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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission file number 000-27287
----------------
INTERTRUST TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 52-1672106
(State of incorporation) (I.R.S. Employer Identification No.)
</TABLE>
4750 Patrick Henry Blvd., Santa Clara, California 95054
(Address of principal executive offices, including ZIP code)
(408) 855-0100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of voting common stock held by non-affiliates of
the registrant as of February 29, 2000 was approximately $5,114,830,620.
Shares of common stock held by each officer and director have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of February 29, 2000, 79,408,518 shares of the registrant's common stock
were outstanding.
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<PAGE>
INTERTRUST TECHNOLOGIES CORPORATION
FORM 10-K/A
DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page No.
---- --------
PART III
<C> <S> <C>
10. Directors and Executive Officers of the Registrant............. 1
11. Executive Compensation and Related Information................. 5
Security Ownership of Certain Beneficial Owners and
12. Management..................................................... 10
13. Related Party Transactions..................................... 11
<CAPTION>
PART IV
<C> <S> <C>
Exhibits, Financial Statement Schedule, and Reports on Form 8-
14. K.............................................................. 13
Signatures..................................................... 15
</TABLE>
i
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers and directors, and their ages and positions as of
February 29, 2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Victor Shear............ 52 Chairman of the Board and Chief Executive Officer
David C. Chance......... 42 Executive Vice Chairman of the Board
Edmund J. Fish.......... 37 Director, Executive Vice President, and Chief Business Officer
Erwin N. Lenowitz....... 50 Vice Chairman of the Board, Chief Financial Officer, and Secretary
David P. Maher.......... 49 Chief Technology Officer
Douglas M. Armati....... 49 Senior Vice President, Strategic Sales and Partner Development
Ann B. Cowan............ 45 Senior Vice President, TrustNet Products, Services and Operations
Duncan M. Davidson...... 47 Senior Vice President, Business Development
Richard H. Frank........ 58 Senior Vice President, Portable Device Group
B. Nicholas Garnett..... 45 Senior Vice President, Trust Utility of InterTrust International
Joseph W. Jennings...... 45 Senior Vice President, Marketing
Richard A. Landsman..... 47 Senior Vice President, Product Development and Support
Patrick P. Nguyen....... 33 Senior Vice President, Corporate Development
Talal Shamoon........... 36 Senior Vice President, Media
David M. Van Wie........ 35 Director and Senior Vice President, Research
Bruce Fredrickson....... 57 Director
Satish K. Gupta......... 55 Director
</TABLE>
Victor Shear has served as chairman of the board and chief executive
officer of InterTrust since our inception in January 1990. Before founding
InterTrust, Mr. Shear co-founded Personal Library Software, Inc., a text and
document database company, in June 1986. Mr. Shear served as chairman,
president and chief executive officer of Data Scientific Corporation, a
software developer of scientific workstations, from May 1982 to February 1985.
Mr. Shear received a B.A. in sociology from Brandeis University.
David C. Chance joined InterTrust as an officer and board member with the
title executive vice chairman in October 1999. Before joining InterTrust, from
January 1994 to January 1998, Mr. Chance was deputy managing director of BskyB
Group Ltd., a leading United Kingdom pay-television and media company, and
continued to serve as a consultant and non-executive director until August
1999. In addition, Mr. Chance is a non-executive director of Modern Times
Group, the primary pay-television operator in Scandinavia, and Sunderland
football club. Mr. Chance also serves on the board of the New Millenium
Experience Company, responsible for the Millenium Dome project in London. Mr.
Chance received a B.S. in psychology, a B.A. in industrial relations, and an
M.B.A. from the University of North Carolina at Chapel Hill.
Edmund J. Fish has served as a director, executive vice president, and
chief business officer of InterTrust since January 2000. From June 1999 to
January 2000, Mr. Fish served as senior operating officer and executive vice
president, corporate development of InterTrust. From September 1995 to June
1999, Mr. Fish served as general counsel and vice president, corporate
development of InterTrust. Before joining InterTrust, Mr. Fish practiced law
in the Silicon Valley, Washington D.C. and New York offices of Weil, Gotshal &
Manges, an international law firm, from August 1989 to August 1995. Mr. Fish
received a B.S. in biomedical engineering from Marquette University and a J.D.
from Wayne State University.
Erwin N. Lenowitz has served as vice chairman of the board, chief financial
officer, and secretary of InterTrust since January 1993. On March 13, 2000,
Mr. Lenowitz announced that he would resign as vice chairman, chief financial
officer, and secretary of InterTrust effective upon the earlier of May 30,
2000 or the hiring of a replacement. Before joining InterTrust, Mr. Lenowitz
served as vice president of business development and planning for Sun
Microsystems, Inc., an enterprise networking company, from August 1989 to
1
<PAGE>
January 1992 and as controller from May 1984 to July 1989. Mr. Lenowitz
received a B.S. in econometrics from the City College of New York and an
M.B.A. from St. Johns University.
David P. Maher has served as chief technology officer of InterTrust since
June 1999. Before joining InterTrust, Mr. Maher served in various positions at
AT&T from June 1981 to June 1999, including as an AT&T fellow, a Bell Labs
fellow and head of the secure systems research department. At AT&T, Mr. Maher
developed secure wideband transmission systems, cryptographic key management
systems and secure communications devices. In addition, Mr. Maher was chief
architect for AT&T's STU-III secure device, data, and video products for
secure government communications. Mr. Maher has been a consultant for the
National Science Foundation, the National Security Agency, the National
Institute of Standards and Technology, and the Congressional Office of
Technology Assessment, and has taught electrical engineering, mathematics and
computer science at several institutions. Mr. Maher received B.A., M.S. and
Ph.D. degrees in mathematics from Lehigh University.
Douglas M. Armati has served as senior vice president, strategic sales and
partner development of InterTrust since April 1999. From June 1997 to March
1999, Mr. Armati served as vice president, strategic sales and managing
director of the United Kingdom branch of InterTrust International. From
December 1996 to June 1997, Mr. Armati served as an independent consultant to
InterTrust International. From January 1994 to December 1996, Mr. Armati was a
principal at Jackson Brevis Ltd., a British consulting firm, focusing on
electronic commerce and intellectual property rights in digital environments.
Mr. Armati received a B.Comm. from Murdoch University.
Ann B. Cowan has served as senior vice president, TrustNet products,
services and operations since October 1999 and as vice president, systems
development of InterTrust from September 1996 to October 1999. Before joining
InterTrust, Ms. Cowan served as director of engineering at Silicon Graphics, a
software workstation and server developer, from June 1995 to September 1996.
Before joining Silicon Graphics, from August 1986 to September 1994, Ms. Cowan
held several management positions in research and product development at
Ingres, a relational database company, most recently as director of Ingres
database and connectivity. Ms. Cowan received a B.A. in computer science from
Texas Christian University.
Duncan M. Davidson has served as senior vice president, business
development of InterTrust since July 1997. Before joining InterTrust, Mr.
Davidson was managing partner of Gemini McKenna, an alliance between Gemini
Consulting and Regis-McKenna, Inc., and The McKenna Group, from August 1995 to
July 1997. Mr. Davidson also served as vice president of Gemini Consulting,
the management consulting arm of Cap Gemini, a systems integrator, and its
predecessor, The MAC Group, from April 1989 to August 1995. Mr. Davidson is a
founder of Covad Communications, a telecommunications company providing high
speed data services, and serves on its board of advisors. Mr. Davidson
received a Sc.B. in physics-mathematics from Brown University and a J.D. from
the University of Michigan.
Richard H. Frank is senior vice president, portable device group of
InterTrust and has served in various other capacities, including chief
technology officer, since joining InterTrust in February 1997. Before joining
InterTrust, Mr. Frank was a senior consultant to electronic commerce
companies, including Novell Corporation, a computer-networking company. From
March 1991 to September 1992, Mr. Frank served as vice president of
development at Software Publishing, a software development company, and as
chief technology officer from September 1992 to September 1994. From January
1979 to September 1984, Mr. Frank served as chief executive officer at Sorcim,
a personal computer software company. Mr. Frank received a B.A. in chemistry
from San Francisco State University.
B. Nicholas Garnett has served as senior vice president, trust utility of
InterTrust International, our subsidiary, since August 1999. Before joining
InterTrust International, from March 1992 to July 1999, Mr. Garnett was the
director general and chief executive officer of the International Federation
of the Phonographic Industry, which was instrumental in establishing the
recording industry's worldwide anti-piracy structure. Mr. Garnett received an
M.A. in law from the University of Cambridge and a D.E.A. in French law from
the University of Bordeaux.
2
<PAGE>
Joseph W. Jennings has served as senior vice president, marketing of
InterTrust since February 1998. Before joining InterTrust, Mr. Jennings served
as a consultant to the venture capital firms of Sigma Partners, Mohr Davidow
Ventures, and InnoCal Ventures from January 1995 to December 1997. From July
1994 to January 1998, Mr. Jennings served as president of GCI Jennings, a
technology marketing communications company. Mr. Jennings received a B.A. in
political science from Whitman College and an M.B.A from the University of
Washington.
Richard A. Landsman is senior vice president, product development and
support of InterTrust and has served in various other positions since joining
InterTrust in July 1997. Before joining InterTrust, from October 1992 to July
1997, Mr. Landsman worked for Borland International, Inc., a provider of
programming and data base tools, where he directed Borland's Java development
tools business and managed Borland's C++ class libraries and frameworks team.
Before joining Borland, Mr. Landsman served as a senior manager at Lotus
Development, a productivity applications software company, from January 1983
to October 1992. Mr. Landsman received a B.S. in management and finance from
the University of Massachusetts and an M.S. in computer science from Boston
University.
Patrick P. Nguyen is senior vice president, corporate development, and has
also served as vice president, global alliances, since joining InterTrust in
July 1998. Before joining InterTrust, from February 1993 to June 1998, Mr.
Nguyen worked at the Silicon Valley Office of Weil, Gotshal & Manges, where he
was made a partner in January 1998 and headed the corporate and technology
transaction group. Mr. Nguyen received a B.S. in computer science from the
University of California at Irvine and a J.D. from the University of
California at Los Angeles.
Talal Shamoon has served as senior vice president, media of InterTrust
since February 2000. From June 1999 to February 2000, Dr. Shamoon served as
our vice president, corporate development and technology initiatives. From
June 1997 to June 1999, Dr. Shamoon served as a member of the research staff
of STARLab. Before joining InterTrust, from October 1994 to June 1997,
Dr. Shamoon worked for NEC Research Institute, an advanced research facility
of NEC focused on computer science and physics, where he focused on multimedia
security, signal processing and data compression. Dr. Shamoon received B.S.,
M. Eng and Ph.D degrees in electrical engineering from Cornell University.
David M. Van Wie has served as senior vice president, research of
InterTrust since January 1996. From September 1992 to January 1996, Mr. Van
Wie served as our chief technology officer and in August 1995, Mr. Van Wie
became a member of our board of directors. From January 1991 to September
1992, Mr. Van Wie was president and chief executive officer of CD-ROM
Solutions, a technology integrator for the CD-ROM marketplace. From February
1989 to January 1991, Mr. Van Wie managed the development of a high-speed
information retrieval system for a subsidiary of Maxwell Communications. Mr.
Van Wie attended Pomona College and the University of Wisconsin.
Bruce Fredrickson has served as a director of InterTrust since February
1993. Mr. Fredrickson has also served as president of Tactical Marketing
Ventures LLC, a marketing firm for computer hardware, software, and Internet
service companies, since September 1991. Before his position with Tactical
Marketing Ventures, Mr. Fredrickson served as vice president of marketing for
Ingram Micro, a computer products distributor, from February 1986 to August
1991. Mr. Fredrickson received a B.S. in liberal arts from St. Olaf College
and an M.S. in communications and media from the University of Colorado.
Satish K. Gupta has served as a director of InterTrust since February 1993.
Mr. Gupta has been the president and chief executive officer of Cradle
Technologies, a semiconductor company, since July 1998. From May 1994 to June
1998, Mr. Gupta was vice president of corporate marketing and business
development of Cirrus Logic, a semiconductor company, and from June 1991 to
May 1994, he was vice president of strategic marketing and advanced
development of Media Vision, a multi-media peripherals company. Mr. Gupta
received a B.E. in electrical engineering in India from Birla Institute of
Technology and Science, an S.M. in electrical engineering from Massachusetts
Institute of Technology, and an M.S. in engineering and economic systems from
Stanford University.
3
<PAGE>
Board of Directors Meetings and Committees
During the fiscal year ended December 31, 1999, the Board of Directors held
eight (8) meetings and acted by written consent in lieu of a meeting on six
(6) occasions. For the fiscal year, each of the directors during the term of
their tenure attended or participated in at least 75% of the aggregate of (i)
the total number of meetings or actions by written consent of the Board of
Directors and (ii) the total number of meetings held by all committees of the
Board of Directors on which each such director served. The Board of Directors
has (2) standing committees: the Audit Committee and the Compensation
Committee.
During the fiscal year ended December 31, 1999, the Audit Committee of the
Board of Directors held no meetings. The Audit Committee was created on July
22, 1999 and became effective on the effective date of the Company's initial
public offering of its securities, October 26, 1999. The Audit Committee
reviews, acts on and reports to the Board of Directors with respect to various
auditing and accounting matters, including the selection of the Company's
accountants, the scope of the annual audits, fees to be paid to the Company's
accountants, the performance of the Company's accountants and the accounting
practices of the Company. The members of the Audit Committee are Messrs.
Fredrickson and Gupta.
During the fiscal year ended December 31, 1999, the Compensation Committee
of the Board of Directors held one meeting. The Compensation Committee was
created on July 22, 1999 and became effective on the effective date of the
Company's initial public offering of its securities, October 26, 1999. The
Compensation Committee reviews the performance of the executive officers of
the Company, establishes compensation programs for the officers, and reviews
the compensation programs for other key employees, including salary and cash
bonus levels and option grants under the 1995 Stock Plan, 1999 Equity
Incentive Plan and 1999 Employee Stock Purchase Plan. The members of the
Compensation Committee are Messrs. Fredrickson and Gupta.
Director Compensation
Except for grants of stock options, directors of the Company generally do
not receive compensation for services provided as a director. The Company also
does not pay compensation for committee participation or special assignments
of the Board of Directors.
Non-employee directors are eligible to receive options under the Company's
1999 Non-Employee Directors Option Plan ("Directors Plan"). Each individual
who first joins the Company's Board of Directors as a non-employee director
after the effective date of the Company's initial public offering will receive
at that time a fully vested option for 30,000 shares of the Company's common
stock. In addition, at each of the Company's annual stockholders' meetings,
beginning in 2000, each non-employee director who will continue to be a
director after that meeting will automatically be granted at that meeting a
fully vested option for 10,000 shares of the Company's common stock. However,
any non-employee director who receives an option for 30,000 shares under this
Directors Plan will first become eligible to receive the annual option for
10,000 shares at the annual meeting that occurs during the calendar year
following the year in which he received the option for 30,000 shares.
Messrs. Fredrickson and Gupta, the Company's non-employee directors, have
each received an option for 160,000 shares of common stock at an exercise
price of $0.3125 per share and an option for 30,000 shares of common stock at
an exercise price per share of $7.00. In March 2000, the Company granted an
option to purchase 40,000 shares of common stock at an exercise price of
$82.50 per share to each of Messrs. Fredrickson and Gupta.
Non-employee directors are also eligible to receive options and be issued
shares of common stock under the Company's 1999 Equity Incentive Plan.
Directors who are also employees of the Company are eligible to receive
options and be issued shares of common stock under the Company's 1999 Equity
Incentive Plan and are also eligible to participate in the Company's 1999
Employee Stock Purchase Plan.
4
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COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding common
stock ("Section 16 Insider") are subject to the reporting requirements of
Section 16(a) of the Securities Exchange Act of 1934, as amended, which
require them to file reports with respect to their ownership of the Company's
common stock and their transactions in such common stock. Based upon (i) the
copies of Section 16(a) reports that the Company received from such persons
for their 1999 fiscal year transactions in the common stock and their common
stock holdings and (ii) the written representations received from one or more
of such persons that no annual Form 5 reports were required to be filed by
them for the 1999 fiscal year, the Company believes that all reporting
requirements under Section 16(a) for such fiscal year were met in a timely
manner by its executive officers, Board members and greater thanten-percent
stockholders, except that the delivery service that was hired by the Company
to file the Form 3s, through an administrative error, filed each Form 3 for
each Section 16 Insider one day late; the Form 3s for Ann Cowan and Nicholas
Garnett were filed late; and one Form 4 for Duncan Davidson reporting Mr.
Davidson's purchase of directed shares in the Company's initial public
offering was filed late.
ITEM 11. EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following table presents information about compensation paid by the
Company in 1999 for services by the Company's chief executive officer and the
Company's four other highest-paid executive officers whose total salary and
bonus for the fiscal year exceeded $100,000:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------- ------------
Securities
Name and Principal Salary Bonus Other Annual Underlying
Position(s) Year ($) ($) Compensation($) Options (#)
------------------ ---- -------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Victor Shear.............. 1999 $175,000 -- $38,528(1) --
Chairman of the Board and 1998 175,000 -- -- --
Chief Executive Officer
Edmund J. Fish ........... 1999 180,000 $200,000 -- --
Executive Vice President 1998 169,751 -- -- 80,000
and Chief Business
Officer
Duncan M. Davidson........ 1999 220,000 -- -- --
Senior Vice President,
Business Development 1998 220,000 -- -- --
Joseph W. Jennings ....... 1999 200,000 -- -- --
Senior Vice President,
Marketing 1998 167,340 -- -- 640,000
Erwin N. Lenowitz......... 1999 205,000 -- -- --
Vice Chairman of the 1998 175,000 -- -- --
Board, Chief Financial
Officer and Secretary
</TABLE>
- --------
(1) Represents $24,568 in rental payments and $13,960 in leased car payments.
During 1999, no options or stock appreciation rights were granted to the
Company's chief executive officer and the Company's four other highest-paid
executive officers.
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The table below presents for the Company's chief executive officer and the
Company's four other highest-paid executive officers any options exercised
during 1999 and the value realized from that exercise. It also presents the
number and value of shares underlying unexercised options that were held by
these executive officers as of December 31, 1999. No stock appreciation rights
were exercised by these executive officers in 1999, and no stock appreciation
rights were outstanding at the end of that year.
Upon the completion of six months of service, 12.5% of the option shares
listed in the table below became vested. Upon the completion of each of the
next 42 months of service, an additional 1/48th of the option shares become
vested. The Company's Board of Directors may provide for the options to become
immediately exercisable; in that case, any unvested shares that are purchased
by a holder of an option may be repurchased by the Company at the original
exercise price paid per share if the option holder ceases service with the
Company before vesting in these shares.
The figures in the value of unexercised in-the-money options at fiscal
year-end column are based on the fair market value of the Company's common
stock at the end of 1999, less the exercise price payable for these shares.
The fair market value for the Company's common stock at the end of 1999 was
$58.81 per share.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Value Of
Securities Underlying Unexercised
Unexercised Options In-the-Money Options
Shares at FY-End (#) at FY-End ($)
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Victor Shear............ -- -- -- -- -- --
Edmund J. Fish.......... 345,334 $247,908 53,334 116,668 $ 3,090,705 $ 6,725,302
Duncan M. Davidson...... 386,668 426,672 13,333 126,667 774,147 7,354,603
Joseph W. Jennings...... -- -- 293,332 346,668 16,884,923 19,995,077
Erwin N. Lenowitz....... 720,000 410,400 -- -- -- --
</TABLE>
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
None of the Company's executive officers have employment or severance
agreements with the Company, and their employment may be terminated at any
time at the discretion of the Board of Directors.
Joseph W. Jennings, the Company's senior vice president, marketing, has
received option grants for 640,000 shares that provide that upon a change in
control transaction, the vesting of the option will accelerate and 50% of the
then unvested option shares will become vested. Duncan M. Davidson, the
Company's senior vice president, business development, has received option
grants for 640,000 shares that provide that upon a change in control
transaction, the vesting of the option will accelerate and 100% of the then
unvested option shares will become vested. Edmund J. Fish, the Company's
executive vice president and chief business officer, has received option
grants for 86,667 shares that provide that upon a change in control
transaction, the vesting of the option will accelerate and 100% of the then
unvested option shares will become vested. In addition, two of the Company's
other executive officers who are not among the Company's four highest-paid
executive officers during 1999 were also granted options that provide that
upon a change in control transaction, the vesting of the options will
accelerate and 50% and 100%, respectively, of the then unvested option shares
will become vested.
If a change in control of the Company occurs, an option or other award
under the 1999 Equity Incentive Plan will become fully exercisable and fully
vested if the option or award is not assumed by the surviving corporation or
its parent or if the surviving corporation or its parent does not substitute
comparable awards for the awards granted under the 1999 Equity Incentive Plan.
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Under the Company's 1995 Stock Plan, upon a merger or asset sale, if the
options or stock purchase rights are not assumed by the surviving corporation
or its parent or subsidiary or if the surviving corporation or its parent or
subsidiary does not substitute comparable awards for the options or stock
purchase rights, then the options and stock purchase rights will terminate.
COMPENSATION REPORT
The Compensation Committee of the Company's Board of Directors (the
"Compensation Committee" or the "Committee") was formed on July 22, 1999. The
charter for the Committee provides that it has the exclusive authority to
establish the level of base salary payable to the chief executive officer
("CEO") and certain other executive officers of the Company and to administer
the Company's 1999 Equity Incentive Plan and 1999 Employee Stock Purchase
Plan. In addition, the Committee has the responsibility for approving the
individual bonus programs to be in effect for the CEO and certain other
executive officers and other key employees each fiscal year. However, during
fiscal 1999, the Board made the decisions regarding executive compensation,
including option grants to its executive officers, because the Committee did
not become effective until October 26, 1999.
For the 1999 fiscal year, the process utilized by the Board in determining
executive officer compensation levels was based on the subjective judgment of
the Board. Among the factors considered by the Board were the recommendations
of the CEO with respect to the compensation of the Company's key executive
officers. However, the Board made the final compensation decisions concerning
such officers.
General Compensation Policy. The Board's fundamental policy is to offer the
Company's executive officers competitive compensation opportunities based upon
overall Company performance, their individual contribution to the financial
success of the Company and their personal performance. It is the Board's
objective to have a substantial portion of each officer's compensation
contingent upon the Company's performance, as well as upon his or her own
level of performance. Accordingly, each executive officer's compensation
package consists of: (i) base salary, (ii) discretionary cash bonus and (iii)
long-term stock-based incentive awards.
Base Salary. The base salary for each executive officer is set on the basis
of general market levels and personal performance. Each individual's base pay
is positioned relative to the total compensation package, including cash
incentives and long-term incentives.
Annual Cash Bonuses. Each executive officer is eligible for a cash bonus at
the discretion of the Board. The Board considers performance targets
established at the start of the fiscal year and personal objectives
established for each executive. Actual bonuses paid reflect an individual's
accomplishment of both corporate and functional objectives.
Long-Term Incentive Compensation. During fiscal 1999, the Board, in its
discretion, did not make option grants to any of its executive officers other
than the initial option grant made to Mr. David C. Chance in connection with
the commencement of his employment. Generally, a significant grant is made in
the year that an officer commences employment and no grant is made in the
second year. Thereafter, option grants may be made at varying times and in
varying amounts in the discretion of the Board. Generally, the size of each
grant is set at a level that the Board deems appropriate to create a
meaningful opportunity for stock ownership based upon the individual's
position with the Board, the individual's potential for future responsibility
and promotion, the individual's performance in the recent period and the
number of unvested options held by the individual at the time of the new
grant. The relative weight given to each of these factors will vary from
individual to individual at the Board's discretion.
Each grant allows the officer to acquire shares of the Company's common
stock at a fixed price per share (the market price on the grant date) over a
specified period of time. The option vests in periodic installments over a two
to four year period, contingent upon the executive officer's continued
employment with the Company. The vesting schedule and the number of shares
granted are established to ensure a meaningful incentive in each
7
<PAGE>
year following the year of grant. Accordingly, the option will provide a
return to the executive officer only if he or she remains in the Company's
employ, and then only if the market price of the Company's common stock
appreciates over the option term.
CEO Compensation. The annual base salary for Mr. Shear, the Company's Chief
Executive Officer, was not increased by the Board during fiscal 1999, and Mr.
Shear has not been granted any options or given any bonus during fiscal 1999.
Tax Limitation. Under the Federal tax laws, a publicly held company such as
the Company will not be allowed a federal income tax deduction for
compensation paid to certain executive officers to the extent that
compensation exceeds $1 million per officer in any year. To qualify for an
exemption from the $1 million deduction limitation, the stockholders were
asked to approve a limitation under the Company's 1999 Equity Incentive Plan
on the maximum number of shares of common stock for which any one participant
may be granted stock options per calendar year. Because this limitation was
adopted, any compensation deemed paid to an executive officer when he
exercises an outstanding option under the 1999 Equity Incentive Plan with an
exercise price equal to the fair market value of the option shares on the
grant date will qualify as performance-based compensation that will not be
subject to the $1 million limitation. Since it is not expected that the cash
compensation to be paid to the Company's executive officers for the 1999
fiscal year will exceed the $1 million limit per officer, the Board will defer
any decision on whether to limit the dollar amount of all other compensation
payable to the Company's executive officers to the $1 million cap.
Board of Directors
Victor Shear
David C. Chance
Edmund J. Fish
Erwin N. Lenowitz
David M. Van Wie
Bruce Fredrickson
Satish K. Gupta
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors was created
on July 22, 1999 and became effective on the effective date of the Company's
initial public offering of its securities, October 26, 1999. The members of
the Compensation Committee are Messrs. Frederickson and Gupta. Neither of
these individuals was at any time during 1999, or at any other time, an
officer or employee of the Company. No executive officer of the Company serves
as a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee.
8
<PAGE>
STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder return
on the Company's common stock between October 27, 1999 (the date the Company's
common stock commenced public trading) and December 31, 1999 with the
cumulative total return of (i) the CRSP Total Return Index for the Nasdaq
Stock Market (U.S. Companies) (the "Nasdaq Stock Market-U.S. Index") and (ii)
the Hambrecht & Quist Internet Index (the "H&Q Internet Index") over the same
period. This graph assumes the investment of $100.00 on October 27, 1999, in
the Company's common stock, the Nasdaq Stock Market-U.S. Index and the H&Q
Internet Index and assumes the reinvestment of dividends, if any.
The comparisons shown in the graph below are based upon historical data.
The Company cautions that the stock price performance shown in the graph below
is not indicative of, nor intended to forecast, the potential future
performance of the Company's common stock.
Comparison of Cumulative Total Return Among InterTrust Technologies
Corporation,
the Nasdaq Stock Market-U.S. Index and the H&Q Internet Index
[GRAPH APPEARS HERE]
The Company effected its initial public offering of common stock on October
26, 1999 at a price of $9.00 per share. The graph above, however, commences
with the closing price of $27.19 per share on October 27, 1999--the date the
Company's common stock commenced public trading.
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate this
Form 10-K/A or future filings made by the Company under those statutes, the
Compensation Committee Report and Stock Performance Graph shall not be deemed
filed with the Securities and Exchange Commission and shall not be deemed
incorporated by reference into any of those prior filings or into any future
filings made by the Company under those statutes.
9
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 29, 2000, certain
information with respect to shares beneficially owned by (i) each person who
is known by the Company to be the beneficial owner of more than five percent
of the Company's outstanding shares of common stock, (ii) each of the
Company's directors and the executive officers named in the Summary
Compensation Table and (iii) all current directors and executive officers as a
group. Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act. Under this rule, certain shares may be deemed to be
beneficially owned by more than one person (if, for example, persons share the
power to vote or the power to dispose of the shares). In addition, shares are
deemed to be beneficially owned by a person if the person has the right to
acquire shares (for example, upon exercise of an option or warrant) within
sixty (60) days of the date as of which the information is provided; in
computing the percentage ownership of any person, the amount of shares is
deemed to include the amount of shares beneficially owned by such person (and
only such person) by reason of such acquisition rights. As a result, the
percentage of outstanding shares of any person as shown in the following table
does not necessarily reflect the person's actual voting power at any
particular date.
<TABLE>
<CAPTION>
Shares Beneficially Owned
as of February 29, 2000 (1) (2)
-----------------------------------
Number of Percentage of
Name and Address of Beneficial Owner Shares Class
- ------------------------------------ ------------------ ----------------
<S> <C> <C>
Victor Shear.............................. 15,389,716 19.4%
Kistler Associates
955 5th Avenue, Apt. 6B
New York, NY 10021....................... 5,183,146 6.5
Erwin N. Lenowitz(3)...................... 773,550 1.0
David M. Van Wie(4)....................... 689,600 *
Duncan M. Davidson(5)..................... 640,002 *
Edmund J. Fish(6)......................... 630,105 *
Joseph W. Jennings(7)..................... 346,666 *
Satish K. Gupta(8)........................ 350,000 *
Bruce Fredrickson(9)...................... 304,000 *
David C. Chance(10)....................... 200,000 *
Executive officers and directors as a
group (17 persons)(11)(12)............... 21,657,394 26.5
</TABLE>
- --------
* Less than 1% of the outstanding shares of common stock.
(1) Percentage ownership is based on 79,408,518 shares of common stock
outstanding on February 29, 2000.
(2) Shares of common stock subject to options currently exercisable or
exercisable within 60 days of February 29, 2000 are deemed outstanding
for purposes of computing the percentage ownership of the person holding
such options but are not deemed outstanding for computing the percentage
ownership of any other person. Except pursuant to applicable community
property laws or as indicated in the footnotes to this table, each
stockholder identified in the table possesses sole voting and investment
power with respect to all shares of common stock shown as beneficially
owned by such stockholder. Unless otherwise indicated, the address of
each of the individuals listed in the table is c/o InterTrust
Technologies Corporation, 4750 Patrick Henry Drive, CA 95054.
(3) Includes 30,010 shares held in trust for Jeremy Lenowitz.
(4) Includes 641,600 shares subject to options that are exercisable within 60
days of February 29, 2000.
(5) Includes 40,000 shares subject to options that are exercisable within 60
days of February 29, 2000. Also includes 420,002 shares held by the
Davidson Family Revocable Trust of which 113,334 shares are subject to a
right of repurchase by us as of February 29, 2000. Mr. Davidson, one of
our executive officers, is the trustee of the Davidson Family Revocable
Trust and exercises voting and investment power over these shares. In
connection with a loan to two InterTrust employees in October 1999, Mr.
Davidson took a security interest in 129,998 shares of common stock.
(6) Includes 86,667 shares subject to options that are exercisable within 60
days of February 29, 2000.
10
<PAGE>
(7) Includes 346,666 shares subject to options that are exercisable within 60
days of February 29, 2000.
(8) Includes 160,000 shares subject to options that are exercisable within 60
days of February 29, 2000.
(9) Includes 50,000 shares held of record by Tactical Marketing Ventures,
LLC. Mr. Fredrickson is the chief executive officer of Tactical Marketing
Ventures, LLC and disclaims beneficial ownership of these shares, except
to the extent of his pecuniary interest arising from his interest in
Tactical Marketing Ventures, LLC.
(10) Includes 100,000 shares subject to options that are exercisable within 60
days of February 29, 2000.
(11) Includes 797,594 shares subject to options that are exercisable within 60
days of February 29, 2000 and the shares described in Notes 3 through 10.
(12) Includes 13,334 shares held by Patrick P. Nguyen, one of our executive
officers, subject to a right of repurchase by us as of February 29, 2000.
Also includes 398,824 shares held by Ecomm Ventures II, LLC. Mr. Nguyen
is a director of Ecomm Ventures II, LLC. Mr. Nguyen disclaims beneficial
ownership of these shares, except to the extent of his pecuniary interest
arising from his interest in Ecomm Ventures II, LLC. Also includes 7,248
shares held by SLF Partners IV, LP. Mr. Nguyen is a limited partner of
SLF Partners IV, LP.
ITEM 13. RELATED PARTY TRANSACTIONS
Since January 1, 1999, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company or any
of its subsidiaries was or is to be a party in which the amount involved
exceeded or will exceed $60,000 and in which any director, executive officer,
holder of more than 5% of the common stock of the Company or any member of the
immediate family of any of the foregoing persons had or will have a direct or
indirect material interest other than (i) compensation agreements and other
arrangements, which are described where required in Employment Contracts and
Change in Control Arrangements and (ii) the transactions described below.
Series C Preferred Stock Financing. In March 1999, we issued and sold
59,290 shares of series C preferred stock to Kistler Associates, one of our 5%
stockholders, at a per share purchase price of $2.945.
Series D Preferred Stock Financing. In April 1999, we issued and sold
470,588 shares of series D preferred stock to Kistler Associates , one of our
5% stockholders, at a per share purchase price of $4.25.
In April 1999, we issued and sold 958,824 shares of series D preferred
stock to SLF Partners IV, L.P. at a per share purchase price of $4.25. One of
our executive officers, Patrick P. Nguyen, is a limited partner of SLF
Partners IV, L.P.
In April 1999, we issued and sold 50,000 shares of series D preferred stock
to Tactical Marketing Ventures, LLC at a per share purchase price of $4.25.
Bruce Fredrickson, a director of InterTrust, is the president of Tactical
Marketing Ventures, LLC.
In June 1999, we issued and sold 398,824 shares of series D preferred stock
to Ecomm Ventures II, LLC at a per share purchase price of $4.25. One of our
executive officers, Patrick P. Nguyen, is a director of Ecomm Ventures II,
LLC.
Series E Preferred Stock Financing. In July 1999, we issued and sold
466,666 shares of series E preferred stock to Kistler Associates, one of our
5% stockholders, at a per share purchase price of $6.00.
In July 1999, we issued and sold 100,002 shares of series E preferred stock
to Duncan M. Davidson, one of our executive officers, at a per share purchase
price of $6.00.
Options to Purchase Common Stock. In October 1999, we granted an option to
purchase 600,000 shares of our common stock at an exercise price of $7.65 to
David C. Chance, one of our executive officers and a director. In March 2000,
we granted options to purchase 40,000 shares of our common stock to each of
Bruce Fredrickson and Satish Gupta. Messrs. Fredrickson and Gupta are members
of our board of directors.
11
<PAGE>
Bonus to Executive Officer. In May 1999, our compensation committee
approved a bonus in the amount of $200,000 to Edmund J. Fish, one of our
executive officers, which was paid in June 1999.
All of our shares of preferred stock converted to common stock upon the
occurrence of our initial public offering in 1999.
The Company's Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty
as directors, except to the extent otherwise required by the Delaware General
Corporation Law. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware law. The Company has also entered into indemnification agreements
with its officers and directors containing provisions that may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers and to advance their expenses incurred as a result of
any proceeding against them as to which they could be indemnified.
12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements--See Index to Financial Statements and
Financial Statement Schedule at page F-1 of this Form 10-K.
(a)(2) Financial Statement Schedules--Schedules have been omitted because
the information required to be set forth therein is not applicable or is
readily available in the financial statements or notes thereto.
(a)(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
3.2* Sixth Amended and Restated Certificate of Incorporation filed with the
Secretary of State of Delaware on November 1, 1999.
3.4* Amended and Restated Bylaws of the Registrant.
4.1* Reference is made to Exhibits 3.2 and 3.4.
4.2* Form of Registrant's Common Stock certificate.
4.3* Form of Registration Rights under select Convertible Promissory Notes.
4.4* Form of Registration Rights under select Class A Common Stock Purchase
Agreements.
4.5* Form of Series A Preferred Stock Registration Rights.
4.6* Form of Series B, C, D and E Preferred Stock Registration Rights.
4.7* Form of Registration Rights found in a Class B Non-Voting Common Stock
Warrant.
10.1* Form of Indemnification Agreement entered into by the Registrant with
each of its directors and executive officers.
10.2* 1999 Equity Incentive Plan and forms of agreements thereunder.
10.3* 1999 Employee Stock Purchase Plan.
10.4* 1999 Non-Employee Directors Option Plan.
10.11* Lease between Mission West Properties, L.P. and the Registrant dated
July 21, 1999.
10.12* Technology Development, Marketing, and License Agreement by and
between the Registrant and National Westminster Bank PLC dated August
18, 1998.
10.13* Technology Development and License Agreement by and between the
Registrant and Universal Music Group, Inc. dated April 13, 1999.
10.14* Technology Development and License Agreement by and between the
Registrant and Upgrade Corporation of America dated August 7, 1996
10.15* Technology Development and License Agreement by and between the
Registrant and Mitsubishi Corporation dated October 7, 1996.
10.16* Warrant for the purchase of Class A Voting Common Stock made by the
Registrant and held by Allen & Company Incorporated, dated September
7, 1999
10.17* Amendment to Technology, Development, Marketing and License Agreement
by and between the Registrant and National Westminster Bank dated
August 18, 1998.
10.18* Amendment to Technology Development and License Agreement by and
between the Registrant and Universal Music Group, Inc. dated April 13,
1999
10.19** Building Lease Agreement by and between First State Realty of America,
Inc. and the Registrant dated January 24, 2000.
21.1* Subsidiaries of the Registrant.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
23.1*** Consent of Ernst & Young LLP, independent auditors.
24.1*** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- --------
* Incorporated by reference to similarly numbered exhibit to the
Registration Statement on Form S-1 filed by the Registrant (Reg. No. 333-
84033).
** Incorporated by reference to similarly numbered exhibit to the
Registration Statement on Form S-1 filed by the Registrant (Reg. No. 333-
32484).
*** Previously filed.
(b) We filed a Report on Form 8-K dated January 5, 2000 reporting the
resignation of our President, Peter van Cuylenburg, on December 23, 1999.
(c) Exhibits
See (a)(3) above.
(d) Financial Statement Schedules
See (a)(2) above.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this Amendment No. 1 to the
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
April 24, 2000 INTERTRUST TECHNOLOGIES CORPORATION
(Registrant)
By: /s/ Victor Shear
-----------------------------------
Victor Shear
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment No. 1 to the Report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Victor Shear Chairman of the Board and April 24, 2000
________________________ Chief Executive Officer
Victor Shear (Principal Executive
Officer)
/s/ David C. Chance* Executive Vice Chairman April 24, 2000
________________________
David C. Chance
/s/ Edmund J. Fish* Director, Executive Vice April 24, 2000
________________________ President and Chief
Edmund J. Fish Business Officer
/s/ David Van Wie* Director and Senior Vice April 24, 2000
________________________ President of Research
David Van Wie
/s/ Bruce Fredrickson* Director April 24, 2000
________________________
Bruce Fredrickson
/s/ Satish K. Gupta* Director April 24, 2000
________________________
Satish K. Gupta
/s/ Erwin N. Lenowitz Vice Chairman of the Board, April 24, 2000
________________________ Chief Financial Officer and
Erwin N. Lenowitz Secretary (Principal
Financial and Accounting
Officer)
*/s/ Victor Shear
________________________
Attorney-in-Fact
</TABLE>
15
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
3.2* Sixth Amended and Restated Certificate of Incorporation filed with the
Secretary of State of Delaware on November 1, 1999.
3.4* Amended and Restated Bylaws of the Registrant.
4.1* Reference is made to Exhibits 3.2 and 3.4.
4.2* Form of Registrant's Common Stock certificate.
4.3* Form of Registration Rights under select Convertible Promissory Notes.
4.4* Form of Registration Rights under select Class A Common Stock Purchase
Agreements.
4.5* Form of Series A Preferred Stock Registration Rights.
4.6* Form of Series B, C, D and E Preferred Stock Registration Rights.
4.7* Form of Registration Rights found in a Class B Non-Voting Common Stock
Warrant.
10.1* Form of Indemnification Agreement entered into by the Registrant with
each of its directors and executive officers.
10.2* 1999 Equity Incentive Plan and forms of agreements thereunder.
10.3* 1999 Employee Stock Purchase Plan.
10.4* 1999 Non-Employee Directors Option Plan.
10.11* Lease between Mission West Properties, L.P. and the Registrant dated
July 21, 1999.
10.12* Technology Development, Marketing, and License Agreement by and
between the Registrant and National Westminster Bank PLC dated August
18, 1998.
10.13* Technology Development and License Agreement by and between the
Registrant and Universal Music Group, Inc. dated April 13, 1999.
10.14* Technology Development and License Agreement by and between the
Registrant and Upgrade Corporation of America dated August 7, 1996
10.15* Technology Development and License Agreement by and between the
Registrant and Mitsubishi Corporation dated October 7, 1996.
10.16* Warrant for the purchase of Class A Voting Common Stock made by the
Registrant and held by Allen & Company Incorporated, dated September
7, 1999
10.17* Amendment to Technology, Development, Marketing and License Agreement
by and between the Registrant and National Westminster Bank dated
August 18, 1998.
10.18* Amendment to Technology Development and License Agreement by and
between the Registrant and Universal Music Group, Inc. dated April 13,
1999
10.19** Building Lease Agreement by and between First State Realty of America,
Inc. and the Registrant dated January 24, 2000.
21.1* Subsidiaries of the Registrant.
23.1*** Consent of Ernst & Young LLP, independent auditors.
24.1*** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- --------
* Incorporated by reference to similarly numbered exhibit to the
Registration Statement on Form S-1 filed by the Registrant (Reg. No. 333-
84033).
** Incorporated by reference to similarly numbered exhibit to the
Registration Statement on Form S-1 filed by the Registrant (Reg. No. 333-
32484).
*** Previously filed.
16
