SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14C INFORMATION
Proxy Statement Pursuant to Section 14(C) of the
Securities Exchange Act of 1934
Check the appropriate box:
[X] Preliminary information statement
[ ] Confidential, for use of the Commission only
(as permitted by Rule 14c-5(d)(2))
[ ] Definitive information statement
NETOBJECTS, INC.
(Name of Registrant as Specified in its Charter)
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Payment of filing fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11 (1)
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transaction applies:
N/A
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
N/A
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(4) Proposed maximum aggregate value of transaction:
$18,000,000
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(5) Total fee paid:
$3,600
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[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provide by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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First mailed to stockholders on or about January __, 2001.
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NETOBJECTS, INC.
301 Galveston Drive
Redwood City, CA 94063
To the Stockholders of NetObjects, Inc.:
Enclosed is an Information Statement that we are sending to you in
connection with the sale of our Enterprise division to Merant, Inc., a
California corporation, for $18 million under the terms of the Asset Sale and
Purchase Agreement between NetObjects, Inc. and Merant dated January 8, 2001.
Our board of directors has already approved the transaction. The
Enterprise division represents a significant portion of the Company's present
operations and assets, so the board of directors decided to seek stockholder
approval as well. Two of our stockholders, who collectively hold a majority of
the voting power of our common stock, have already approved the transaction by
written consent. Therefore, this Information Statement is being sent to you for
informational purposes only. We are not asking for a proxy or vote on any of the
matters described in this Information Statement.
We are mailing with the Information Statement the Company's Annual
Report on Form 10K, which we filed with the Securities and Exchange Commission
on December 29, 2000. The annual report contains financial information for our
most recent fiscal year ended September 30, 2000, a description of our business,
a discussion of relevant risk factors and other material information helpful for
an understanding of our company. We encourage you to read this Information
Statement and the annual report carefully.
Sincerely,
Samir Arora
President
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NETOBJECTS, INC.
301 Galveston Drive
Redwood City, California 94063
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INFORMATION STATEMENT
AND
NOTICE OF ACTION TAKEN WITHOUT A MEETING
Dated January __, 2001
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This Information Statement and Notice of Action Taken Without a Meeting
(collectively, the "Information Statement") is furnished to the stockholders of
NetObjects, Inc., a Delaware corporation, to provide information with respect to
an action taken by written consent of the holders of a majority of the
outstanding shares of the Company's common stock that were entitled to vote on
such action. This Information Statement also constitutes notice of action taken
without a meeting as required by Section 228(d) of the Delaware General
Corporation Law.
The written consent approved the sale of the Company's Enterprise
division to Merant, Inc. for a total purchase price of $18 million under the
terms of an Asset Sale and Purchase Agreement, or the definitive agreement,
dated January 8, 2001. This transaction involves the sale of a significant
portion of our assets, business and operations and, conceivably, could
constitute a sale of substantially all of the property and assets of NetObjects
within the meaning of Section 271(a) of the Delaware General Corporation Law.
Because a transaction subject to Section 271(a) requires approval of a majority
of the corporation's outstanding voting shares under Delaware law, the board of
directors sought the approval by our stockholders for the sale of the Enterprise
division to Merant Two of our stockholders, IBM and Samir Arora, represent a
majority of the outstanding shares of our common stock and have signed the
written consent. Therefore, all required corporate approvals of the transaction
have been obtained. This Information Statement is furnished solely for the
purpose of informing stockholders of this corporate action in the manner
required by the Securities Exchange Act of 1934.
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We Are Not Asking You for a Proxy and You Are Requested Not to Send Us a Proxy.
---------------------------
The record date for determining stockholders entitled to receive this
Information Statement has been established as the close of business on January
2, 2001. As of the record date, we had 31,687,043 shares of common stock issued
and outstanding. Each share of our common stock entitles its holder to one vote
on all matters submitted to a vote of the stockholders.
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SUMMARY TERM SHEET
Our Enterprise division provides software and professional services to
large-scale corporate enterprises and departments requiring an integrated
solution that enables them to manage the entire Web production process. The
principal product of our Enterprise division is NetObjects Collage, an
integrated platform for the management of enterprise Web applications. The
NetObjects Collage platform combines collaboration with content management
enterprise integration and dynamic application services. Our Enterprise division
also provides professional services to help our customers install NetObjects
Collage and to train their personnel in the use and maintenance of corporate web
sites with this product.
As of December 19, 2000, we and Merant signed an option and license
agreement under which Merant paid us $4 million for an exclusive option to
purchase the Enterprise division. We signed the definitive agreement, which was
contemplated under the option and license agreement, on January 8, 2001.
Merant's option expired when we signed the definitive agreement.
The following is a summary of the material terms of the definitive
agreement:
o We will sell to Merant the products of our Enterprise division,
including NetObjects Collage, NetObjects Authoring Server and
NetObjects TeamFusion, the goodwill of the business and most of the
related intellectual property.
o We expect most of the current employees of the Enterprise division
to accept offers of employment to be extended by Merant.
o We will license to Merant two software programs and related
intellectual property rights that we will continue to use in our
Small Business operations.
o We will receive a total of $18 million in cash from the sale of the
Enterprise division, of which $4 million has been paid under the
option agreement.
o We will not sell to Merant, and will retain, all of our cash and
accounts receivable and the fixed assets, leaseholds and
intellectual property related to our Small Business operations.
o We have agreed that, for a period of 2 years, we will not compete
with Merant in the business that we have conducted through the
Enterprise division.
o The closing of the transactions contemplated in the definitive
agreement is projected to occur in February 2001, approximately 20
days after the date of this Information Statement.
The terms of the definitive agreement are more specifically described
below.
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ACTIONS TAKEN
Our board of directors authorized the sale of the Enterprise division
and approved the material terms of the definitive agreement at a telephonic
meeting on January 3, 2001.
As of January 2, 2001, the record date for this transaction, the
holders of 16,693,423 shares, or approximately 53% of the total number of shares
of common stock outstanding, approved the sale of the Enterprise division and
the definitive agreement. As the transaction and the definitive agreement have
been approved by holders of a majority of the shares of our common stock, no
proxies are being solicited with this Information Statement.
You are being provided with this Information Statement pursuant to
Section 14(c) of the Securities Exchange Act of 1934, as amended, and Regulation
14C and Schedule 14C thereunder. The sale of the Enterprise division will not
become effective until at least 20 days after the mailing of this Information
Statement. This Information Statement is being mailed to the stockholders on or
about January ___, 2001.
FORWARD-LOOKING STATEMENTS
This Information Statement may contain forward-looking statements
within the meaning of the federal securities laws. Such statements can be
identified by the words "believes", "anticipates", "plans", "expects", and
similar expressions. These forward-looking statements include, without
limitation, statements about the planned sale of our Enterprise division, market
opportunities for web site building software and services and our business
strategy. These forward-looking statements do not constitute assurances
regarding our future operating results, including the planned sale of the
Enterprise division, the operations of our online services business, cash flows,
and financial condition. The market for online web-based small business services
is new and extremely competitive. We cannot be assured of generating a
significant amount of revenue or earning a profit from the sale or license of
these services. Our actual results could differ materially from those expressed
or implied by these forward-looking statements due to various factors, including
the risk that the planned sale of the Enterprise division may not be completed,
and the risk factors described in our annual report on Form 10-K for the year
ended September 30, 2000 and other periodic reports filed with the SEC pursuant
to the Securities Exchange Act of 1934. We undertake no obligation to update
publicly any forward-looking statements as new information becomes available or
relevant events occur in the future.
NO DISSENTERS' RIGHTS OF APPRAISAL
The corporate actions described in this Information Statement will not
afford our stockholders the opportunity to dissent from those actions or to
receive an agreed or judicially appraised value for their shares of our common
stock as a result of those actions.
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BACKGROUND OF AND REASONS FOR THE SALE
From our inception through the fiscal year ended September 30, 2000, we
focused our business on being a leading provider of software, solutions and
services that enable small businesses to build, deploy and maintain web sites,
conduct online e-business and enable large enterprises to effectively create and
manage corporate intranets.
Our objective is to become a leading provider of online services for
small businesses. We intend to partner with service providers--from telcos and
financial institutions to ISPs and hardware manufacturers--to deliver these
services to their small business customers. We offer our partners the technology
solutions and services they need to enable their small business customers to
successfully leverage the power of the web. Our applications and services
empower small businesses by helping them create web sites, engage in e-commerce
and grow and manage their businesses. In deploying these services, our partners
benefit from potential new sources of revenue, faster time to market, less
administrative overhead and an improved customer experience.
In 1996, we introduced NetObjects Fusion, the first web site building
software application. Since then, NetObjects Fusion has been instrumental in the
development of millions of websites and has become well known in the site-
building industry, winning over 75 awards.
Enterprise Division History
We introduced NetObjects TeamFusion, our first client-server web site
building application, in December 1997. In September 1998, we introduced
NetObjects Authoring Server Suite 3.0 as a client-server application for the
corporate intranet market. This product replaced NetObjects TeamFusion, but
retained the TeamFusion Client as one of the product's four modules. We formed
our Professional Services Group in October 1998 to provide training, consulting
and installation services to our customers deploying the NetObjects Authoring
Server. In the fourth quarter of fiscal year 1999, we began administering the
NetObjects Authoring Server product family and our professional services group
as our Enterprise division.
In March 2000, the Enterprise division launched NetObjects Collage, an
integrated platform for the management of enterprise Web applications.
NetObjects Collage provides an integrated platform that combines collaboration
with content management, enterprise integration, and dynamic application
services. We also expanded our professional services to help our customers
install NetObjects Collage and to train their personnel in the use and
maintenance of corporate web sites with this product.
Evolving Small Business Strategy
Building on the success of NetObjects Fusion and the growth of the
Internet, during fiscal year 2000 we adopted a strategy of expanding our market
position from serving as a provider of traditional desktop software to becoming
an online services provider. We had previously built popular online resources,
including NetObjects.com, and eFuse.com, that target communities of business
users and provide sources of information, products and services for building web
sites. This strategic shift began in October 1999 with the acquisition of
Sitematic, Corp., and the
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formation of a Small Business division. In December 1999, we combined our online
resources and launched GoBizGo.com, a web application services site where small
businesses can find the solutions and services needed to build a successful Web
presence.
In July 2000, we acquired privately-held Rocktide Inc., a provider of
the next generation application service provider (ASP) technology and wireless
e-services that help Web-enable businesses worldwide. This product technology
was incorporated in our newly branded Matrix Platform, which we launched on
October 30, 2000.
NetObjects Matrix is an integrated suite of online services that
enables small businesses to take advantage of the Internet to expand and improve
their business. It is the first set of online services designed to be
distributed by service providers, companies whose reach into the small business
marketplace through their business relationships makes them the most effective
distributors of NetObjects products and services.
Focusing Our Business
As usage of the Internet by businesses and related markets for our
products and services have evolved, we have decided to narrow our focus in order
to become a leading provider of essential online services for small businesses
worldwide by partnering with service providers who can provide mass distribution
to their small business customers. To date, we have made significant progress in
building and partnering to create best-of-class Web site builders and online
services for services providers and their subscribers.
We believe that the ubiquity of Web browsers and the evolution of ASP
technology to enable the online delivery of technology solutions provide key
benefits to small businesses. These benefits include ease of use, installation
and upgradeability, potential revenues from e-commerce, convenience and reduced
costs--lower monthly subscription fees versus large, up-front payments.
We also believe that small businesses will look to a single supplier to
provide an integrated suite of applications and services they need rather than
shopping for individual services from multiple vendors. We anticipate that small
businesses will purchase these services from their current service
providers--companies with whom they already do business and whom they trust to
help them achieve online success. We have targeted these service providers as
the primary customer base for our online web site services.
Selling the Enterprise Division
In June 2000, our board of directors retained Broadview International
LLC, or Broadview, to explore a range of strategic alternatives, including the
possible sale of the Enterprise division. At approximately the same time, we
also engaged an investment banking firm to assist us in raising capital through
a private placement of our securities. Our engagement letter with Broadview
provides that for its services Broadview is entitled to a fee of $1 million upon
the closing of the sale of the Enterprise division to Merant.
Merant was among a number of companies initially contacted by
Broadview. Direct discussions between Merant and us commenced in September 2000.
Negotiations for the sale of the Enterprise division to Merant continued for
more than two months. Although Broadview and
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we held discussions with other interested parties, Merant sustained the highest
level of interest in acquiring this business.
In the meantime, we were unable to conclude a private placement of our
securities, and our lack of working capital for future operations became a
paramount concern for the board of directors. The Enterprise division, which we
are selling to Merant, generated approximately $10 million of revenues and
contributed $7.6 million to our operating loss for the fiscal year ended
September 30, 2000. Our ability to finance both our Enterprise and Small
Business divisions declined substantially. In addition, our independent auditors
advised us that, without substantial additional capital, or a commitment to
provide such capital, our financial statements would be subject to a "going
concern" qualification.
In mid-December 2000, we resolved the principal terms for a sale of the
Enterprise division to Merant. Taking into account our liquidity and other
business factors, the board of directors authorized us to sign an option and
license agreement with Merant as of December 19, 2000. Under that agreement, we
received $4 million in cash for granting Merant an exclusive option to purchase
the Enterprise division for $18 million (including the option payment). The
terms of the agreement provided that Merant's option to acquire the Enterprise
division would expire on January 5, 2001, if a definitive agreement for the
purchase of the Enterprise division had not been signed by that date, or by a
later date agreed upon by both companies.
The definitive agreement and the sale of the Enterprise division
described in this Information Statement are a consequence of the option
agreement. The option agreement also provides, however, that if the acquisition
is not completed, Merant will have a three-year license to distribute NetObjects
Collage, and the $4 million option payment will be credited against future
royalty payment obligations under the license agreement.
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DESCRIPTION OF THE SALE OF THE ENTERPRISE DIVISION
Terms of the Definitive Agreement
Assets to be Sold
The assets being sold or licensed or otherwise transferred to Merant as
part of the sale of our Enterprise division are located at our facility in
Redwood City, California. The assets being sold consist primarily of:
o All intellectual property rights related to the software products of
the Enterprise division, including NetObjects Collage and NetObjects
Authoring Server, and the results of any in-process development
efforts of the Enterprise division regarding those software
products;
o All trademarks used in the Enterprise division, excluding the name
"NetObjects," and the goodwill associated with the trademarks;
o Our rights under most of our third-party contracts, agreements,
leases, purchase orders, sales orders and other such instruments to
which we are a party and which relate to the Enterprise division;
o All licenses, agreements and other arrangements under which we have
the right to use any third-party intellectual property rights in the
conduct of the business of the Enterprise division; and
o Computers and peripherals that we have leased for use with the
Enterprise division.
Consideration
In exchange for the sale and license of the assets described above, we
will receive a total of $18 million in cash. We received $4 million of the
purchase price from Merant on December 21, 2000 under the option and license
agreement. Merant will deliver $14 million by wire transfer within 7 days after
the closing of the transactions contemplated in the definitive agreement.
Retained Assets
We will continue to conduct business operations in our Small Business
division. Therefore, the intellectual property, fixed assets, personal property
and leaseholds used in our Small Business operations are excluded from the sale
to Merant. All of our cash holdings and accounts receivable also are excluded
from the sale. We will license Merant to use, copy and modify the source code
and the object code of the NetObjects TeamFusion client, which includes
NetObjects Fusion software, in the purchased business on a non-exclusive basis
in perpetuity. The terms of the license prohibit Merant from creating or
distributing single user versions of this licensed software.
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Covenant not to Compete
We agreed that between January 8, 2001 and the closing date or the date
of termination of the definitive agreement, we will not compete, directly or
indirectly, with Merant in owning, managing, operating, controlling or being a
consultant to any company in the business of providing software services similar
to those of the Enterprise division for a period of two years following the
closing of the transaction.
Covenant not to Hire
We agreed not to offer employment to any employee of the Enterprise
division for one year following the closing of the transaction.
Representations and Warranties
We made representations and warranties in favor of Merant that relate
to a number of matters, including:
o our due organization and good standing;
o the authorization, execution, delivery and enforceability of the
definitive agreement;
o the absence of litigation and our compliance with laws;
o the accuracy of financial statements of the Enterprise division and
the absence of undisclosed liabilities since September 30, 2000;
o our title to the assets to be sold and our ability to sell the
assets without any third-party consents;
o our ownership of or right to use, and the non-infringement of the
rights of third parties to, intellectual property;
o the performance of the software products being sold;
o the absence of infringement of the intellectual property of the
Enterprise division by third parties;
o the absence of breaches of license agreements related to the
Enterprise division;
o the absence of conflict with or violation of any law, judgment or
contract and our certificate of incorporation and bylaws;
o the filing of tax returns and the payment of taxes;
o the disclosure of employee benefit plans and their compliance with
ERISA and other applicable laws;
o our compliance with environmental laws and permits; and
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o our labor relations.
The definitive agreement also includes representations and warranties
made by Merant in favor of us that relate to a number of matters, including:
o Merant's due organization and good standing;
o the authorization, execution, delivery and enforceability of the
definitive agreement; and
o the absence of conflict with or violation of any law, judgment,
contract and Merant's articles of incorporation and bylaws.
Covenant not to Solicit; Covenant not to Merge
We agreed that between January 8, 2001 and the closing date or the date
of termination of the definitive agreement, we will not authorize or permit the
sale, disposition or encumbrance of the assets of the Enterprise division or
consider or solicit any offers, engage in negotiations or make any agreement
with respect to any such transaction. We also agreed not to enter into a merger
or consolidation with any other entity during this same period.
Conditions to Closing
The obligation of Merant to purchase the Enterprise division is subject
to the satisfaction of the following conditions:
o our representations and warranties contained in the definitive
agreement are materially true and correct on the closing date as if
made on that date;
o we perform or comply with all of our covenants and agreements
required by the definitive agreement prior to the closing date;
o we execute and deliver to Merant specified documents required to
transfer the assets of the Enterprise division to Merant;
o we deliver to Merant an opinion of our counsel;
o no action or proceeding by or before any governmental authority is
instituted or threatened which prohibits or invalidates the sale;
o Merant enters into employment agreements with designated employees
of the Enterprise division; and
o neither the Enterprise division nor its assets suffer a material
adverse change between the date of the definitive agreement and the
closing date. For this purpose, a material adverse change will not
include confirmed operating losses for the Enterprise division
consistent with our historical operations through December 31, 2000.
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Our obligation to sell the Enterprise division is subject to the
satisfaction of the following conditions:
o Merant's representations and warranties contained in the definitive
agreement are materially true and correct on the closing date as if
made on such date;
o Merant performs or complies with all of its covenants and agreements
required by the definitive agreement to be performed prior to the
closing date; and
o no action or proceeding by or before any governmental authority is
instituted or threatened which prohibits or invalidates the sale.
Termination
The definitive agreement may be terminated at any time prior to the
closing date:
o by written consent of Merant and us;
o by Merant or us if it is reasonably concluded that a condition to
closing cannot be satisfied prior to March 1, 2001; or
o by us if Merant breaches, or by Merant if we breach, our respective
representations and warranties set forth in the definitive agreement
if the breach is not cured within 20 business days following receipt
by the breaching party of written notice of the breach from the
non-breaching party.
Neither party may terminate the definitive agreement if it is in
material breach of its obligations or representations and warranties under the
definitive agreement. The termination of the definitive agreement will not
relieve any party of liability for any breach of the definitive agreement.
Indemnification
We agreed to indemnify Merant for --
o any liability relating to our business that is not expressly assumed
by Merant;
o any liability related to the Enterprise division arising prior to
the closing date;
o any breach by us of our representations and warranties in the
definitive agreement or the license agreement; and
o our noncompliance with our covenants or agreements in the definitive
agreement or the license agreement.
For most matters, our indemnification obligation will survive the
closing of the transaction for 16 months, and we will have no liability for
indemnity under any representation or warranty for any claim not brought within
that period. Additionally, for most matters, we will
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not be liable for any claims under $10,000 or until the aggregate amount of
liability exceeds $70,000, and our potential liability will not exceed $10
million. Our liability for breaches of our representations regarding
intellectual property and our title to the assets to be sold to Merant and for
any claim arising out of any of our assets or businesses not sold to Merant is
not subject to these limitations on liability.
In addition, Merant agreed to indemnify us for --
o any liability that is expressly assumed by Merant;
o any liability related to the Enterprise division arising after the
closing date;
o any breach by Merant of its representations and warranties in the
definitive agreement; and
o Merant's noncompliance with its covenants or agreements in the
definitive agreement;
Merant's indemnification obligation will survive the closing of the
transaction for 16 months.
Limitation of Remedies
In the event of any claim arising out of the definitive agreement, the
exclusive remedy of either party will be the right to terminate the agreement
and/or the right of indemnification.
Expenses
If the closing of the sale of the Enterprise division does not occur by
January 31, 2001 for a reason other than our fault, then Merant will reimburse
us for the portion of the reasonable net expenses of the Enterprise division
incurred by us between January 31, 2001 and March 1, 2001.
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Terms of the License Agreement
The license agreement that we will enter into with Merant as part of
the sale of the Enterprise division includes the following terms:
License Grant
We will grant to Merant the following licenses:
o A perpetual license to use, copy, modify and create derivative
versions of the NetObjects TeamFusion client, which includes
NetObjects Fusion software, including the source code, solely for
the purpose of licensing to end users or distributors NetObjects
TeamFusion together with any version of NetObjects Collage in the
field of enterprise web content management.
o A perpetual license to copy NetObjects ScriptBuilder, solely for the
purpose of licensing to end users or distributors NetObjects
ScriptBuilder bundled with any version of NetObjects Collage or
NetObjects Authoring Server. Merant will have the right to bundle
NetObjects ScriptBuilder with other products so long as the parties
mutually agree on a reasonable royalty for the bundling.
o A perpetual license, with the right to grant sublicenses, to
practice and make improvements to any inventions claimed in specific
patents and to make, use and sell products containing the patents,
solely for the purpose of modifying and creating derivative versions
of NetObjects TeamFusion and licensing NetObjects TeamFusion with
any version of NetObjects Collage to end users and distributors in
the field of enterprise web content management and providing
maintenance and support services.
o A perpetual license to use specific trademarks.
Ownership of Derivative Works
Merant will own all derivative works, modifications and improvements to
the intellectual property licensed as described above, but we will retain
ownership of the underlying, unmodified intellectual property contained in those
works.
Source Code Escrow
We will agree to deposit the source code for NetObjects ScriptBuilder
and the related documentation and programmers' notes with an escrow agent.
Merant will be entitled to obtain the source code and other information if we
o fail to perform our maintenance and support obligations for
NetObjects ScriptBuilder and do not cure the failure within 3 days
of Merant's demand;
o file or are the subject of a petition for relief under bankruptcy
laws, or
o cease business operations generally.
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If the source code and materials are released from escrow, then Merant
will have a license to use, copy, modify and prepare derivative or collective
works from the source code and the related materials for the purpose of
providing support and maintenance of NetObjects ScriptBuilder and customizing
and integrating NetObjects ScriptBuilder with its own products.
Representations and Warranties
We will make representations and warranties in favor of Merant that
relate to the following:
o our title to the licensed trademarks;
o the non-infringement of the rights of third parties by the licensed
intellectual property, to our knowledge;
o the absence of any breach of any license, sublicense or other
agreement relating to the licensed intellectual property, to our
knowledge;
o the absence of any unauthorized use or infringement of the licensed
intellectual property, to our knowledge; and
o our right to bring an action for infringement or misappropriation of
licensed intellectual property.
Indemnification
We will agree to indemnify Merant for any misrepresentation or breach
of our representations and warranties in the license agreement and our
noncompliance with any covenants or agreements made in the license agreement.
Third-Party Infringers
We will retain the right to initiate any proceeding relating to the
protection of the licensed intellectual property, at our expense. If, however,
we elect not to initiate any proceeding, then Merant will have the right to do
so, at its expense.
Termination
We can terminate the license agreement and the licenses described above
on 60 days notice if Merant is in default of any material agreement under the
license agreement and does not cure such default within 60 days of notice of the
default from us.
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Assignability
Merant does not have the right to assign either the license agreement
or the licenses granted to it under the license agreement without our prior
written consent, except to a subsidiary or affiliate of Merant or an acquiror of
all or substantially all of the assets of the Enterprise division sold to Merant
under the definitive agreement.
Taxation
We will recognize taxable income from the sale of assets set forth in
the definitive agreement. We currently are losing money and have net operating
loss carryforwards available. We have not yet determined what income tax
consequences will arise from the transaction.
Terms of the Software License Agreement
The terms of the option and license agreement provide that Merant's
option to acquire the Enterprise division would expire on January 5, 2001, if a
definitive agreement for the purchase of the Enterprise division had not been
signed by that date, or by a later date agreed upon by both companies. In
connection with the option agreement, we agreed to enter into a software license
agreement on the following terms if Merant does not complete the acquisition of
the Enterprise division:
License Grant
We granted to Merant the following licenses:
o A license to use, copy, market, promote, distribute and sublicense
NetObjects Collage and any upgrades and new versions, or the
software products, in object code format only to end users and
distributors.
o A license to use a reasonable number of copies of NetObjects Collage
in object code format only for demonstration, maintenance, support
and training purposes.
o A license to use, modify and prepare derivative works of the source
code of NetObjects Collage solely to customize and integrate the
software products into Merant's software products.
o A license to use identified trademarks to identify the software
products for Merant's marketing, promotion and distribution of the
software products.
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Royalties
Merant will pay us a royalty of $15,000 per copy of the software
products made or distributed by or for Merant under the software license
agreement. The $4 million payment under the option agreement will be credited
against royalty amounts otherwise due.
Warranties and Indemnification
We will make warranties to Merant with respect to the software
products. If the software products breach the warranties, we have the option to
repair or replace the software products so that they conform to the
documentation, or to return the royalty payment paid for the defective products.
Merant will have no other remedy for breach of warranty except as described in
the prior sentence.
In addition, we agreed to indemnify Merant for any claim of
infringement by any software products of certain third-party intellectual
property rights. If the software products become subject to an infringement
claim, we have the option to obtain a license to continue using the software
products, replace or modify the software products to make them non-infringing or
terminate the software license agreement and refund the royalties and license
fees paid by Merant under the agreement.
Term and Termination
The software license agreement would have an initial term through
December 31, 2003, but Merant can renew the software license agreement annually
thereafter by providing us with notice of renewal within 60 days of the end of
each term. We can terminate the license agreement and the licenses on 45 days
notice if Merant defaults. In addition, if the sale of the Enterprise Division
does not occur and the definitive agreement is terminated, we can elect to
refund the license fee and terminate the agreement.
Maintenance and Support
We will provide Merant will Level 3 maintenance service at no
additional cost to Merant. In addition, at Merant's request, we will assist in
the customization and integration of the software products into Merant's
software products at reasonable rates.
Source Code Escrow
We agreed to deposit the source code for the software products with an
escrow agent in an arrangement substantially equivalent to the escrow described
under "Terms of the License Agreement" above. If Merant receives the source code
because of our bankruptcy or ceasing business, the royalty will be reduced to
$10,000 per copy.
15
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth information regarding the beneficial ownership of
the common stock as of January 2, 2001 for (a) each person known to us to own
beneficially more than 5% of our common stock, (b) each of our directors, (c)
the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers other than the CEO who were serving as executive
officers of the Company as of September 30, 2000 and (d) all executive officers
and directors as a group. Beneficial ownership is determined in accordance with
rules of the Securities and Exchange Commission, and includes shares over which
the beneficial owner exercises voting or investment power. Shares of common
stock subject to options or warrants currently exercisable or exercisable within
60 days of January 2, 2001 are deemed outstanding for the purpose of computing
the percentage ownership of the person holding the options or warrants, but are
not deemed outstanding for the purpose of computing the percentage ownership of
any other person. Except as otherwise indicated, and subject to community
property laws where applicable, we believe, based on information provided by
these persons, that the persons named in the table below have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them. Unless otherwise indicated, the address of all
persons listed below is c/o NetObjects, Inc., 301 Galveston Drive, Redwood City,
CA 94062.
<CAPTION>
Shares Beneficially Owned (1)
-----------------------------
Name of Beneficial Owner Number Percent
------------------------ ------ -------
<S> <C> <C>
International Business Machines Corporation (2) 15,542,050 48.5%
New Orchard Road
Armonk, NY 10504
Current Directors:
Samir Arora (3) 2,137,779 6.6%
Robert G. Anderegg -- --
Lee A. Dayton -- --
Blake Modersitzki(4) 5,417 *
Michael D. Zisman -- --
Named Executive Officers who are not Directors:
Russell F. Surmanek (5) 355,919 1.1%
Mark Patton (6) 342,881 1.1%
Jack Rotolo (7) 381,251 1.2%
Steven Mitgang (8) 198,794 *
All directors and executive offers as a group (9 persons) (9) 3,422,041 10.2%
---------------------------------------------------------------------------------------------------------------
16
<PAGE>
<FN>
* Represents beneficial ownership of less than 1% of the Company's common stock.
(1) The number of shares of common stock issued and outstanding on January 2,
2001 was 31,687,043. Warrants are assumed to be exercised in full
notwithstanding the warrant holders' right to exercise the warrant on a
"net" basis by surrendering shares of common stock having a value equal to
the warrant exercise price upon exercise of the warrant. The persons and
entities named in the table have sole voting and dispositive power with
respect to all shares shown as beneficially owned by them, except as
described below.
(2) Includes warrants to purchase 253,195 shares of common stock at
approximately $6.68 per share that are exercisable on a net basis and
expire on various dates in 2003 and 2004, and warrants to purchase 83,333
shares of common stock at $10.80 per share that are exercisable on a net
basis and expire in December 2003.
(3) Includes options held by Mr. Arora to purchase 656,424 shares of common
stock that are exercisable within 60 days of January 2, 2001. Also includes
299,457 shares of common stock owned by Information Capital LLC, wholly
owned by Mr. Arora, and 362,129 shares of common stock held by Rae
Technology II LLC, of which he is President and owns a majority of the
equity interests. Mr. Arora exercises shared voting and dispositive power
over the shares held by Rae Technology II LLC, but disclaims beneficial
ownership of those shares except to the extent of his pecuniary interest
therein.
(4) Represents options held by Mr. Modersitzki to purchase 5,417 shares of
common stock that are exercisable within 60 days of January 2, 2001.
(5) Includes options held by Mr. Surmanek to purchase 353,056 shares of common
stock that are exercisable within 60 days of January 2, 2001.
(6) Includes options held by Mr. Patton to purchase 269,523 shares of common
stock that are exercisable within 60 days of January 2, 2001.
(7) Includes options held by Mr. Rotolo to purchase 370,958 shares of common
stock that are exercisable within 60 days of January 2, 2001.
(8) Includes options held by Mr. Mitgang to purchase 190,647 shares of common
stock that are exercisable within 60 days of January 2, 2001.
(9) Includes options and warrants to purchase 1,846,025 shares of common stock
that are exercisable within 60 days of January 2, 2001.
</FN>
</TABLE>
17
<PAGE>
COMPANY CONTACT INFORMATION
All inquiries regarding the Company should be addressed to the
Company's principal executive offices: NetObjects, Inc., 301 Galveston Drive,
Redwood City, California 94063, attention: President; telephone (650) 482-3200.
By Order of the Board of Directors:
Samir Arora
Chairman
January __, 2001
18
