive form, in such
denominations and registered in such names as CSFBC requests upon reasonable
notice prior to such Optional Closing Date and will be made available for
checking and packaging at the above office of [_____________] at a reasonable
time in advance of such Optional Closing Date.
7
<PAGE>
4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public
as set forth in the Prospectus.
5. CERTAIN AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement,
the Company will file the Prospectus with the Commission pursuant to
and in accordance with subparagraph (1) (or, if applicable and if
consented to by CSFBC, subparagraph (4)) of Rule 424(b) not later than
the earlier of (A) the second business day following the execution and
delivery of this Agreement or (B) the fifteenth business day after the
Effective Date of the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later date
as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration statement as
filed or the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not
effect such amendment or supplementation without CSFBC's consent, which
consent shall not be unreasonably withheld; and the Company will also
advise CSFBC promptly of the effectiveness of each Registration Statement
(if its Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration
Statement or the Prospectus and of the institution by the Commission of any
stop order proceedings in respect of a Registration Statement and will use
its best efforts to prevent the issuance of any such stop order and to
obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will promptly
notify CSFBC of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of,
any such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "Availability Date" means the
45th day after the end of the fourth fiscal quarter
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following the fiscal quarter that includes such Effective Date, except
that, if such fourth fiscal quarter is the last quarter of the Company's
fiscal year, "Availability Date" means the 90th day after the end of such
fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (four (4) of which will be signed and will include
all exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CSFBC reasonably requests. The Prospectus shall
be so furnished on or prior to 3:00 P.M., New York time, on the business
day following the later of the execution and delivery of this Agreement or
the Effective Time of the Initial Registration Statement. All other
documents shall be so furnished as soon as available. The Company will pay
the expenses of printing and distributing to the Underwriters all such
documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such U.S. jurisdictions as CSFBC
designates and such foreign jurisdictions as the Company and CSFBC shall
agree in advance, and the Company will continue such qualifications in
effect so long as required for the distribution; provided, however, that
the Company shall not be obligated to file any general consent to service
of process or to qualify as a foreign corporation or as a securities dealer
in any jurisdiction or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject.
(g) During the period of five (5) years hereafter, the Company
will furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (ii) from time to time, such other information concerning
the Company as CSFBC may reasonably request.
(h) The Company will pay all expenses incident to the performance
of the obligations of the Company and the Selling Stockholders under this
Agreement, for any filing fees and other expenses (including fees and
disbursements of counsel) incurred in connection with qualification of the
Offered Securities for sale under the laws of such jurisdictions as CSFBC
designates and the printing of memoranda relating thereto, for the filing
fee incident to, and the reasonable fees and disbursements of counsel to
the Underwriters in connection with, the review by the National Association
of Securities Dealers, Inc. of the Offered Securities, for any travel
expenses of the Company's officers and employees and any other expenses of
the Company in connection with attending or hosting meetings with
prospective purchasers of the Offered Securities and for expenses incurred
in distributing preliminary prospectuses and the Prospectus (including any
amendments and supplements thereto) to the Underwriters.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Commission a registration statement under the Act relating
to, any additional shares of its Securities or securities convertible into
or exchangeable or exercisable for any shares of its Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of CSFBC, which
consent shall not be unreasonably withheld, except (1) issuances of
Securities pursuant to the conversion of convertible securities and the
exercise of options, in each case, outstanding on the date hereof,
(2) grants of employee stock options pursuant to the terms of a plan in
effect on the
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date hereof and issuances of Securities pursuant to the exercise of such
options, or (3) issuances of Securities pursuant to the terms of the
Company's Employee Stock Purchase Plan ("ESPP") in effect on the date
hereof. Furthermore, with respect to any such request by the Company to
issue securities in connection with strategic acquisitions or alliances or
other business relationships approved by the Company's Board of Directors,
CSFBC shall respond either affirmatively or negatively within seven (7)
days of receipt of the Company's request.
(j) Each Selling Stockholder agrees to deliver to CSFBC,
attention: Transactions Advisory Group on or prior to the First Closing
Date a properly completed and executed United States Treasury Department
Form W-9 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof).
(k) Each Selling Stockholder agrees, for a period of 180 days
after the date of the initial public offering of the Offered Securities,
not to (i) offer, sell, contract to sell, announce its intention to sell,
pledge or otherwise dispose of, directly or indirectly, any additional
shares of its Securities or securities or other rights convertible into or
exchangeable or exercisable for any shares of its Securities or (ii) enter
into any swap or other agreement that transfers in whole or in part, any of
the economic consequences of ownership of such shares of Securities, in
each case, or publicly disclose the intention to make any such offer, sale,
or pledge, without the prior written consent of CSFBC.
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company and each Selling Stockholder herein, to
the accuracy of the statements of Company officers made pursuant to the
provisions hereof, to the performance by the Company and the Selling Stockholder
of their obligations hereunder and to the following additional conditions
precedent; provided, however, that the condition precedent set forth in
paragraph (h) below shall only be a condition of the obligations of the several
Underwriters to purchase and pay for the Optional Securities on each Optional
Closing Date:
(a) The Representatives shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement to
be filed shortly prior to such Effective Time), of PricewaterhouseCoopers
LLP confirming that they are independent public accountants within the
meaning of the Act and the related Rules and Regulations adopted thereunder
by the Commission and stating to the effect that:
(i) in their opinion the financial statements and
financial statement schedules examined by them and included in
the Registration Statements comply as to form in all material
respects with the applicable accounting requirements of the
Act and the related Rules and Regulations adopted thereunder
by the Commission;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a
review of interim financial information as described in
Statement of Auditing Standards No. 71, Interim Financial
Information, on the unaudited financial statements included in
the Registration Statements;
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(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the
Company who have responsibility for financial and accounting
matters and other specified procedures, nothing came to their
attention that caused them to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all
material respects with the applicable accounting
requirements of the Act and the adopted Rules and
Regulations or any material modifications should be
made to such unaudited financial statements for them to
be in conformity with generally accepted accounting
principles;
(B) the unaudited total net revenues, loss from
operations, net loss and net pro forma basic and
diluted net loss per share amounts for the nine-month
period ended November 30, 1998 included in the
Prospectus do not agree with the amounts set forth in
the unaudited financial statements for those same
periods or were not determined on a basis substantially
consistent with that of the corresponding amounts in
the audited statements of operations;
(C) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified
date not more than three business days prior to the
date of this Agreement, there was any change in the
capital stock (except pursuant to option exercises
under the Company's option plans, the ESPP or other
issues described in the Prospectus) or any increase in
short-term indebtedness or long-term debt of the
Company or, at the date of the latest available balance
sheet read by such accountants, there was any decrease
in total current assets or total assets, as compared
with amounts shown on the latest balance sheet included
in the Prospectus; or
(D) for the period from the closing date of the latest
statement of operations included in the Prospectus to
the closing date of the latest available statement of
operations read by such accountants there were any
decreases, as compared with the corresponding period of
the previous year and with the period of corresponding
length ended the date of the latest statement of
operations included in the Prospectus, in total net
revenues, loss from operations, or increase in net loss
or per share amounts of net loss;
except in all cases set forth in clauses (C) and (D) above for
changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such
letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the Registration Statements
(in each case to the extent that such dollar amounts,
percentages and other financial information are derived from
the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from
inquiries, a
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reading of such general accounting records and other
procedures specified in such letter and have found such dollar
amounts, percentages and other financial information to be in
agreement with such results, except as otherwise specified in
such letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "Registration Statements" shall mean the
initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement but
the Effective Time of the Additional Registration is subsequent to
such execution and delivery, "Registration Statements" shall mean the
Initial Registration Statement and the additional registration
statement as proposed to be filed or as proposed to be amended by the
post-effective amendment to be filed shortly prior to its Effective
Time, and (iii) "Prospectus" shall mean the prospectus included in the
Registration Statements.
(b) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the
date of this Agreement or such later date as shall have been consented to
by CSFBC. If the Effective Time of the Additional Registration Statement
(if any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time the Prospectus
is printed and distributed to any Underwriter, or shall have occurred at
such later date as shall have been consented to by CSFBC. If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with the
Commission in accordance with the Rules and Regulations and Section 5(a) of
this Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of the Company or the Representatives, shall be contemplated by
the Commission.
(c) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company or its
subsidiaries which, in the judgment of a majority in interest of the
Underwriters including the Representatives, is material and adverse and
makes it impractical or inadvisable to proceed with completion of the
public offering or the sale of and payment for the Offered Securities;
(ii) any suspension or limitation of trading in securities generally on the
New York Stock Exchange or any suspension of trading of any securities of
the Company on any exchange or in the over-the-counter market; (iv) any
banking moratorium declared by U.S. Federal or, New York authorities; or
(v) any outbreak or escalation of major hostilities in which the United
States is involved, any declaration of war by Congress or any other
substantial national or international calamity or emergency if, in the
judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
Offered Securities.
(d) The Representatives shall have received an opinion, dated such
Closing Date, of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel for the Company, substantially as follows:
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(i) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus except where the
failure to have such power and authority would not have a Material
Adverse Effect; and the Company is also duly qualified to do business
as a foreign corporation in good standing in California, Illinois, New
Jersey, New York, Ohio, Virginia and Washington;
(ii) The Offered Securities delivered on such Closing Date
and all other outstanding shares of the Common Stock of the Company
have been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained in the
Prospectus. Except as described in the Prospectus, the stockholders
of the Company have no statutory, or to our knowledge, contractual
preemptive rights with respect to the Securities;
(iii) To our knowledge, except as described in the
Prospectus, there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act
with respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities in
the securities registered pursuant to the Registration Statement or in
any securities being registered pursuant to any other registration
statement filed by the Company under the Act;
(iv) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an
"investment company" as defined in the Investment Company Act of 1940;
(v) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is required
for the consummation of the transactions contemplated by this
Agreement in connection with the issuance or sale of the Offered
Securities by the Company, except such as have been obtained and made
under the Act and such as may be required under state securities laws
or by the bylaws and rules of the National Association of Securities
Dealers in connection with the purchase and distribution of the
Offered Securities by the Underwriters;
(vi) The execution, delivery and performance of this
Agreement and the issuance and sale of the Offered Securities will not
result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any statute, any rule, regulation or,
to our knowledge any order of any governmental agency or any court
having jurisdiction over the Company or any of its properties, or any
agreement or instrument to which the Company is a party or by which
the Company is bound or to which any of the properties of the Company
is subject, or the charter or by-laws of the Company, and the Company
has full power and authority to authorize, issue and sell the Offered
Securities as contemplated by this Agreement;
(vii) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in such
opinion, the Additional Registration Statement (if any) was filed and
became effective under the Act as of the date and time (if
determinable) specified in such opinion, the Prospectus either was
filed with the Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion on the date specified therein or was
included in the Initial Registration Statement or the
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<PAGE>
Additional Registration Statement (as the case may be), and, to our
knowledge, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations promulgated thereunder;
(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company.
Such opinion shall also contain a statement to the effect that such
counsel has no reason to believe that any part of a Registration
Statement or any amendment thereto, as of its effective date or as of
such Closing Date, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto, as of its issue date
or as of such Closing Date, contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which
they were made, not misleading; it being understood that such counsel
expresses no statement as to the financial statements and the notes
thereto, financial schedules or other financial data and statistical
data derived therefrom contained in the Registration Statements or the
Prospectus.
(e) The Representatives shall have received from Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, counsel for the Underwriters,
such opinion or opinions, dated such Closing Date, with respect to the
incorporation of the Company, the validity of the Offered Securities
delivered on such Closing Date, the Registration Statements, the Prospectus
and other related matters as the Representatives may require, and the
Company shall have furnished to such counsel such documents as they request
for the purpose of enabling them to pass upon such matters. In rendering
such opinion, Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, may rely as to the incorporation of the Company and all other matters
governed by Delaware law upon the opinion of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, referred to above.
(f) The Representatives shall have received a certificate, dated
such Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to such Closing Date; no stop order suspending the
effectiveness of any Registration Statement has been issued and no
proceedings for that purpose have been instituted or are contemplated by
the Commission; the Additional Registration Statement (if any) satisfying
the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed
pursuant to Rule 462(b), including payment of the applicable filing fee in
accordance with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and, subsequent
to the dates of the most recent financial statements in the Prospectus,
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(g) The Representatives shall have received a letter, dated such
Closing Date, of PricewaterhouseCoopers LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to
in such subsection will be a date not more than three days prior to such
Closing Date for the purposes of this subsection.
(h) The Representatives shall have received an opinion, dated on
such Optional Closing Date, of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, substantially as follows:
(i) The Selling Stockholders are the record holders of the
Optional Securities delivered by the Selling Stockholders on such
Closing Date; and the Underwriters have acquired the Optional
Securities purchased by them from the Selling Stockholders on such
Optional Closing Date hereunder free of adverse claims, assuming
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that the Underwriters purchased such shares in good faith and without
notice of adverse claims;
(ii) The Selling Stockholders have full right, power and
authority to sell, assign, transfer and deliver the Optional
Securities delivered by the Selling Stockholders on such Optional
Closing Date hereunder;
(iii) The Power of Attorneys and related Custody Agreements
with respect to the Selling Stockholders have been duly authorized,
executed and delivered by the Selling Stockholders and constitute
valid and legally binding obligations of the Selling Stockholders
enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles; and
(iv) Assuming due execution and delivery of this Agreement
by the Attorney-in-Fact, the Underwriting Agreement has been duly
authorized, executed and delivered by the Selling Stockholders.
The Company will furnish the Representatives with such conformed copies of
such opinions, certificates, letters and documents as the Representatives
reasonably request. CSFBC may in its sole discretion waive on behalf of
the Underwriters compliance with any conditions to the obligations of the
Underwriters hereunder, whether in respect of an Optional Closing Date or
otherwise.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and each Selling Stockholder, severally and not
jointly, will indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Registration Statement, the
Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending
any such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that neither the Company nor the Selling
Stockholder will be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission
from any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and
agreed that the only such information furnished by any Underwriter consists
of the information described as such in subsection (b) below.
(b) Each Underwriter will severally and not jointly indemnify and
hold harmless the Company and the Selling Stockholder against any losses,
claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or any amendment
or supplement thereto, or any related preliminary prospectus, or arise out
of or are based upon the omission or the alleged omission to state therein
a material
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<PAGE>
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through the
Representatives specifically for use therein, and will reimburse any legal
or other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred, it being understood and agreed that
the only such information furnished by any Underwriter consists of the
following information in the Prospectus furnished on behalf of each
Underwriter: (i) the last paragraph at the bottom of the cover page
concerning the terms of the offering by the Underwriters, (ii) the legend
concerning over-allotments and stabilizing on the inside front cover page
(iii) the table under the first paragraph under the caption "Underwriting",
(iv) and the concession and reallowance figures appearing in the fourth
paragraph under the caption "Underwriting", and (v) the information
contained in the fifth and tenth paragraphs under the caption
"Underwriting."
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under subsection (a) or (b) above, notify the indemnifying party of
the commencement thereof; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under subsection (a) or (b) above. In
case any such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party),
and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release
of such indemnified party from all liability on any claims that are the
subject matter of such action.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a) or (b)
above (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on
the other from the offering of the Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company
on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholder on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Stockholder
bear to the total underwriting discounts and commissions received by the
Underwriters. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates
to information supplied by the
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Company or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid by an indemnified party as a result
of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of
this subsection (d). Notwithstanding the provisions of this subsection (d),
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount
of any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (d) to contribute are several
in proportion to their respective underwriting obligations and not joint.
(e) The obligations of the Company and the Selling Stockholder
under this Section 7 shall be in addition to any liability which the
Company or the Selling Stockholder may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls
any Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each director of the Company, to each officer
of the Company who has signed a Registration Statement and to each person,
if any, who controls the Company within the meaning of the Act.
(f) The liability of the Selling Stockholder under the
representations and warranties contained in Section 2 hereof and under the
indemnity and reimbursement agreements contained in the provisions of this
Section 7 shall be limited to an amount equal to the net proceeds of the
stock sold by such Selling Stockholder to the Underwriters. The Company
and the Selling Stockholders may agree, as among themselves and without
limiting the rights of the Underwriters under this Agreement as to the
respective amounts of such liability for which they each shall be
responsible.
8. DEFAULT OF UNDERWRITERS. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on either the
First or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
17
<PAGE>
9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company
will reimburse the Underwriters for all out-of-pocket expenses (including fees
and disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
10. NOTICES. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
the Representatives, c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at 25 Orinda Way, Orinda,
California 94563, Attention: Peter Jackson; provided, however, that any notice
to an Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed
and confirmed to such Underwriter.
11. SUCCESSORS. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. REPRESENTATION OF UNDERWRITERS. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the Federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
18
<PAGE>
If the foregoing is in accordance with the Representative's understanding
of our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
INTRAWARE, INC.
By
-------------------------------
Peter Jackson, President & CEO
SELLING STOCKHOLDERS:
--------------------------------------
PETER JACKSON
-----------------------------------
CHARLES DAVIS
The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
BANCBOSTON ROBERTSON STEPHENS
HAMBRECHT & QUIST LLC
Acting on behalf of themselves and as the
Representatives of the several Underwriters
By CREDIT SUISSE FIRST BOSTON CORPORATION
By
---------------------------------------------
19
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF
----------- FIRM SECURITIES
---------------
<S> <C>
Credit Suisse First Boston Corporation . . . . . . .
BancBoston Robertson Stephens Inc. . . . . . . . . .
Hambrecht & Quist LLC . . . . . . . . . . . . . . . .
----------------
Total . . . . . . . . . . . . . . 4,000,000
----------------
----------------
</TABLE>
<PAGE>
EXHIBIT 5.1
Intraware, Inc.
25 Orinda Way
Orinda, CA 94563
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you with
the Securities and Exchange Commission ("SEC") on December 18, 1998
(Registration No. 333-69261), as amended by Amendment Nos. 1, 2 and 3 thereto
filed with the SEC on January 8, 1999, January 29, 1999 and February 22, 1999,
respectively (the "Registration Statement"), in connection with registration
under the Securities Act of 1933, as amended, of up to 4,000,000 shares of your
Common Stock, par value $0.0001 and an over-allotment option granted to the
underwriters of the offering to purchase up to 350,000 shares from you
(collectively, the "Shares"). We understand that the Shares are to be sold to
the underwriters of the offering for resale to the public as described in the
Registration Statement. As your legal counsel, we have examined the proceedings
taken, and are familiar with the proceedings proposed to be taken, by you in
connection with the sale and issuance of the Shares.
It is our opinion that the Shares, when issued and sold in the manner
described in the Registration Statement and in accordance with the resolutions
adopted by the Board of Directors of the Company, will be legally and validly
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part therof, and
any amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<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 February 22, 1999,
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.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
San Jose, California
February 22, 1999
