<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1999
REGISTRATION NO. 333-69261
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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 Villenueve Franklin & Hachigian, LLP
Professional Corporation 155 Constitution Drive
650 Page Mill Road Menlo Park, California 94025
Palo Alto, California 94304 (650) 321-2400
(650) 493-9300
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
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 JANUARY 29, 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. We have applied to have the shares 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>
Delivery of the shares of common stock will be made on or about February ,
1999, against payment in immediately available funds.
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 January 29, 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
<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........................ 43
CERTAIN TRANSACTIONS.............. 53
PRINCIPAL AND SELLING
STOCKHOLDERS.................... 54
DESCRIPTION OF CAPITAL STOCK...... 57
SHARES ELIGIBLE FOR FUTURE SALE... 60
ADDITIONAL INFORMATION............ 62
UNDERWRITING...................... 63
NOTICE TO CANADIAN RESIDENTS...... 65
LEGAL MATTERS..................... 66
EXPERTS........................... 66
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.
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD
CONSIDER BEFORE BUYING SHARES IN THE OFFERING. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY.
INTRAWARE, INC.
Intraware is a leading provider of Internet-based business 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.
Proposed 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 as of December 31, 1998, of which 1,800,158 shares were
subject to outstanding options at a weighted average price of $0.51 per
share at December 31, 1998,
- 150,000 shares of common stock available for issuance under our 1998
Director Stock Option Plan, which was approved by the board of directors
on December 17, 1998 and recommended to the stockholders for adoption and
- 600,000 shares available for issuance under our 1998 Employee Stock
Purchase Plan, which was approved by the board of directors on December
17, 1998 and recommended to the stockholders for adoption.
------------------------
EXCEPT AS OTHERWISE 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) (3,900) (2,672) (7,863)
Net loss............................................................ (944) (3,982) (2,715) (7,840)
Net loss per share:
Basic and diluted................................................. $ (1.36) $ (2.02) $ (1.53) $ (2.25)
------- ------------ --------- ---------
------- ------------ --------- ---------
Weighted average shares........................................... 694 1,972 1,776 3,492
------- ------------ --------- ---------
------- ------------ --------- ---------
Pro forma net loss per share:
Basic and diluted (unaudited)..................................... $ (0.51) $ (0.53)
------------ ---------
------------ ---------
Weighted average shares (unaudited)............................... 7,763 14,765
------------ ---------
------------ ---------
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30, 1998
-------------------------
ACTUAL AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 5,413 $ 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 AND EXPECT FUTURE LOSSES.
We have not achieved profitability and expect to incur net losses in the
foreseeable future. We incurred net losses of $944,000 for the period from
August 14, 1996 (inception) through February 28, 1997, $4.0 million for the year
ended February 28, 1998, and $7.8 million for the nine months ended November 30,
1998. As of November 30, 1998, we had an accumulated deficit of $12.8 million.
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.
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 will remain substantially dependent on such sales
for the foreseeable future. We cannot assure you that Netscape will continue to
sell its software through us.
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.
MOST OF OUR REVENUE IS GENERATED BY A FEW CUSTOMERS.
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 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
6
<PAGE>
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.
We believe that quarter-to-quarter comparisons of our operating results are
not a good indication of our future performance. It is likely that in some
future quarter our operating results may be below the expectations of public
market analysts and investors. In this event, the price of our common stock may
fall. Our operating results have varied widely in the past, and we expect that
they will continue to vary significantly from quarter to quarter due to a number
of factors, including:
- demand for our online services and the products of our software vendors;
- the timing of sales of our online services and the products of our
software vendors;
- loss of strategic relationships with major software vendors;
- the mix of our proprietary online services vs. software products sold;
- delays in introducing our online services or our vendors' software
products according to planned release schedules;
- our ability to retain existing customers and attract new customers;
- changes in our pricing policies or the pricing policies of our software
vendors;
- changes in the growth rate of Internet usage and acceptance by customers
of 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. In
addition, as we broaden our sales and marketing efforts to support our recently
introduced online services, such as SUBSCRIBNET and COMPARISCOPE, we may
experience one or more quarters of reduced software product sales. Any shortfall
in our revenues would directly adversely affect our operating income or loss,
and these fluctuations could affect the market price of our common stock.
We plan to significantly increase our operating expenses to expand our sales
and marketing operations, broaden our customer support capabilities, and fund
greater levels of product development. Our operating expenses, which include
sales and marketing, product development and general and administrative
expenses, are based on our expectations of future revenues and are relatively
fixed in the short term. If revenues fall below our expectations, we will not be
able to quickly reduce our spending in response to such a shortfall, which would
adversely affect our operating results.
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 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,
7
<PAGE>
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.
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. Our current
competitors include a number of companies offering one or more solutions for the
evaluation, purchase, deployment and maintenance of business software. In
addition, because these are relatively low barriers to entry in the software and
Internet services markets, we expect additional competition from other
established and emerging companies. Increased competition is likely to result in
price reductions, reduced gross margins and loss of market share, any of which
could materially adversely affect our business, financial condition and results
of operations. We have recently experienced and expect to continue to experience
price competition on our software sales, particularly on large sale
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 materially adversely affect our business, financial condition 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. Accordingly, it is possible
that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share. We also expect that the competition will
increase as a result of software industry consolidations.
WE ARE DEPENDENT ON MARKET ACCEPTANCE OF ELECTRONIC SOFTWARE DELIVERY.
Our success will depend, in large part, on acceptance by information
technology professionals of electronic software delivery as a method of buying
business software. 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 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 available through
traditional delivery methods;
- the level of customer confidence in the process of downloading software;
and
- the relative ease of such a process and concerns about transaction
security.
If electronic software delivery does not achieve widespread market
acceptance, our business will be adversely affected. Even if electronic software
delivery achieves widespread acceptance, we cannot be sure that we will overcome
the substantial existing and future
8
<PAGE>
technical challenges associated with electronically delivering software reliably
and consistently on a long-term basis. Furthermore, the proliferation of
software viruses poses a risk to our industry. Any well-publicized transmission
of a computer virus by us or another company using electronic software delivery
could deter information technology professionals from utilizing electronic
software delivery technology and our business could be adversely affected.
WE ARE DEPENDENT ON ADOPTION OF THE INTERNET AS A METHOD OF CONDUCTING BUSINESS.
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.
WE ARE DEPENDENT ON CONTINUED EXPANSION OF THE INTERNET INFRASTRUCTURE.
The recent growth in Internet traffic has caused frequent periods of
decreased performance, requiring Internet service providers and users of the
Internet to upgrade their infrastructures. If Web usage continues to grow
rapidly, the Internet infrastructure may not be able to support the demands
placed on it by this growth and its performance and reliability may decline. If
these outages or delays on the Internet occur frequently, overall Web usage, as
well as usage of our Web site in particular, could grow more slowly or decline.
Our ability to increase the speed 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. For these reasons, 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 events or
developments will not result in a compromise or breach of the algorithms we use
to protect our customers' transaction data or our software vendors' products. A
party who is able to circumvent our security measures could misappropriate
proprietary information or cause interruptions in our operations. We may be
required to incur significant costs to protect against security breaches or to
alleviate problems caused by such breaches. Any well-publicized compromise of
security could deter people from using the Web or from using it to conduct
transactions that involve transmitting confidential information or downloading
sensitive materials.
WE NEED TO MANAGE OUR GROWTH.
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We have increased, and plan to continue to increase, the
scope of our operations domestically and internationally. As a result, our
headcount has grown and will continue to grow substantially. At November 30,
1997, we had a total of 53 employees and at November 30, 1998, we had a total of
126 employees. In particular, we will need to expand our technology
infrastructure, which will include making certain key employee hires in product
development. These hires historically have been difficult.
WE NEED TO EXPAND OUR TECHNOLOGY RESOURCES.
Our growth has placed, and our anticipated future growth will continue to
place a significant strain on our management systems and resources. We expect
that we will need to
9
<PAGE>
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 cannot assure you that we will be able to adequately expand our
technology resources to support our anticipated growth.
WE MAY NOT BE ABLE TO HIRE AND RETAIN SUFFICIENT SALES, MARKETING AND SUPPORT
PERSONNEL.
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. 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. Competition for qualified sales and marketing personnel is intense,
and we might not be able to hire and retain sufficient numbers of qualified
sales and marketing personnel.
We currently have a small customer service and support organization and will
need to increase our staff to support new customers and the expanding needs of
existing customers. Hiring customer service and support personnel is very
competitive in our industry due to the limited number of people available with
the necessary technical skills and understanding of the Internet. We cannot
assure you that we will be able to hire and retain sufficient numbers of
qualified customer service and support personnel.
WE ARE DEPENDENT ON CERTAIN KEY PERSONNEL.
Our future success depends upon the continued service of our executive
officers and other key technology, sales, marketing and support personnel 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 material adverse effect on our business. In particular, the services of Peter
Jackson, Chief Executive Officer, and Paul Martinelli, Chief Technology Officer,
would be difficult to replace.
OUR PLANNED INTERNATIONAL OPERATIONS FACE SPECIAL RISKS.
We may not be able to successfully market, sell, deliver and support our
services and our vendors' software products internationally. If we are unable to
expand our international operations successfully and in a timely manner, our
business and operating results could be adversely affected. Our international
expansion will require significant management attention and financial resources.
To date, we have not received substantial revenues from sales to
international customers. We intend to expand the scope of sales to international
customers in future periods. In calendar 1999, we intend to open international
offices and hire international sales personnel, including the establishment of
at least one European office. We have only limited experience in marketing,
selling and supporting our services and our vendors' software products overseas.
Additionally, we do not have any experience in developing foreign language
versions of our services. Such development may be more difficult or take longer
than we anticipate especially due to localization problems, such as language
barriers or currency exchange, and the fact that the Internet infrastructure in
such foreign countries may be less advanced than the domestic Internet
infrastructure and may result in longer response time and less accurate or
consistent electronic software delivery.
In addition, our contracts with Netscape currently do not allow us to market
or sell Netscape products, other than pursuant to our SUBSCRIBNET service, in
Europe. Revenues from
10
<PAGE>
European customers may not be able to grow as planned unless we can obtain the
rights to market Netscape products in Europe.
OUR ACQUISITION STRATEGY INVOLVES RISKS.
We currently intend to make investments in complementary companies, services
and technologies. If we acquire a company, we could face difficulties in
assimilating that company's personnel and operations. In addition, the key
personnel of the acquired company may decide not to work for us. Acquisitions of
additional services or technologies also involve risks of incompatibility and
the need for integration into our existing services and marketing, sales and
support efforts. These difficulties could disrupt our ongoing business, distract
our management and employees and increase our expenses. Furthermore, if we
finance the acquisitions by incurring debt or issuing equity securities, this
could dilute our existing stockholders. Any amortization of goodwill or other
assets, or other charges resulting from the costs of such acquisitions, could
adversely affect our operating results.
WE MAY BE EXPOSED TO RISKS OF INTELLECTUAL PROPERTY INFRINGEMENT.
Our services operate in part by making software products and other 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. 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. 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
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 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.
WE MAY BE EXPOSED TO THE YEAR 2000 COMPLIANCE RISKS.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, computer systems and/or
software products used by many companies may need to be upgraded to comply with
such year 2000 requirements.
11
<PAGE>
Our online services, including IT KNOWLEDGE CENTER, COMPARISCOPE,
INTRAWARE.SHOP, VIRTUALEXPRESS, SUBSCRIBNET and their associated and supporting
tools, Web sites, and infrastructure were designed and developed to be year 2000
compliant. Our internal systems, including those used to deliver our services,
utilize third-party hardware and software. We have contacted these
infrastructure products' vendors in order to gauge their year 2000 compliance.
Based on our vendors' representations, we believe that the third-party hardware
and software we use is year 2000 compliant.
We cannot assure you that we will not experience unanticipated negative
consequences, including material costs caused by undetected errors or defects in
the technology used in our internal systems. If, in the future, it comes to our
attention that certain of our services need modification, or certain of our
third-party hardware and software is not year 2000 compliant, then we will seek
to make modifications to our services and systems on a timely basis. We do not
believe that the cost of such modifications will have a material effect on our
operating results. We cannot assure you, however, that we will be able to modify
such products, services and systems in a timely and successful manner to comply
with the year 2000 requirements, which could have a material adverse effect on
our operating results.
Further, while we typically receive warranties and indemnities from our
software vendors with respect to year 2000 compliance of the software products
we resell, we have not independently verified the year 2000 compliance of these
products. If such software products nevertheless require modification to be year
2000 compliant, demand for them could decline precipitously if such
modifications are not timely made by the software vendors. This, in turn, could
adversely affect our business and results of operations. In addition, if
software products we resell 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 such 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.
Year 2000 compliance issues also could cause a significant number of
companies, including our current customers, to reevaluate their current system
needs and, as a result, consider switching to other systems and suppliers. Any
of the foregoing could result in a material adverse effect on our business,
operating results and financial condition. Additionally, during the next twelve
months there is likely to be an increased customer focus on addressing year 2000
compliance issues, creating the risk that customers may reallocate capital
expenditures to fix year 2000 problems of existing systems. Although we have not
experienced the effects of such a trend to date, if customers defer purchases of
business software and related services because of such a reallocation, it would
adversely affect our operating results.
OUR MARKET MAY UNDERGO RAPID TECHNOLOGICAL CHANGE.
Our market is characterized by rapidly changing technology, evolving
industry standards and frequent new product announcements. To be successful, we
must adapt to our rapidly changing market by continually improving the
performance, features and reliability of our services. We could also incur
substantial costs to modify our services or infrastructure in order to adapt to
these changes. Our business could be adversely affected if we incur significant
costs without adequate results, or find ourselves unable to adapt rapidly to
these changes.
12
<PAGE>
WE DO NOT HAVE A DISASTER RECOVERY PLAN OR BACK UP SYSTEMS.
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. 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. The
occurrence of such an event could have a material adverse effect on our
business. Although we maintain insurance against fires, floods, earthquakes and
general business interruptions, there can be no assurance that the amount of
coverage will be adequate in any particular case.
ADDITIONAL GOVERNMENT REGULATIONS MAY INCREASE OUR COSTS OF DOING BUSINESS.
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 law governing Internet transactions, however, remains largely unsettled,
even in areas where there has been some legislative action. It may take years to
determine whether and how existing laws such as those governing intellectual
property, privacy, libel and taxation apply to the Internet. In addition, the
growth and development of the market for online commerce may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
that may impose additional burdens on companies conducting business online. The
adoption or modification of laws or regulations relating to the Internet could
adversely affect our business.
THE ADOPTION OF THE EURO PRESENTS UNCERTAINTIES FOR OUR COMPANY.
On January 1, 1999, the new "Euro" currency was introduced in 11 of the
Member States of the European Monetary Union. It is expected that some other
European countries will also adopt the Euro at a later date. A significant
amount of uncertainty exists as to the effect the Euro will have on the
marketplace generally.
We are currently assessing the effect the introduction of the Euro will have
on our internal accounting systems and the sales of our software vendors'
products and our services. We are not aware of any material operational issues
or costs associated with preparing our internal systems for the Euro. However,
we do utilize third party vendor equipment and software products that may or may
not be European Monetary Union compliant. Although we are currently taking steps
to address the impact, if any, of European Monetary Union compliance for such
third party products, the failure of any critical components to operate properly
following the introduction of the Euro may have an adverse effect on the
business or results of operations of our Company, and require us to incur
expenses to remedy such problems.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS.
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 which
the stockholders may not agree. We cannot predict that the proceeds will be
invested to yield a favorable return. See "Use of Proceeds."
13
<PAGE>
OUR SECURITIES HAVE NO PRIOR MARKET.
Before this offering, there has not been a public market for our common
stock. The initial public offering price will be determined by negotiations
between Intraware and the representatives of the underwriters and the trading
market price of our common stock may decline below the initial public offering
price. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. In addition, an active public
market for Intraware 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 (assuming 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) in the
public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
- ----------------- -----------------------------------
<S> <C>
0 January 29, 1999 (date of this
prospectus)
0 April 29, 1999 (90 days after the
date of this prospectus)
19,529,110 July 28, 1999 (180 days after the
date of this prospectus) at various
times thereafter upon the
expiration of one-year holding
periods
</TABLE>
If our stockholders sell substantial amounts of common stock (including
shares issued upon the exercise of outstanding options) in the public market,
the market price of our common stock could fall. See "Shares Eligible for Future
Sale" and "Underwriting."
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS.
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 at an assumed public offering
price of $14.00 per share, after deducting the underwriting discount and
estimated offering expenses (assuming 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 pursuant to the exercise of the
underwriters' over-allotment option. See "Principal and Selling Stockholders."
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Our existing bank line of credit prohibits the payment of
dividends.
CERTAIN INFORMATION
Our principal executive offices are located at 25 Orinda Way, Orinda,
California 94563 and our telephone number is (925) 253-4500. Our Web site is
located at http//www.intraware.com. Information contained on our Web site does
not constitute part of this prospectus.
Our logo and certain titles and logos of our publications and products
mentioned in this prospectus are our service marks or trademarks. Each
trademark, trade name or service mark of any other company appearing in this
prospectus belongs to its holder.
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.................................................. 19,858 19,858 70,938
Unearned compensation....................................................... (2,033) (2,033) (2,033)
Accumulated deficit......................................................... (12,766) (12,766) (12,766)
---------- ----------- -----------
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 as
of December 18, 1998,
- 2,017,050 shares subject to outstanding options as of November 30, 1998,
and
- 129,056 shares of common stock issuable upon exercise of outstanding
warrants. See "Management--Incentive Stock Plans," "Description of Capital
Stock" and Notes 5 and 11 of Notes to Financial Statements.
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 $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)..................... 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 (inception)
to February 28, 1997, the year ended February 28, 1998 and the nine months ended
November 30, 1998 and the balance sheet data at February 28, 1997, February 28,
1998 and November 30, 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 8,738
Product development..................................... 253 951 604 1,298
General and administrative.............................. 467 1,492 1,016 2,492
------ ------------ --------- ---------
Total operating expenses.............................. 953 5,939 3,657 12,528
------ ------------ --------- ---------
Loss from operations...................................... (952) (3,900) (2,672) (7,863)
Interest expense.......................................... (12) (103) (52) (154)
Interest and other income, net............................ 20 21 9 177
------ ------------ --------- ---------
Net loss.................................................. $ (944) $ (3,982) $ (2,715) $ (7,840)
------ ------------ --------- ---------
------ ------------ --------- ---------
Basic and diluted net loss per share...................... $ (1.36) $ (2.02) $ (1.53) $ (2.25)
------ ------------ --------- ---------
------ ------------ --------- ---------
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" AND "INTENDS" AND SIMILAR EXPRESSIONS
TO IDENTIFY FORWARD-LOOKING STATEMENTS. THIS PROSPECTUS ALSO CONTAINS
FORWARD-LOOKING STATEMENTS ATTRIBUTED TO CERTAIN THIRD PARTIES RELATING TO THEIR
ESTIMATES REGARDING THE GROWTH OF CERTAIN ELECTRONIC-COMMERCE, ELECTRONIC
SOFTWARE DELIVERY, 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 began providing 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 $7.8 million in the period from August 1996 (inception) through
February 28, 1997, the year ended February 28, 1998 and the nine months ended
November 30, 1998, respectively. 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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<PAGE>
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's 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
pursuant to standard reseller terms. Total cost of net revenues increased from
$4.3 million for the nine months ended November 30, 1997 to $19.9 million for
the nine months ended November 30, 1998. This increase in total cost of net
revenues was primarily attributable to increases in the volume of third-party
software and maintenance products sold by 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
increased 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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<PAGE>
service revenues were 69.3% for the nine months ended November 30, 1998.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of employee salaries,
benefits and commissions, advertising, promotional materials and trade show
exhibit expenses. Sales and marketing expenses increased from $2.0 million for
the nine months ended November 30, 1997 to $8.7 million for the nine months
ended November 30, 1998. This increase was primarily attributable to an overall
increase in the scope of Intraware's marketing and branding efforts.
Additionally, during the 1998 nine month period, 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 from 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 $2.5 million for the nine months ended
November 30, 1998. This increase was primarily attributable to overall business
growth and to increased salary and related expenses in accounting, operations
and administration. The number of employees engaged in general and
administrative functions increased from 13 at November 30, 1997 to 26 at
November 30, 1998. Management expects general and administrative expenses to
increase in dollar amount in future periods.
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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<PAGE>
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 $2.3 million
in connection with certain stock option grants. In addition, subsequent to
November 30, 1998, Intraware recorded additional unearned compensation totaling
$865,000 for employee stock options granted on December 2, 1998. The unearned
compensation is being amortized over the four-year vesting period of the related
options and is being allocated among the operating expense categories based upon
the primary activity of the related employee. During the nine months ended
November 30, 1998, amortization of unearned compensation totaled $264,000, and
was allocated in the amounts of $132,000 to sales and marketing, $66,000 to
product development, and $66,000 to general and administrative expenses.
Amortization of unearned compensation was considered immaterial in the year
ended February 28, 1998. See Note 9 of Notes to Financial Statements.
THE PERIOD FROM AUGUST 14, 1996 (INCEPTION) THROUGH FEBRUARY 28, 1997 AND
THE YEAR ENDED FEBRUARY 28, 1998
NET REVENUES
Total net revenues increased from $6,000 for the period from inception
through February 28, 1997 to $10.4 million for the year ended February 28, 1998.
This increase resulted primarily from the sale of third-party software products
upon 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 (inception) through February 28, 1997 to $8.3 million for the year ended
February 28, 1998. This increase reflected the increased software product sales
of 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
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<PAGE>
employed and to expenses incurred in connection with attending trade shows
following the launch of INTRAWARE.SHOP.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses increased from $253,000 for the period from
August 14, 1996 through February 28, 1997 to $951,000 for the year ended
February 28, 1998. The increase resulted primarily from an increase in the
number of product development personnel required to support expansion of
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 $492,000 in connection with certain stock option grants.
Amortization of unearned compensation was considered immaterial in the year
ended February 28, 1998. See Note 9 of Notes to Financial Statements.
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<PAGE>
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 1,684 2,321 4,733
Product development.............. 131 191 282 347 361 444 493
General and administrative....... 257 353 406 476 593 763 1,136
------- ---------- ------------ ------------ ------- ---------- ------------
Total operating expenses....... 726 1,255 1,676 2,282 2,638 3,528 6,362
------- ---------- ------------ ------------ ------- ---------- ------------
Loss from operations............... (656) (883) (1,134) (1,227) (1,627 ) (2,223) (4,013)
Interest expense................... (14) (12) (26) (51) (62 ) (47) (45)
Interest and other income, net..... 1 2 6 12 17 94 66
------- ---------- ------------ ------------ ------- ---------- ------------
Net loss........................... $(669) $ (893) $(1,154) $(1,266) $(1,672) $(2,176) $(3,992)
------- ---------- ------------ ------------ ------- ---------- ------------
------- ---------- ------------ ------------ ------- ---------- ------------
NET REVENUES:
Software product sales........... 100% 100% 100% 100% 100% 99% 87%
Online services.................. -- -- -- -- -- 1 13
------- ---------- ------------ ------------ ------- ---------- ------------
Total revenues................. 100 100 100 100 100 100 100
------- ---------- ------------ ------------ ------- ---------- ------------
COST OF NET REVENUES:
Software product sales........... 77 84 80 79 78 83 77
Online services.................. -- -- -- -- 1 1 3
------- ---------- ------------ ------------ ------- ---------- ------------
Total cost of net revenues.....
Gross profit................. 23 16 20 21 21 16 20
------- ---------- ------------ ------------ ------- ---------- ------------
OPERATING EXPENSES:
Sales and marketing.............. 108 30 37 29 34 28 42
Product development.............. 42 8 11 7 7 5 4
General and administrative....... 83 15 15 9 12 9 10
------- ---------- ------------ ------------ ------- ---------- ------------
Total operating expenses....... 233 53 63 45 53 42 56
------- ---------- ------------ ------------ ------- ---------- ------------
Loss from operations............... (210) (37) (43) (24) (32 ) (26) (36)
Interest expense................... (5) -- (1) (1) (1 ) -- --
Interest and other income, net..... -- -- -- -- 1 --
------- ---------- ------------ ------------ ------- ---------- ------------
Net loss........................... (215)% (37)% (44)% (25)% (33 )% (25)% (36)%
------- ---------- ------------ ------------ ------- ---------- ------------
------- ---------- ------------ ------------ ------- ---------- ------------
</TABLE>
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<PAGE>
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 (inception) through February 28, 1997, $4.9 million for the year
ended February 28, 1998, and $5.9 million for the nine months ended November 30,
1998. Cash used in operating activities in the period from inception through
February 28, 1997 was primarily attributable to initial product development
efforts and general and administrative expenses. The increase in the year ended
February 28, 1998 was primarily attributable to a net operating loss of $4.0
million and increases in prepaid licenses and services and accounts receivable,
partially offset by increases in accounts payable and deferred revenue, as well
as depreciation and amortization of fixed assets. Cash used in operating
activities for the first nine months of 1998 resulted primarily from a net loss
of $7.8 million.
Net cash used in investing activities totaled $428,000 for the period from
inception through February 27, 1997, $686,000 for the year ended February 28,
1998 and $477,000 for the nine months ended November 30, 1998. The increases in
each period resulted primarily from purchases of computer equipment and other
fixed assets.
Net cash provided by financing activities totaled $1.5 million for the
period from inception through February 28, 1997, $5.9 million for the year ended
February 28, 1998 and $11.1 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 the pace of expansion of Intraware's
operations, the timing of development of new and enhanced services, responses to
competitive pressures, acquisitions of complementary businesses or technologies,
or to take advantage of unanticipated opportunities. 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
foregoing factors. 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/or
software products used by many companies may need to be upgraded to comply with
such year 2000 requirements. Intraware's services, including SUBSCRIBNET,
INTRAWARE.SHOP, COMPARISCOPE, IT
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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 is not year 2000 compliant, then
Intraware will seek to make modifications to its systems. In such case,
Intraware expects such modifications to be made on a timely basis and Intraware
does not believe that the cost of such modifications will have a material effect
on its operating results. There can be no assurance, however, that Intraware
will be able to modify such products, services and systems in a timely and
successful manner to comply with the year 2000 requirements, which could have a
material adverse effect on its business and operating results.
Further, while 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 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 these 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 the
foregoing could result in a material adverse effect on our business, operating
results and financial condition. Additionally, during the next twelve months
there is likely to be an increased customer focus on addressing year 2000
issues, creating the risk that customers may reallocate capital expenditures to
fix year 2000 problems of existing systems. Although we have not experienced the
effects of such a trend to date, if customers defer purchases of business
software and related services because of such a reallocation, it would adversely
affect our operating results.
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"). 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
26
<PAGE>
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, AIPCA issued Statement of Position 98-4, "Deferral of the
Effective Date of a provision of SOP 97-2". SOP 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 period beginning on or after
March 15, 1999. SOP 98-9 extends the effective date of SOP 98-4 and provides
additional interpretive guidance. The adoption of SOP 97-2, SOP 98-4, and SOP
98-9 have not had and are not expected to have material impact on 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 upon the adoption of this standard.
27
<PAGE>
BUSINESS
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.
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.
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
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
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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 is 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 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 throughout their organization.
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, 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 effectively track
licensing programs, fully assess customer satisfaction, determine feature
requirements for subsequent releases, make program updates quickly available,
capture additional sales opportunities, or 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.
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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.
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
enhanced Web site development and performance requirements, increased customer
demand for electronic software availability and support, integration of the Web
site with existing internal software systems, electronic licensing demands and
constantly changing export restrictions.
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.
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
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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.
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.
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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 PR 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 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 global online services, online and traditional
marketing efforts, partnerships and direct investments and acquisitions of
complementary businesses.
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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 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.
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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 off-load
some of the costs and burdens associated with physical distribution of updates,
minimize technical support resources devoted to updates and patches and increase
the productivity of their own 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 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.
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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 allows 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."
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*
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
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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.
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.
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 getting vendors to 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.
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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 broader 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.
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 expand its
penetration within 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.
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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 phone number is also available. Customer
service professionals post frequently asked questions, reference documents, and
links to useful information on relevant parts of its Web sites.
STRATEGIC RELATIONSHIP WITH NETSCAPE
Intraware plans to pursue strategic relationships to expand 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
pursuant to 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 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.
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 via 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
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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
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 left off. 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
Microsystems and Cisco Systems, respectively, provide Intraware with high
reliability, performance, and scalability.
Intraware's internal systems identify Internet bandwidth bottlenecks
continuously and manage complex Internet connectivity options in order to
maximize realized throughput and enhance the customer experience. Intraware
currently uses Exodus Communications as its primary data center and Internet
connection point, with replicated servers and services connected to the Internet
via Level 3 Communications. 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
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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. We believe that we compete effectively as a result of our
centralized, information technology-focused, Internet-enabled solution coupled
with our commitment to providing high-quality solutions that yield a rapid
return on investment for our 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 believes the competitive factors in
this marketplace include the following: objectivity, timeliness and
comprehensiveness of information, breadth of product and service offerings
targeted at information technology professionals and 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 via the Internet as well as
vendors that maintain commercial Web sites that sell their software products
directly online. In addition, there is indirect competition with other
transaction processing providers and enablers and indirect competition with
other providers of electronic commerce solutions. Although we believe we are
well positioned given our 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 the existing relationships software
vendors have with their customers, the comprehensiveness of the services offered
and 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 our competitors have already established supplier relationships with
divisions of our current or potential customers. These competitors may be able
to leverage their existing relationships to discourage these customers from
purchasing additional Intraware products or persuade them to replace our
products with their products. Many of our competitors have longer operating
histories, significantly greater resources and name recognition and a larger
installed base of customers than we have. As a result, these competitors may
have greater credibility with our existing and potential customers. They also
may be able to devote greater resources to the development, promotion and sale
of their products than we can to ours, which would allow them to respond more
quickly than we can to new or emerging technologies and changes in customer
requirements.
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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 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 our 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
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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 29, 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 December 1998. Prior to that, Mr. Codd served as
Senior Vice President of Finance and Administration of PeopleSoft from 1994
until December 1998 and as Vice President and Chief Financial Officer from
September 1991 to 1994. Mr. Codd holds an M.B.A. 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.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table sets forth the compensation
earned for services rendered to Intraware in all capacities for the fiscal years
ended February 28, 1997 and February 28, 1998 by Intraware's Chief Executive
Officer and Intraware's next most highly compensated executive officers who
earned more than $100,000 during the fiscal year ended February 28, 1998
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL -------------
COMPENSATION SECURITIES
-------------------------- UNDERLYING
NAME AND PRINCIPAL POSITIONS YEAR SALARY($) BONUS($) OPTIONS(#)
- ------------------------------------------------------------ --------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter H. Jackson............................................ 1998 $ 230,833 60,000 100,000
President and Chief Executive Officer 1997 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 (inception) and ending February 28, 1998.
OPTION GRANTS. The following table sets forth certain information with
respect to stock options granted to each of the Named Executive Officers in the
fiscal year ended February 28, 1998. In accordance with the rules of the
Securities and Exchange Commission, also shown below is the potential realizable
value over the term of the option (the period from the grant date to the
expiration date) based on assumed rates of stock appreciation of 5% and 10%,
compounded annually. These amounts are based on certain assumed rates of
appreciation and do not represent Intraware's estimate of future stock price.
Actual gains, if any, on stock option exercises will be dependent on the future
performance of the common stock.
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM (4)
OPTIONS IN LAST PRICE EXPIRATION --------------------
NAME GRANTED (#) FISCAL YEAR(2) ($/SHARE)(3) DATE 5% 10%
- -------------------------------------- ----------- --------------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Peter H. Jackson(5)................... 100,000 5.2% $ 0.125 10/21/2007 $ 7,861 $ 19,922
Paul A. Martinelli(5)................. 60,000 3.1 0.125 10/21/2007 4,717 11,953
Donald M. Freed(5).................... 60,000 3.1 0.125 10/21/2007 4,717 11,953
Norman A. Pensky(5)................... 30,000 1.6 0.125 10/21/2007 2,358 5,977
</TABLE>
- --------------------------------------------------------------------------------
(1) On September 23, 1998, each of the Named Executive Officers were granted
options at an exercise price of $1.00 per share. Specifically, the following
number of options were granted: Mr. Jackson - 50,000; Mr. Freed - 30,000 and
Mr. Martinelli - 30,000.
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(2) Based on an aggregate of 1,909,000 options granted by Intraware during the
fiscal year ended February 28, 1998 to employees of and consultants to
Intraware, including the Named Executive Officers.
(3) The exercise price per share of each option was equal to the fair market
value of the common stock on the date of grant as determined by the board of
directors. The exercise price per share of each option was equal to the fair
value of the common stock on the date of grant as determined in good faith
by the board of directors on such date based upon such factors as the
purchase price paid by investors for shares of Intraware's preferred stock,
the absence of a trading market for Intraware's securities and Intraware's
financial outlook and results of operations. Such exercise prices are
significantly lower than prices paid by investors purchasing shares of
Intraware's preferred stock in transactions taking place approximately
contemporaneously with the grant of such options. In making its
determination as to the exercise price of such options, the board of
directors considered the fact that Intraware's preferred stock carried
certain rights, preferences and privileges, including a preference upon
liquidation, sale or merger, enhanced voting rights and antidilution rights,
and purchasers of such preferred stock received additional contractual
rights, including registration rights and information rights. The exercise
price may be paid in cash, in shares of common stock valued at fair market
value on the exercise date or in the form of a promissory note.
(4) The potential realizable value is based on the term of the option at its
time of grant (ten years), and assumes that the fair market value of
Intraware's common stock on the date of grant appreciates at the indicated
annual rate compounded annually for the entire term of the option and that
the option is exercised and sold on the last day of its term for the
appreciated stock price.
(5) All options were granted under 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 giving Intraware the
right to repurchase the shares granted by such exercise at cost in the event
of the optionee's termination of employment. The shares vest at a rate of
25% after twelve months following the vesting commencement date and an
additional one forty-eighth each month thereafter; provided however, that in
the event of a merger or sale of substantially all of the assets of
Intraware each outstanding option shall vest and become exercisable to the
extent of the shares that would have vested upon December 31 of the year in
which the merger or sale of assets is consummated.
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<PAGE>
AGGREGATE OPTION EXERCISES AND OPTION VALUES. The following table sets forth
information with respect to the Named Executive Officers concerning option
exercises for the fiscal year ended February 28, 1998, and exercisable and
unexercisable options held as of February 28, 1998. No options were exercised by
the Named Executive Officers during the fiscal year ended February 28, 1998.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT
FEBRUARY 28, 1998 (#) FEBRUARY 28, 1998 ($) (1)
-------------------------- --------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter H. Jackson.......................................... 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>
________________________________________________________________________________
(1) Based on a value of $0.15 per share, the fair market value of Intraware's
stock as of February 28, 1998, as determined by the board of directors,
minus the per share exercise price, multiplied by the number of shares
issued upon exercise of the option.
(2) All options were granted under 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 giving Intraware the
right to repurchase the shares granted by such exercise at cost in the event
of the optionee's termination of employment. The shares vest at a rate of
25% after twelve months following the vesting commencement date and an
additional one forty-eighth each month thereafter; provided however, that in
the event of a merger or sale of substantially all of assets of Intraware
each outstanding option shall vest and become exercisable to the extent of
the shares that would have vested upon December 31 of the year in which the
merger or sale of assets is consummated.
INCENTIVE STOCK PLANS
401(K) PLAN
In 1996, Intraware adopted the Intraware 401(k) Plan 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, so that contributions by Intraware, if any, will be
deductible by Intraware when made. Pursuant to the 401(k) Plan, employees may
elect to reduce up to 20% of their current compensation by up to the statutorily
prescribed annual limit, 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
1996 Plan was approved by the board of directors and the stockholders in October
1996. Unless terminated sooner, the 1996 Plan will terminate automatically in
2006. A total of 6,200,000 shares of common stock is reserved for issuance
pursuant to the 1996 Plan, plus annual increases equal to the lesser of 750,000
shares,
49
<PAGE>
or 2% of the outstanding shares on such date or a lesser amount determined by
the Board.
The 1996 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 1996 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 1998
Purchase Plan, plus annual increases equal to the lesser of 400,000 shares, or
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 1998 Purchase Plan, which is intended to qualify under Section 423 of
the Internal Revenue Code of 1986, as amended, contains successive twenty-four
month offering periods. The offering periods generally start on the first
trading day on or after April 15 and October 15 of each year, except for the
first such offering period which commences on the first trading day on or after
the effective date of this offering and ends on the last trading day on or
before October 15, 2000.
Employees are eligible to participate if they are employed by Intraware or
any participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, 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 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 may be not be granted an
option to purchase stock under the 1998 Purchase Plan. The 1998 Purchase Plan
permits participants to purchase common stock through payroll deductions of up
to 15% of the participant's compensation. The maximum number of shares a
participant may purchase during a single offering period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the 1998 Purchase Plan is 85% of the lower of the fair market
value of the common stock at the beginning of the offering period and the end of
each purchase period.
The 1998 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 1998 Purchase Plan will terminate in 2008. The board of directors has
the authority to amend or terminate the 1998 Purchase Plan, except that no such
action may adversely affect any outstanding rights to purchase stock under the
1998 Purchase Plan.
1998 DIRECTOR OPTION PLAN
Non-employee directors are entitled to participate in the 1998 Director
Option Plan. The Director Plan 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,
50
<PAGE>
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 10 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, after which period the option shall terminate. If an option is
assumed or substituted and the optionee's service as a director is terminated,
other than upon a voluntary resignation, the option becomes fully vested.
Options granted under the Director Plan must be exercised within three months of
the end of the optionee's tenure as a director of 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 the 1996 Stock Option Plan, whether or not the options are assumed or
substituted in a merger or asset sale, each outstanding option will vest and
become exercisable to the extent of the shares that would have vested upon
December 31 of the year in which the merger is consummated.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Intraware's certificate of incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (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. Such limitation of liability does not
apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
Intraware's certificate of incorporation and bylaws provide that Intraware
shall indemnify its directors and executive officers and may indemnify its other
officers and employees and other agents to the fullest extent permitted by law.
Intraware believes that indemnification under its bylaws covers at least
negligence and gross negligence on the part of indemnified parties. Intraware's
bylaws also permit it to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
such capacity, regardless of whether the bylaws would permit indemnification.
51
<PAGE>
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.
52
<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 entities affiliated with Kleiner
Perkins Caufield & Byers ("KPCB") 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.
Entities affiliated with Attractor Ventures LLC purchased 560,748 shares,
entities affiliated with Canaan Equity Partners, L.L.C. purchased 560,748
shares, entities affiliated with KPCB purchased 93,458 shares and Technology
Crossover Ventures purchased 560,748 shares. Mr. Balen, a partner of Canaan, is
a member of Intraware's Board of Directors. KPCB beneficially owned more than 5%
of Intraware's outstanding capital stock at the time of this financing while
each of Attractor, Canaan and TCV became beneficial owners of more than 5% of
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 otherwise matures in July
2000.
All future transactions, including any loans from Intraware to its officers,
directors, principal stockholders or affiliates, will be approved by a majority
of the board of directors, including a majority of the independent and
disinterested members of the board of directors or, if required by law, a
majority of disinterested stockholders. These transactions, if any, will be on
terms no less favorable to Intraware than could be obtained from unaffiliated
third parties.
53
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table summarizes certain information known to Intraware with
respect to the beneficial ownership of its common stock as of December 31, 1998,
and as adjusted to reflect the sale of common stock offered hereby by (a) each
stockholder known by Intraware to own beneficially more than 5% of its common
stock, (b) each of the Named Executive Officers, (c) each director of Intraware,
(d) all directors and executive officers as a group and (e) all other selling
stockholders. As of December 31, 1998, there were 19,529,110 shares of common
stock outstanding, as adjusted to reflect the conversion of all outstanding
shares of preferred stock upon closing of this offering. The selling
stockholders, Peter H. Jackson and Charles G. Davis, Jr., would only sell shares
of common stock in the offering in the event the underwriters exercised their
over-allotment option. Intraware and Messrs. Jackson and Davis 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. Except as
otherwise indicated, Intraware believes that the beneficial owners of the common
stock listed below, based on the information furnished by such owners, have sole
voting power and investment power with respect to such shares. Except as
otherwise noted, the following officers, directors and stockholders can be
reached at the principal offices of Intraware.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)(2)
------------------------ ------------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Peter H. Jackson(3)................................................. 3,639,800 18.6% 3,639,800 15.4%
Entities Associated with Mark B. Hoffman(4) 1,866,250 9.5 1,866,250 7.9
c/o Intraware, Inc.
25 Orinda Way
Orinda, CA 94563..................................................
Entities Affiliated with Kleiner Perkins Caufield & Byers 1,520,250 7.8 1,520,250 6.5
2750 Sand Hill Road
Menlo Park, CA 94025..............................................
Entities Associated with Charles G. Davis, Jr.(5) 1,290,000 6.6 1,290,000 5.5
c/o Intraware, Inc.
25 Orinda Way
Orinda, CA 94563..................................................
Entities Affiliated with Attractor Ventures L.L.C. 1,121,496 5.7 1,121,496 4.8
110 Burlingame Avenue
Burlingame, CA 94010..............................................
Entities Affiliated with Canaan Equity Partners, L.L.C.(6) 1,121,496 5.7 1,121,496 4.8
2884 Sand Hill Road, Suite 115
Menlo Park, CA 94025..............................................
Entities Affiliated with Technology Crossover Management II, L.L.C. 1,121,496 5.7 1,121,496 4.8
56 Main Street, Suite 210
Milburn, NJ 07041.................................................
Entities Affiliated with 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(7)............................................... 840,000 4.3 840,000 3.6
Donald M. Freed(8).................................................. 598,346 3.1 598,346 2.5
Norman A. Pensky(9)................................................. 250,000 1.3 250,000 1.1
Laurence M. Baer(10)................................................ 30,000 * 30,000 *
Mary Ann Byrnes(11)................................................. 30,000 * 30,000 *
Ronald E. F. Codd(12)............................................... 30,000 * 30,000 *
John V. Balen(13)................................................... -- -- -- --
All directors and officers as a group (17 persons)(14).............. 9,631,872 48.5 9,631,872 40.4
</TABLE>
- ------------------------------
* Less than 1% of the outstanding shares of common stock.
54
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person
that are currently exercisable or will become exercisable within 60 days
after December 31, 1998 are deemed outstanding, while such shares are not
deemed outstanding for purposes of computing the percentage ownership of any
other person. Unless otherwise indicated in the footnotes below, the persons
and entities named in the table have sole voting and investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Unless otherwise indicated in the table above, the address
of each of the individuals listed in the table is Intraware, Inc., 25 Orinda
Way, Orinda, California 94563.
(2) Assumes no exercise of the underwriters' over-allotment option. As part of
the underwriters' 600,000 share over-allotment option, each of Messrs.
Jackson and Davis has granted the underwriters an option to purchase 200,000
and 50,000 shares of common stock, respectively, to cover over-allotments,
if any. If the underwriters exercise this over-allotment option in full,
Messrs. Jackson and Davis will beneficially own 3,439,800 shares (14.4%) and
1,240,000 shares (5.2%), respectively, of the outstanding common stock after
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.
(3) Mr. Jackson is a founder, President, Chief Executive Officer and a member of
the board of directors of Intraware. Includes 50,000 shares issuable upon
exercise of stock options exercisable within 60 days of December 31, 1998,
all of which, if exercised, would be subject to repurchase by Intraware
pursuant to Intraware's 1996 Stock Option Plan, at cost, in the event Mr.
Jackson ceases to be an employee of Intraware. As of December 31, 1998,
70,834 of the shares held by Mr. Jackson issued pursuant to the exercise of
stock options under Intraware's 1996 Stock Option Plan were subject to
repurchase by Intraware, at cost, in the event Mr. Jackson ceases to be an
employee of Intraware. The right of repurchase lapses at the rate of 1/4
upon the expiration of one year from the date of grant and 1/48 each month
thereafter. The right of repurchase lapses in part upon consummation of a
merger of Intraware or a sale of substantially all of its assets. In
addition, as of December 31, 1998, 583,334 shares were subject to repurchase
by Intraware, at cost, pursuant to a Founder's Stock Purchase Agreement
between Mr. Jackson and Intraware, which repurchase right lapses at the rate
of 1/36th of the initial number of shares purchased subject to such right
upon the expiration of each full month after the date of purchase.
(4) Mr. Hoffman is Chairman of the Board of Directors of Intraware. Includes
40,000 shares issuable upon exercise of stock options exercisable within 60
days of December 31, 1998, of which, if exercised, 34,166 of the shares
would be subject to repurchase by Intraware, at cost, in the event Mr.
Hoffman ceases to be an employee of Intraware. The right of repurchase
lapses at the rate of 1/4 upon the expiration of one year from the date of
grant and 1/48 upon the expiration of each month thereafter. The right of
repurchase lapses in part upon consummation of a merger of Intraware or a
sale of substantially all of its assets. Includes 1,826,250 shares held by
Mark B. Hoffman, trustee of The Hoffman Family Trust. Mr. Mark B. Hoffman
exercises control over all the entities. Excludes 40,000 shares held by the
Annie Eleanor Hoffman 1993 Revocable Trust of which Mr. Hoffman disclaims
beneficial ownership. Excludes 40,000 shares held by the Andrew Mark Hoffman
1993 Revocable Trust of which Mr. Hoffman disclaims beneficial ownership.
(5) Mr. Davis is Vice Chairman of the Board of Directors of Intraware. Includes
40,000 shares issuable upon exercise of stock options exercisable within 60
days of December 31, 1998, of which, if exercised, 34,166 of the shares
would be subject to repurchase by Intraware, at cost, in the event Mr. Davis
ceases to be an employee of Intraware. The right of repurchase lapses at the
rate of 1/4 at one year from the date of grant and 1/48 each month
thereafter. The right of repurchase lapses in part upon consummation of a
merger of Intraware or a sale of substantially all of its assets. Includes
400,000 shares held by Charles G. Davis, Jr., Trustee of the Charles G.
Davis, Jr., Trust Agreement dated 1/90 and 600,000 shares held by the Davis
Family-54447-LLC. Mr. Charles G. Davis, Jr., exercises control over all the
entities.
(6) John V. Balen is a principal of Canaan Equity Partners, L.L.C. the general
partner of Canaan Equity, L.P. Mr. Balen disclaims benficial ownership of
the shares held by Canaan Equity, L.P., except to the extent of his
pecuniary interest arising from his interest as a principal of Canaan Equity
Partners, L.L.C., the general partner of Canaan Equity Partners, L.P. Mr.
Balen is a member of the Board of Directors of Intraware.
(7) Mr. Martinelli is Senior Vice President and Chief Technology Officer of
Intraware. Includes 30,000 shares issuable upon exercise of stock options
exercisable within 60 days of December 31, 1998, all of which, if exercised,
would be subject to repurchase by Intraware, pursuant to Intraware's 1996
Stock Option Plan, at cost, in the event Mr. Martinelli ceases to be an
employee of Intraware. As of December 31, 1998, 42,500 of the shares held by
Mr. Martinelli issued pursuant to the exercise of stock options under
Intraware's 1996 Stock Option Plan were subject to repurchase by Intraware,
at cost, in the event Mr. Martinelli ceases to be an employee of Intraware.
The right of repurchase of shares granted pursuant to the 1996 Stock Option
Plan lapses at the rate of 1/4 upon the expiration of one year from the date
of grant and 1/48 upon the expiration of each month thereafter. The right of
repurchase lapses in part upon consummation of a merger of Intraware or a
sale of substantially all of its assets. In addition, as of December 31,
1998, 187,500 shares are subject to repurchase by Intraware, at cost,
pursuant to a founder's stock purchase agreement between Mr. Martinelli and
Intraware, which repurchase right lapses at the rate of 1/36th of the
initial number of shares purchased upon expiration of each full month after
the date of purchase.
(8) Mr. Freed is Executive Vice President and Chief Financial Officer of
Intraware. Includes 30,000 shares issuable upon exercise of stock options
exercisable within 60 days of December 31, 1998, all of which, if exercised,
would be subject to repurchase by Intraware pursuant to Intraware's 1996
Stock Option Plan, at cost, in the event Mr. Freed ceases to be an employee
of Intraware. As of December 31, 1998, 42,500 of the shares held by Mr.
Freed issued pursuant to the exercise of stock options under Intraware's
1996 Stock Option Plan were subject to repurchase by Intraware, at cost, in
the event Mr. Freed ceases to be an employee of Intraware. The right of
repurchase of shares granted pursuant to the 1996 Stock Option Plan lapses
at the rate of 1/4 at one year from the date of grant and 1/48 each month
thereafter. The right or repurchase lapses in part upon consummation of a
merger of Intraware or a sale of substantially all of its assets. In
addition, as of December 31, 1998, 125,000 shares are subject to repurchase
by Intraware, at cost, pursuant to a Founder's Stock
55
<PAGE>
Purchase Agreement between Mr. Freed and Intraware, which repurchase right
lapses at the rate of 1/36th of the initial number of shares purchased upon
expiration of each full month after the date of purchase.
(9) Mr. Pensky is Intraware's Vice President of Sales. As of December 31, 1998,
131,250 of the shares held by Mr. Pensky issued pursuant to the exercise of
stock options under Intraware's 1996 Stock Option Plan were subject to
repurchase by Intraware, at cost, in the event Mr. Pensky ceases to be an
employee of Intraware. The right of repurchase lapses at the rate of 1/4 at
one year from the date of grant and 1/48 each month thereafter. Intraware's
right of repurchase lapses in part upon consummation of a merger of
Intraware or a sale of substantially all of its assets.
(10) Mr. Baer is a member of the board of directors of Intraware. Includes
30,000 shares issuable upon exercise of stock options exercisable within 60
days of December 31, 1998, all of which, if exercised, would be subject to
repurchase by Intraware pursuant to Intraware's 1996 Stock Option Plan, at
cost, in the event Mr. Baer ceases to be an employee of Intraware.
Intraware's right of repurchase lapses at the rate of 1/4 upon the
expiration of one year from the date of grant and 1/48 upon the expiration
of each month thereafter. The right of repurchase lapses in part upon
consummation of a merger of Intraware or a sale of substantially all of its
assets.
(11) Ms. Byrnes is a member of the board of directors of Intraware. As of
December 31, 1998, all 30,000 of the shares held by Ms. Byrnes issued
pursuant to the exercise of stock options under Intraware's 1996 Stock
Option Plan were subject to repurchase by Intraware, at cost, in the event
Ms. Byrnes ceases to be an employee of Intraware. Intraware's right of
repurchase lapses at the rate of 1/4 upon the expiration of one year from
the date of grant and 1/48 upon the expiration of each month thereafter. The
right or repurchase lapses in part upon consummation of a merger of
Intraware or a sale of substantially all of its assets.
(12) Mr. Codd is a member of the board of directors of Intraware. Includes
30,000 shares issuable upon exercise of stock options exercisable within 60
days of December 31, 1998, all of which, if exercised, would be subject to
repurchase by Intraware pursuant to Intraware's 1996 Stock Option Plan, at
cost, in the event Mr. Codd ceases to be an employee of Intraware.
Intraware's right of repurchase lapses at the rate of 1/4 upon the
expiration of one year from the date of grant and 1/48 upon the expiration
of each month thereafter. The right of repurchase lapses in part upon
consummation of a merger of Intraware or a sale of substantially all of its
assets.
(13) 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.
(14) 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. The
right of repurchase lapses in part upon consummation of a merger of
Intraware or a sale of substantially all of its assets.
56
<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 to the forward two-for-one stock split of all outstanding common stock,
and conversion of all outstanding shares of convertible preferred stock into an
aggregate of 12,045,628 shares of common stock, which will occur upon the
closing of this offering.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of Intraware, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. The holders of
common stock have no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
nonassessable, and the shares of common stock to be issued upon the closing of
this offering will be fully paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. It is not possible
to state the actual effect of the issuance of any shares of preferred stock upon
the rights of holders of the common stock until the board of directors
determines the specific rights of the holders of such preferred stock. However,
the effects might include, among other things, restricting dividends on the
common stock, diluting the voting power of the common stock, impairing the
liquidation rights of the common stock and delaying or preventing a change in
control of Intraware without further action by the stockholders. Immediately
prior to the closing no shares of preferred stock will be outstanding, and
Intraware has no present plans to issue any shares of preferred stock.
WARRANTS
At 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") or their permitted transferees are entitled to certain
rights with respect to registration of such shares under the Securities Act.
These rights are provided under the terms of an agreement between Intraware and
the holders of registrable securities. Under these registration rights,
beginning 180 days following the date of this prospectus, holders of at least
50% of the then outstanding registrable securities or at least 60% of the then
outstanding registrable securities issued upon
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<PAGE>
conversion of the Series D preferred stock may require on up to two occasions
that Intraware register their shares for public resale. Intraware is obligated
to register these shares only if the outstanding registrable securities have an
anticipated public offering price of at least $10,000,000 and if either (a) the
holders of at least 50% of such shares or (b) at least 60% of the then
outstanding registrable securities issued upon conversion of the Series D
preferred stock request registration. 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 more difficult the acquisition of Intraware
by means of a tender offer, a proxy contest or otherwise and the removal of
incumbent officers and directors. These provisions, summarized below, are
expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
Intraware to first negotiate with Intraware'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. Effective with the first annual meeting
of stockholders following this offering, Intraware's restated articles provide
for the division of Intraware's board of directors into three classes, as nearly
equal in number as possible. The directors in each class will serve for a
three-term and 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 restated bylaws, only the board of
directors, the chairman of the board and the president may call special meetings
of stockholders.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND
PROPOSALS. Intraware's restated bylaws establish advance notice procedures with
respect to stockholder proposals and the nomination of candidates for election
as directors, other than nominations made by or at the direction of the board of
directors or a committee 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
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<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 restated
certificate of incorporation eliminates the right of stockholders to act by
written consent without a meeting.
ELIMINATION OF CUMULATIVE VOTING. Intraware's restated certificate of
incorporation and bylaws do not provide for cumulative voting in the election of
directors.
UNDESIGNATED PREFERRED STOCK. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of Intraware. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of Intraware.
AMENDMENT OF RESTATED CHARTER. The amendment of any of the above provisions
would require approval by holders of at least 66 2/3% of the outstanding common
stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Harris Trust
Company of California.
NASDAQ NATIONAL MARKET LISTING
We have applied for listing on the Nasdaq National Market under the symbol
"ITRA."
59
<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 that do not expire 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 securities of Intraware that are
substantially similar to the common stock, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, common stock or any such substantially similar securities
(other than pursuant to employee stock option plans existing on, or upon the
conversion or exchange of convertible or exchangeable securities outstanding as
of, the date of the lock-up agreement) for a period of 180 days after the date
of this prospectus without the prior written consent of Credit Suisse First
Boston. As a result of these lock-up agreements, notwithstanding possible
earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701,
none of these shares will be 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 (subject in some cases to repurchase rights in favor of
Intraware). 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 such 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 235,261
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.
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<PAGE>
Under Rule 144(k), a person who is not deemed to have been an affiliate of
Intraware at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
including the holding period of any prior owner except an affiliate, is entitled
to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the holding
period requirement, of Rule 144. Any employee, officer or director of or
consultant to Intraware who purchased shares pursuant to a written compensatory
plan or contract may be entitled to rely on the resale provisions of Rule 701.
Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this prospectus before selling
such shares. However, all Rule 701 shares are subject to lock-up agreements and
will only become eligible for sale at the earlier of the expiration of the
180-day lock-up agreements or no sooner than 90 days after the offering upon
obtaining the prior written consent of Credit Suisse First Boston.
Within 90 days following the effectiveness of this offering, Intraware will
file a Registration Statement on Form S-8 registering shares of common
stock subject to outstanding options or reserved for future issuance under its
stock plans. As of December 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 pursuant to 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
rights with respect to registration of such shares for sale in the public
market. See "Description of Capital Stock--Registration Rights." Registration of
such shares under the Securities Act would result in such shares becoming freely
tradable without restriction under the Securities Act, except for shares
purchased by affiliates, immediately upon the effectiveness of such
registration.
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<PAGE>
ADDITIONAL INFORMATION
Intraware has filed with the Securities and Exchange Commission, Washington,
D.C., a registration statement on Form S-1 under the Securities Act with respect
to the shares of common stock offered hereby. This prospectus does not contain
all the information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to Intraware and such
common stock, reference is made to the registration statement and to the
exhibits and schedules filed therewith. Statements contained in this prospectus
as to the contents of any contract or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by such reference. A copy of
the registration statement may be inspected by anyone without charge at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of all or any portion of the
registration statement may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of
prescribed fees. The Commission maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
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<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 precedent and that the Underwriters will be
obligated to purchase all the shares of common stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased. The Underwriting Agreement provides that, in the event of a default
by an Underwriter, in certain circumstances the purchase commitments of
nondefaulting Underwriters may be increased or the Underwriting Agreement may be
terminated.
Intraware and the Selling Stockholders have granted to the Underwriters an
option, expiring at the close of business on the 30th day after the date of this
prospectus to purchase up to additional shares at the initial public
offering price less the underwriting discounts and commissions, all as set forth
in the table below. Such option may be exercised only to cover over-allotments
in the sale of shares of common stock. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of common
stock as it was obligated to purchase pursuant to the Underwriting Agreement.
Intraware has been advised by the Representatives that the Underwriters
propose to offer the shares to the public initially at the public offering price
set forth on the cover page of this prospectus and, through the Representatives,
to certain 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 the Intraware..................................... $ $ $
Underwriting Discounts and Commissions paid by Selling Stockholders... $ $ $
Expenses payable by the Selling Stockholders.......................... $ $ $
</TABLE>
63
<PAGE>
Intraware, its officers and directors and certain other shareholders have
agreed that they will not offer, sell, contract to sell, announce their
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Commission a registration statement under the Securities Act
relating to, any additional shares of common stock or securities convertible
into or exchangeable or exercisable for any shares of Intraware without the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus, except in the case of issuances by
Intraware pursuant to the exercise of employee stock options outstanding on the
date hereof.
Of the 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
the holders of Intraware's preferred stock in connection with a preexisting
contractual right 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.
Intraware has applied to list the shares of common stock 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 has been 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
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<PAGE>
hypothecate such shares for a period of one year from January 29, 1999, except
to officers or partners (not directors) of the underwriter and members of the
selling group and/or their officers or partners.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that 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 pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to 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 pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from 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 the purchaser under relevant Canadian
legislation.
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<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Intraware by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters will be passed upon for the Underwriters
by Gunderson Dettmer Stough Villenueve Franklin & Hachigian, LLP, Menlo Park,
California. As of the date of this prospectus, WS Investment Company 97A, an
investment partnership composed of certain current and former members of and
persons associated with Wilson Sonsini Goodrich & Rosati, Professional
Corporation as well as certain individual attorneys of this firm, beneficially
own an aggregate of 116,842 shares of Intraware's common stock.
EXPERTS
The financial statements as of February 28, 1997 and 1998 and November 30,
1998, and for the period from August 14, 1996 (inception) through February 28,
1997, the year ended February 28, 1998 and the nine month periods ended November
30, 1997 and 1998 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
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<PAGE>
INTRAWARE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Balance Sheet.............................................................................................. F-3
Statement of Operations.................................................................................... F-4
Statement of Stockholders' Equity.......................................................................... F-5
Statement of Cash Flows.................................................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The recapitalization described in Note 11 to the financial statements has
not been consummated at December 18, 1998. When it has been consummated, we will
be in a position to furnish the following report:
"To the Board of Directors and Stockholders of
Intraware, Inc.
In our opinion, the accompanying balance sheet and the related
statements of operations, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Intraware, Inc.
(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."
PricewaterhouseCoopers LLP
San Jose, California
December 14, 1998
F-2
<PAGE>
INTRAWARE, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------- NOVEMBER 30,
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 6,187 19,858 19,858
Unearned compensation.............................................................. -- (492) (2,033) (2,033)
Accumulated deficit................................................................ (944) (4,926) (12,766) (12,766)
------ ------- ------------ ------------
Total stockholders' equity....................................................... 582 770 5,061 $ 5,061
------ ------- ------------ ------------
------------
$1,026 $15,384 $ 38,921
------ ------- ------------
------ ------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
INTRAWARE, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AUGUST 14, 1996
(INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED NOVEMBER 30,
FEBRUARY 28, FEBRUARY 28, --------------------
1997 1998 1997 1998
--------------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Software product sales..................................... $ 6 $ 10,383 $ 5,331 $ 23,027
Online services............................................ -- 4 -- 1,529
------ ------------ --------- ---------
Total net revenues..................................... 6 10,387 5,331 24,556
------ ------------ --------- ---------
Cost of net revenues:
Software product sales..................................... 5 8,348 4,346 19,421
Online services............................................ -- -- -- 470
------ ------------ --------- ---------
Total cost of net revenues............................. 5 8,348 4,346 19,891
------ ------------ --------- ---------
Gross profit....................................... 1 2,039 985 4,665
------ ------------ --------- ---------
Operating expenses:
Sales and marketing........................................ 233 3,496 2,037 8,738
Product development........................................ 253 951 604 1,298
General and administrative................................. 467 1,492 1,016 2,492
------ ------------ --------- ---------
Total operating expenses............................... 953 5,939 3,657 12,528
------ ------------ --------- ---------
Loss from operations......................................... (952) (3,900) (2,672) (7,863)
Interest expense............................................. (12) (103) (52) (154)
Interest and other income, net............................... 20 21 9 177
------ ------------ --------- ---------
Net loss..................................................... $ (944) $ (3,982) $ (2,715) $ (7,840)
------ ------------ --------- ---------
------ ------------ --------- ---------
Net loss per share:
Basic and diluted.......................................... $ (1.36) $ (2.02) $ (1.53) $ (2.25)
------ ------------ --------- ---------
------ ------------ --------- ---------
Weighted average shares.................................... 694 1,972 1,776 3,492
------ ------------ --------- ---------
------ ------------ --------- ---------
Pro forma net loss per share:
Basic and diluted (unaudited).............................. $ (0.51) $ (0.53)
------------ ---------
------------ ---------
Weighted average shares (unaudited)........................ 7,763 14,765
------------ ---------
------------ ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
INTRAWARE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK ADDITIONAL
------------------------ ---------------------- PAID-IN UNEARNED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
----------- ----------- --------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to Founders.... -- $ -- 5,250 $ 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................... -- -- -- -- 492 (492) --
Net loss................................ -- -- -- -- -- -- (3,982)
----- ----- --------- ----- ----------- ------------- ------------
Balance at February 28, 1998............ 3,834 -- 5,376 1 6,187 (492) (4,926)
Issuance of Series D convertible
preferred stock....................... 2,189 1 -- -- 11,713 -- --
Exercise of stock options............... -- -- 1,554 -- 153 -- --
Unearned compensation................... -- -- -- -- 1,805 (1,805) --
Amortization of unearned compensation... -- -- -- -- -- 264 --
Net loss................................ -- -- -- -- -- -- (7,840)
----- ----- --------- ----- ----------- ------------- ------------
Balance at November 30, 1998............ 6,023 $ 1 6,930 $ 1 $ 19,858 $ (2,033) $ (12,766)
----- ----- --------- ----- ----------- ------------- ------------
----- ----- --------- ----- ----------- ------------- ------------
<CAPTION>
TOTAL
---------
<S> <C>
Issuance of common stock to Founders.... $ 26
Issuance of Series A convertible
preferred stock....................... 1,500
Net loss................................ (944)
---------
Balance at February 28, 1997............ 582
Issuance of Series B convertible
preferred stock....................... 2,642
Issuance of Series C convertible
preferred stock....................... 1,500
Exercise of Series B warrant............ 25
Exercise of stock options............... 3
Unearned compensation................... --
Net loss................................ (3,982)
---------
Balance at February 28, 1998............ 770
Issuance of Series D convertible
preferred stock....................... 11,714
Exercise of stock options............... 153
Unearned compensation................... --
Amortization of unearned compensation... 264
Net loss................................ (7,840)
---------
Balance at November 30, 1998............ $ 5,061
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
INTRAWARE, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 14, 1996
(INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED NOVEMBER 30,
FEBRUARY 28, FEBRUARY 28, --------------------
1997 1998 1997 1998
--------------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $ (944) $ (3,982) $ (2,715) $ (7,840)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization........................... 42 270 182 384
Amortization of unearned compensation................... -- -- -- 264
Provision for doubtful accounts......................... -- 32 25 --
Changes in assets and liabilities:
Accounts receivable................................... (2) (3,156) (1,768) (7,970)
Prepaid license and services.......................... (5) (10,349) (5,105) (6,416)
Other current assets.................................. (31) (166) (261) (3,538)
Other assets.......................................... (23) 6 9 (335)
Accounts payable...................................... 80 9,360 4,486 8,339
Accrued expenses...................................... 104 677 668 1,019
Deferred revenue...................................... -- 2,450 1,338 10,235
------- ------------ --------- ---------
Net cash used in operating activities......................... (779) (4,858) (3,141) (5,858)
------- ------------ --------- ---------
Cash flows from investing activities:
Purchase of property and equipment.......................... (428) (686) (444) (477)
------- ------------ --------- ---------
Cash flows from financing activities:
Proceeds from bank borrowings............................... -- 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) $ (3,982) $ (2,715) $ (7,840)
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) $ (2.02) $ (1.53) $ (2.25)
Diluted.............................................. $ (1.36) $ (2.02) $ (1.53) $ (2.25)
</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 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 connection with certain stock option grants during the year ended
February 28, 1998 and the nine months ended November 30, 1998, Intraware
recognized unearned compensation totaling $492,000 and $1,805,000, respectively,
which is being amortized over the four year vesting periods of the related
options. Amortization expense recognized during the nine months ended November
30, 1998 totaled approximately $264,000 and was allocated to expense categories
based on functional line of service.
F-20
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--EMPLOYEE BENEFIT PLANS: (CONTINUED)
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 $1,829,000 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.
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 (UNAUDITED):
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."
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
F-21
<PAGE>
INTRAWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--SUBSEQUENT EVENTS (UNAUDITED): (CONTINUED)
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. 2 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 29TH DAY OF JANUARY, 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. 2 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 January 29, 1999
(PETER H. JACKSON) Officer)
Executive Vice President
* and Chief Financial
- ------------------------------ Officer (Principal January 29, 1999
(DONALD M. FREED) Financial Officer)
*
- ------------------------------ Director January 29, 1999
(LAURENCE M. BAER)
*
- ------------------------------ Director January 29, 1999
(JOHN V. BALEN)
*
- ------------------------------ Director January 29, 1999
(MARY ANN BYRNES)
*
- ------------------------------ Director January 29, 1999
(CHARLES G. DAVIS, JR.)
*
- ------------------------------ Director January 29, 1999
(MARK B. HOFFMAN)
- ------------------------------ Director
(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>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTRAWARE, INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Peter H. Jackson and David J. Segre each hereby certifies:
(1) They are the President and Secretary, respectively, of Intraware,
Inc., a corporation organized and existing under the General Corporation Law of
the State of Delaware (the "General Corporation Law");
(2) The original Certificate of Incorporation of this corporation,
originally filed on May 13, 1996, is hereby amended and restated in its entirety
to read as follows:
FIRST: The name of this corporation is Intraware, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1013 Centre Road, Wilmington, County of New
Castle, Delaware 19805. The name of its registered agent at such
address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH: The Corporation is authorized to issue two classes of stock to be
designated respectively Common Stock and Preferred Stock. The
total number of shares of all classes of stock which the
Corporation has authority to issue is Two Hundred Sixty Million
(260,000,000), consisting of Two Hundred Fifty Million
(250,000,000) shares of Common Stock, $0.0001 par value (the
"Common Stock"), and Ten Million (10,000,000) shares of Preferred
Stock, $0.0001 par value (the "Preferred Stock").
The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized subject
to limitations prescribed by law, to fix by resolution or
resolutions the designations, powers, preferences and rights, and
the qualifications, limitations or restrictions thereof, of each
such series of Preferred Stock, including without limitation
authority to fix by resolution or resolutions, the dividend
rights, dividend rate, conversion rights, voting rights, rights
and terms of redemption (including sinking fund provisions),
redemption price or prices, and liquidation preferences of any
wholly unissued series of Preferred Stock, and the number
<PAGE>
of shares constituting any such series and the designation
thereof, or any of the foregoing.
The Board of Directors is further authorized to increase (but not
above the total number of authorized shares of the class) or
decrease (but not below the number of shares of any such series
then outstanding) the number of shares of any series, the number
of which was fixed by it, subsequent to the issue of shares of
such series then outstanding, subject to the powers, preferences
and rights, and the qualifications, limitations and restrictions
thereof stated in the resolution of the Board of Directors
originally fixing the number of shares of such series. If the
number of shares of any series is so decreased, then the shares
constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the
number of shares of such series.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The election of directors need not be by written ballot unless
the Bylaws of the Corporation shall so provide.
SEVENTH: The number of directors which constitute the whole Board of
Directors of the
Corporation shall be designated in the Bylaws of the Corporation.
EIGHTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is
expressly authorized to adopt, alter, amend or repeal the Bylaws
of the Corporation.
NINTH: To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended,
no director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director.
The Corporation may indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he, his testator or
intestate is or was a director, officer or employee of the
Corporation or any predecessor of the Corporation or serves or
served at any other enterprise as a director, officer or employee
at the request of the Corporation or any predecessor to the
Corporation.
Neither any amendment nor repeal of this Article, nor the
adoption of any provision of this Amended and Restated
Certificate of Incorporation inconsistent with this Article,
shall eliminate or reduce the effect of this Article in respect
of any matter occurring, or any cause of action, suit or claim
-2-
<PAGE>
that, but for this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
TENTH: At the election of directors of the Corporation, each holder of
stock of any class or series shall be entitled to one vote for
each share held. No stockholder will be permitted to cumulate
votes at any election of directors.
The number of directors which constitute the whole Board of
Directors of the Corporation shall be fixed exclusively by one or
more resolution adopted from time to time by the Board of
Directors. The Board of Directors shall be divided into three
classes designated as Class I, Class II, and Class III,
respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders
following the date hereof, the term of office of the Class I
directors shall expire and Class I directors shall be elected for
a full term of three years. At the second annual meeting of
stockholders following the date hereof, the term of office of the
Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual
meeting of stockholders following the date hereof, the term of
office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At
each succeeding annual meeting of stockholders, directors shall
be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting.
Vacancies created by newly created directorships, created in
accordance with the Bylaws of this Corporation, may be filled by
the vote of a majority, although less than a quorum, of the
directors then in office, or by a sole remaining director.
ELEVENTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision contained in
the laws of the State of Delaware) outside of the State of
Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the Bylaws of the
Corporation.
The stockholders of the Corporation may not take any action by
written consent in lieu of a meeting, and must take any actions
at a duly called annual or special meeting of stockholders and
the power of stockholders to consent in writing without a meeting
is specifically denied.
-3-
<PAGE>
TWELFTH: Advance notice of new business and stockholder nominations for
the election of directors shall be given in the manner and to the
extent provided in the Bylaws of the Corporation.
THIRTEENTH: Notwithstanding any other provisions of this Restated Certificate
of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of the capital stock required by
law or this Restated Certificate of Incorporation, the
affirmative vote of the holders of at least two-thirds (2/3) of
the combined voting power of all of the then-outstanding shares
of the Corporation entitled to vote shall be required to alter,
amend or repeal Articles NINTH, TENTH, ELEVENTH or TWELFTH
hereof, or this Article THIRTEENTH, or any provision thereof or
hereof, unless such amendment shall be approved by a majority of
the directors of the Corporation.
FOURTEENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated
Certificate of Incorporation, in the manner now or hereafter
prescribed by the laws of the State of Delaware, and all rights
conferred herein are granted subject to this reservation.
(3) This Amended and Restated Certificate of Incorporation has been duly
adopted by the Board of Directors of this Corporation in accordance with
Sections 242 and 245 of the General Corporation Law.
(4) This Amended and Restated Certificate of Incorporation has been duly
approved, in accordance with Section 242 of the General Corporation Law, by vote
of the holders of a majority of the outstanding stock entitled to vote thereon.
IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Certificate of Incorporation on this ____ day of February, 1999.
------------------------------
Peter H. Jackson
President
- ------------------------------
David J. Segre
Secretary
-4-
<PAGE>
BYLAWS
OF
INTRAWARE, INC.
(a Delaware corporation)
<PAGE>
BYLAWS OF
INTRAWARE, INC.
(A DELAWARE CORPORATION)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I CORPORATE OFFICES . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 REGISTERED OFFICE. . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 OTHER OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . 1
2.1 PLACE OF MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . 3
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE . . . . . . . . . . 3
2.6 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 ADJOURNED MEETING; NOTICE. . . . . . . . . . . . . . . . . . . . 4
2.8 VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . . . 5
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING . . . . . . . . . . . 5
2.11 PROXIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE. . . . . . . . . . . . . . 6
ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 NUMBER OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . 6
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS . . . . . . . . . . . . 6
3.4 RESIGNATION AND VACANCIES. . . . . . . . . . . . . . . . . . . . 7
3.5 REMOVAL OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . 8
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE . . . . . . . . . . . . 8
3.7 FIRST MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.8 REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . 8
3.9 SPECIAL MEETINGS; NOTICE . . . . . . . . . . . . . . . . . . . . 9
3.10 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.11 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . 9
3.12 ADJOURNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.13 NOTICE OF ADJOURNMENT. . . . . . . . . . . . . . . . . . . . . .10
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. . . . . . . .10
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
3.15 FEES AND COMPENSATION OF DIRECTORS . . . . . . . . . . . . . . .10
3.16 APPROVAL OF LOANS TO OFFICERS. . . . . . . . . . . . . . . . . .10
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION . . . . .10
ARTICLE IV COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . .11
4.1 COMMITTEES OF DIRECTORS. . . . . . . . . . . . . . . . . . . . .11
4.2 MEETINGS AND ACTION OF COMMITTEES. . . . . . . . . . . . . . . .11
4.3 COMMITTEE MINUTES. . . . . . . . . . . . . . . . . . . . . . . .12
ARTICLE V OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
5.1 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
5.2 ELECTION OF OFFICERS . . . . . . . . . . . . . . . . . . . . . .12
5.3 SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . . . . .12
5.4 REMOVAL AND RESIGNATION OF OFFICERS. . . . . . . . . . . . . . .13
5.5 VACANCIES IN OFFICES . . . . . . . . . . . . . . . . . . . . . .13
5.6 CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . . . . .13
5.7 PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
5.8 VICE PRESIDENTS. . . . . . . . . . . . . . . . . . . . . . . . .14
5.9 SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
5.10 CHIEF FINANCIAL OFFICER. . . . . . . . . . . . . . . . . . . . .14
5.11 ASSISTANT SECRETARY. . . . . . . . . . . . . . . . . . . . . . .15
5.12 ADMINISTRATIVE OFFICERS. . . . . . . . . . . . . . . . . . . . .15
5.13 AUTHORITY AND DUTIES OF OFFICERS . . . . . . . . . . . . . . . .15
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . . . . . .15
6.2 INDEMNIFICATION OF OTHERS. . . . . . . . . . . . . . . . . . . .16
6.3 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . .17
ARTICLE VII RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . .17
7.1 MAINTENANCE AND INSPECTION OF RECORDS. . . . . . . . . . . . . .17
7.2 INSPECTION BY DIRECTORS. . . . . . . . . . . . . . . . . . . . .18
7.3 ANNUAL STATEMENT TO STOCKHOLDERS . . . . . . . . . . . . . . . .18
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS . . . . . . . . .18
7.5 CERTIFICATION AND INSPECTION OF BYLAWS . . . . . . . . . . . . .18
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE VIII GENERAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . .18
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. . . . . .18
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS. . . . . . . . . . . .19
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED . . . . . . .19
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES . . . . . . . .19
8.5 SPECIAL DESIGNATION ON CERTIFICATES. . . . . . . . . . . . . . .20
8.6 LOST CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . .20
8.7 TRANSFER AGENTS AND REGISTRARS . . . . . . . . . . . . . . . . .21
8.8 CONSTRUCTION; DEFINITIONS. . . . . . . . . . . . . . . . . . . .21
ARTICLE IX AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .21
</TABLE>
-iii-
<PAGE>
BYLAWS
OF
INTRAWARE, INC.
(A DELAWARE CORPORATION)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the
certificate of incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside
the State of Delaware designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of the stockholders of this corporation shall be held
each year on a date and at a time designated by the board of directors. At the
meeting, directors shall be elected and any other proper business may be
transacted. Nominations of persons for election to the board of directors of
the corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders only (a) pursuant
to the corporation's notice of meeting, (b) by or at the direction of the board
of directors or (c) by any stockholder of the corporation who
<PAGE>
was a stockholder of record at the time of giving of notice provided for in
these Bylaws, who is entitled to vote at the meeting and who complies with the
notice procedures set forth in this Bylaw.
For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of the preceding
sentence, the stockholder must have given timely notice thereof in writing to
the secretary of the corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice
shall be delivered to the secretary at the principal executive offices of the
corporation not later than the close of business on the 60th day nor earlier
than the close of business on the 90th day prior to the meeting; provided,
however, that in the event that less than 65 days notice of the meeting is given
to stockholders, notice by the stockholder to be timely must be so delivered not
earlier than the close of business on the seventh (7th) day following the day on
which the notice of meeting was mailed. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (or any successor thereto) (the "Exchange Act") and Rule 14a-11
thereunder (or any successor thereto) (including such person's written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected); (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such stockholder,
as they appear on the corporation's books, and of such beneficial owner, and
(ii) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
Notwithstanding any provision herein to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 2.2.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board or by the president.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing to the secretary of the
corporation, and shall set forth (a) as to each person whom such person or
persons propose to nominate for election or reelection as a director at such
meeting all information relating to such proposed nominee that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Exchange Act (or any successor thereto) and Rule 14a-11 thereunder (or any
successor thereto) (including such proposed nominee's written
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consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business to be taken at the meeting, a
brief description of such business, the reasons for conducting such business and
any material interest in such business of the person or persons calling such
meeting and the beneficial owners, if any, on whose behalf such meeting is
called; and (c) as to the person or persons calling such meeting and the
beneficial owners, if any, on whose behalf the meeting is called (i) the name
and address of such persons, as they appear on the corporation's books, and of
such beneficial owners, and (ii) the class and number of shares of the
corporation which are owned beneficially and of record by such persons and such
beneficial owners. No business may be transacted at such special meeting
otherwise than specified in such notice or by or at the direction of the
corporation's board of directors. The corporation's secretary shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5, that a meeting will be held at the
time reasonably requested by the person or persons who called the meeting, not
less than 60 nor more than 90 days after the receipt of the request. If the
notice is not given within 20 days after the receipt of a valid request, the
person or persons requesting the meeting may give the notice. Nothing contained
in this paragraph 2.3 shall be construed as limiting, fixing or affecting the
time when a meeting of stockholders called by action of the board of directors
may be held.
Only such business shall be conducted at a special meeting of
stockholders called by action of the board of directors as shall have been
brought before the meeting pursuant to the corporation's notice of meeting.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise given
in accordance with Sections 2.2 and 2.3 of these bylaws not less than ten (10)
nor more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a special
meeting, the purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted) or (ii) in the case
of the annual meeting, those matters which the board of directors, at the time
of giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
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An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.10 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation
or these bylaws, each stockholder shall be entitled to one vote for each share
of capital stock held by such stockholder.
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2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
The stockholders may not take any action by written consent in lieu of a
meeting, and must take any actions at a duly called annual or special meeting of
stockholders and the power of stockholders to consent in writing is specifically
denied.
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section
8.1 of these bylaws.
2.11 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware.
2.12 ORGANIZATION
The president, or in the absence of the president, the chairman of the
board, shall call the meeting of the stockholders to order, and shall act as
chairman of the meeting. In the absence of the president, the chairman of the
board, and all of the vice presidents, the stockholders shall appoint a
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chairman for such meeting. The chairman of any meeting of stockholders shall
determine the order of business and the procedures at the meeting, including
such matters as the regulation of the manner of voting and the conduct of
business. The secretary of the corporation shall act as secretary of all
meetings of the stockholders, but in the absence of the secretary at any meeting
of the stockholders, the chairman of the meeting may appoint any person to act
as secretary of the meeting.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
to any limitations in the certificate of incorporation or these bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board of
directors.
3.2 NUMBER OF DIRECTORS
The board of directors shall consist of seven (7) members. The number
of directors may be changed by an amendment to this bylaw, duly adopted by the
board of directors or by the stockholders, or by a duly adopted amendment to the
certificate of incorporation.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a
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director elected or appointed to fill a vacancy, shall hold office until the
expiration of the term for which elected and until a successor has been elected
and qualified.
Election of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Unless otherwise provided in the certificate
of incorporation or these bylaws, each director so elected shall hold office
until the next annual meeting of the stockholders and until a successor has been
elected and qualified.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
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If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, only with cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of Delaware that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of Delaware that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such participating
directors shall be deemed to be present in person at the meeting.
3.7 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held
at such time and place as shall be fixed by the vote of the stockholders at the
annual meeting. In the event of the failure of the stockholders to fix the time
or place of such first meeting of the newly elected board of directors, or in
the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time as shall from time to time be determined by the board of directors.
If any regular meeting day shall fall on a
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legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day.
3.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least
forty-eight (48) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the corporation.
3.10 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in
Section 3.12 of these bylaws. Every act or decision done or made by a majority
of the directors present at a duly held meeting at which a quorum is present
shall be regarded as the act of the board of directors, subject to the
provisions of the certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the quorum for that meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purposed of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not specify
the purpose of any regular or special meeting of the board of directors.
3.12 ADJOURNMENT
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A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting of the board to another time and place.
3.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting of the
board need not be given unless the meeting is adjourned for more than
twenty-four (24) hours. If the meeting is adjourned for more than twenty-four
(24) hours, then notice of the time and place of the adjourned meeting shall be
given before the adjourned meeting takes place, in the manner specified in
Section 3.9 of these bylaws, to the directors who were not present at the time
of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board of directors.
3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
In the event only one director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or
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quorum of the directors shall be deemed to refer to such notice, waiver, etc.,
by such sole director, who shall have all the rights and duties and shall be
entitled to exercise all of the powers and shall assume all the responsibilities
otherwise herein described as given to the board of directors.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have and
may exercise all the powers and authority of the board, but no such committee
shall have the power or authority to (i) amend the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the board
of directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets,
(iv) recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution or (v) amend the bylaws of the corporation; and,
unless the board resolution establishing the committee, the bylaws or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the following provisions of Article III of these
bylaws: Section 3.6 (place of meetings; meetings by telephone), Section 3.8
(regular meetings), Section 3.9 (special meetings; notice), Section 3.10
(quorum), Section 3.11 (waiver of notice), Section 3.12 (adjournment),
Section 3.13 (notice of adjournment) and Section 3.14 (board action by written
consent without meeting), with such changes in the context of those bylaws as
are necessary to substitute the committee and its
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members for the board of directors and its members; provided, however, that the
time of regular meetings of committees may be determined either by resolution of
the board of directors or by resolution of the committee, that special meetings
of committees may also be called by resolution of the board of directors, and
that notice of special meetings of committees shall also be given to all
alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
4.3 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
ARTICLE V
OFFICERS
5.1 OFFICERS
The Corporate Officers of the corporation shall be a president, a
secretary and a chief financial officer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice
presidents (however denominated), one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 5.3 of these bylaws. Any number of offices may
be held by the same person.
In addition to the Corporate Officers of the Company described above,
there may also be such Administrative Officers of the corporation as may be
designated and appointed from time to time by the president of the corporation
in accordance with the provisions of Section 5.12 of these bylaws.
5.2 ELECTION OF OFFICERS
The Corporate Officers of the corporation, except such officers as may
be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the board of directors may from time to
time determine.
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5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
The president may from time to time designate and appoint Administrative
Officers of the corporation in accordance with the provisions of Section 5.12 of
these bylaws.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of a Corporate Officer under any contract
of employment, any Corporate Officer may be removed, either with or without
cause, by the board of directors at any regular or special meeting of the board
or, except in case of a Corporate Officer chosen by the board of directors, by
any Corporate Officer upon whom such power of removal may be conferred by the
board of directors.
Any Corporate Officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of the receipt
of that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Corporate
Officer is a party.
Any Administrative Officer designated and appointed by the president may
be removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise such other
powers and perform such other duties as may from time to time be assigned to him
by the board of directors or as may be prescribed by these bylaws. If there is
no president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
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Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and the officers of the corporation. He
or she shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He or she shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, and if there is no
chairman of the board, the vice presidents, if any, in order of their rank as
fixed by the board of directors or, if not ranked, a vice president designated
by the board of directors, shall perform all the duties of the president and
when so acting shall have all the powers of, and be subject to all the
restrictions upon, the president. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the board of directors, these bylaws, the president or the
chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of the board of directors,
committees of directors and stockholders. The minutes shall show the time and
place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
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<PAGE>
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by any director for a purpose reasonably related to
his position as a director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. He or she shall disburse the funds of
the corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
5.12 ADMINISTRATIVE OFFICERS
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative Officers of the corporation as may be designated and appointed
from time to time by the president of the corporation. Administrative Officers
shall perform such duties and have such powers as from time to time may be
determined by the president or the board of directors in order to assist the
Corporate Officers in the furtherance of their duties. In the performance of
such duties and the exercise of such powers, however, such Administrative
Officers shall have limited authority to act on behalf of the corporation as the
board of directors shall establish, including but not limited to limitations on
the dollar amount and on the scope of agreements or commitments that may be made
by such Administrative Officers on behalf of the corporation, which limitations
may not be exceeded by such individuals or altered by the president without
further approval by the board of directors.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing powers, authority and duties, all officers
of the corporation shall respectively have such authority and powers and perform
such duties in the management of the business of the corporation as may be
designated from time to time by the board of directors.
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<PAGE>
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware as the same now exists or may
hereafter be amended, indemnify any person against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit, or proceeding in which such person was or is a party or is
threatened to be made a party by reason of the fact that such person is or was a
director or officer of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation shall mean any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees)
incurred by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director or officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
If a claim for indemnification or payment of expenses under this Article
is not paid in full within sixty days after a written claim therefor has been
received by the corporation the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.
The rights conferred on any person by this Article shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the corporation's
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<PAGE>
Certificate of Incorporation, these bylaws, agreement, vote of the stockholders
or disinterested directors or otherwise.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the corporation. The corporation's obligation, if any, to indemnify any person
who was or is serving at its request as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust, enterprise or
non-profit entity shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture, trust,
enterprise or non-profit enterprise. For purposes of this Section 6.2, an
"employee" or "agent" of the corporation (other than a director or officer)
shall mean any person (i) who is or was an employee or agent of the corporation,
(ii) who is or was serving at the request of the corporation as an employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
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<PAGE>
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, if any, the president, any vice president,
the chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
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<PAGE>
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or otherwise altered
to date, certified by the secretary, shall be kept at the corporation's
principal executive office and shall be open to inspection by the stockholders
of the corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the date so fixed
are entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board of directors adopts the applicable
resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize and empower any officer or officers, or agent or agents, to enter
into any contract or execute any instrument in the name of and on behalf of the
corporation; such power and authority may be general or confined to specific
instances. Unless so authorized or ratified by the board of directors or within
the agency power of an officer, no officer, agent or employee shall have any
power or authority to
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<PAGE>
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the board
of directors, every holder of stock represented by certificates and, upon
request, every holder of uncertificated shares, shall be entitled to have a
certificate signed by, or in the name of the corporation by, the chairman or
vice-chairman of the board of directors, or the president or vice-president, and
by the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the board of
directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
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<PAGE>
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
The board of directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, each of which shall be an
incorporated bank or trust company -- either domestic or foreign, who shall be
appointed at such times and places as the requirements of the corporation may
necessitate and the board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of
this provision, as used in these bylaws, the singular number includes the
plural, the plural number includes the singular, and the term "person" includes
both an entity and a natural person.
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<PAGE>
ARTICLE IX
AMENDMENTS
Any of these Bylaws may be altered, amended or repealed by the
affirmative vote of a majority of the members of the board of directors or, with
respect to Bylaw amendments, excluding amendments relating to Sections 2.2, 2.3,
2.9 or Article VI, placed before the stockholders for approval and except as
otherwise provided herein or required by law, by the affirmative vote of the
holders of a majority of the shares of the corporation's stock entitled to vote,
voting as one class, and with respect to Bylaw amendments relating to Sections
2.2, 2.3, 2.9 or Article VI placed before the stockholders for approval and
except as otherwise provided herein or required by law, by the affirmative vote
of the holders of at least two-thirds of the shares of the corporation's stock
entitled to vote, voting as one class.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
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<PAGE>
EXHIBIT 4.1
<TABLE>
<S><C>
COMMON STOCK COMMON STOCK
NUMBER [LOGO] SHARES
INTRAWARE
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE AND A STATEMENT AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICTIONS ON SHARES
CUSIP 46118M 10 3
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.0001 PAR VALUE, OF
--------------------------------------- -------------------------------------------------
- --------------------------------------------INTRAWARE, INC.------------------------------------------------------
--------------------------------------- ------------------------------------------------
transferable only on the books of the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated
/s/ Donald M. Freed [SEAL] /s/ Peter H. Jackson
EXECUTIVE VICE PRESIDENT PRESIDENT AND
AND CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
HARRIS TRUST COMPANY OF CALIFORNIA
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
A statement of the powers, designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights as established, from time to time, by the Certificate of Incorporation of the
Corporation and by any certificate of designation, and the number of shares constituting each class and
series and the designations thereof, may be obtained by the holder hereof upon request and without charge
from the Corporation at its principal office.
The following abbreviations, when used in the inscription on the face of this certificate, shall be
construed as though they were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ..........(Custodian)..................
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act....................................
in common (State)
UNIF TRF MIN ACT -- ..........Custodian (until age........)
(Cust)
...............under Uniform Transfers
(Minor)
to Minors Act.........................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
- -----------------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------- Shares
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
- -------------------------------------------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution
in the premises.
Dated
--------------------------------------
-------------------------------------------------------------
NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed:
By
---------------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17AG-15.
</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 and 2 thereto filed
with the SEC on January 8, 1999 and January 29, 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, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, including the proceedings being taken in order to permit such
transaction to be carried out in accordance with applicable state securities
laws, 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 December 14, 1998,
relating to the financial statements of Intraware, Inc., which appears in such
Prospectus. We also consent to the references to us under the heading "Experts"
in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
San Jose, California
January 29, 1999
