<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
OPEN MARKET, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided 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:
________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
________________________________________________________________________
(3) Filing Party:
________________________________________________________________________
(4) Date Filed:
________________________________________________________________________
<PAGE>
OPEN MARKET, INC.
245 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of Open
Market, Inc., a Delaware corporation (the "Corporation"), will be held on
Wednesday, May 21, 1997 at 10:00 a.m. at the offices of Hale and Dorr LLP, 60
State Street, Boston, Massachusetts (the "Meeting") for the purpose of
considering and voting upon the following matters:
1. To elect three Class I Directors for the ensuing three years and one
Class II Director for the ensuing year;
2. To approve amendments to the Corporation's 1994 Stock Incentive Plan,
as set forth in the accompanying Proxy Statement under "Approval of
Amendments to 1994 Stock Incentive Plan;
3. To ratify the selection of Arthur Andersen LLP as the Corporation's
independent public accountants for the current year; and
4. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
The Board of Directors has fixed the close of business on March 28, 1997 as
the record date for the determination of stockholders entitled to notice of
and to vote at the Meeting and at any adjournments thereof. The list of the
Corporation's stockholders entitled to vote at the Meeting will be available
for examination by any stockholder, for any purpose germane to the Meeting,
during ordinary business hours for ten days prior to the Meeting at the
principal executive offices of the Corporation, 245 First Street, Cambridge,
Massachusetts 02142, and at the place of the Meeting. A copy of the
Corporation's Annual Report to Stockholders for the year ended December 31,
1996, which contains consolidated financial statements and other information
of interest to stockholders, accompanies this Notice of Meeting and the
enclosed Proxy Statement.
By Order of the Board of Directors,
/s/ Regina O. Sommer
Regina O. Sommer, Secretary
April 10, 1997
Cambridge, Massachusetts
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ACCOMPANYING ENVELOPE IN
ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF
THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE>
OPEN MARKET, INC.
245 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Open Market, Inc. (the "Corporation") for
use at the Annual Meeting of Stockholders to be held on Wednesday, May 21,
1997 at 10:00 a.m. at the offices of Hale and Dorr LLP, 60 State Street,
Boston, Massachusetts 02109 and at any adjournment thereof (the "Meeting").
All proxies will be voted in accordance with the instructions of the
stockholder. If no choice is specified, the proxies will be voted in favor of
the matters set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before its exercise by delivery of a
written revocation or a subsequently dated proxy to the Secretary of the
Corporation or by voting in person at the Meeting. Attendance at the Meeting
will not itself be deemed to revoke a Proxy unless the stockholder gives
affirmative notice at the Meeting that the stockholder intends to revoke the
Proxy and vote in person.
On March 28, 1997, the record date for determination of stockholders
entitled to vote at the Meeting, there were outstanding and entitled to vote
an aggregate of 30,685,166 shares of Common Stock of the Corporation, $.001
par value per share (the "Common Stock"). Each share entitles the record
holder to one vote on each of the matters to be voted upon at the Meeting.
THE NOTICE OF MEETING, THIS PROXY STATEMENT, THE ENCLOSED PROXY AND THE
CORPORATION'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31,
1996 ARE BEING MAILED TO STOCKHOLDERS ON OR ABOUT APRIL 10, 1997. THE
CORPORATION WILL, UPON WRITTEN REQUEST OF ANY STOCKHOLDER, FURNISH WITHOUT
CHARGE A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WITHOUT
EXHIBITS. PLEASE ADDRESS ALL SUCH REQUESTS TO THE CORPORATION, ATTENTION OF
INVESTOR RELATIONS, 245 FIRST STREET, CAMBRIDGE, MASSACHUSETTS 02142. EXHIBITS
WILL BE PROVIDED UPON WRITTEN REQUEST AND PAYMENT OF AN APPROPRIATE PROCESSING
FEE.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 31, 1997
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known to the Corporation to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) the directors and director nominees
of the Corporation, (iii) the Chief Executive Officer and the other executive
officers listed in the Summary Compensation Table below (the "Named Executive
Officers"), and (iv) the directors and executive officers of the Corporation
as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP(2)
NAME AND ADDRESS(1) ---------------------------------
OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
------------------- ---------------- ----------------
<S> <C> <C>
5% STOCKHOLDERS
Advance Publications, Inc.................. 1,715,000 6.0%
950 Fingerboard Road
Staten Island, NY 10305
Greylock Equity Limited Partnership........ 4,904,600 17.1
c/o Greylock Management Corp.
One Federal Street
Boston, MA 02110
Tribune Company............................ 1,815,000 6.3
435 N. Michigan Avenue
Chicago, IL 60611
DIRECTORS
David K. Gifford, Ph.D.(3)................. 3,600,000 12.5
Shikhar Ghosh(4)........................... 3,600,000 12.5
Gulrez Arshad(5)........................... 1,865,135 6.5
Gary B. Eichhorn(6)........................ 975,005 3.3
Bruce D. Judson............................ -- *
William S. Kaiser(7)....................... 4,904,600 17.1
Brian J. Knez(8)........................... 1,000,000 3.5
Eugene F. Quinn............................ 500 *
Ray Stata.................................. 111,111 *
OTHER EXECUTIVE OFFICERS
Daniel E. Ross(9).......................... 73,112 *
Robert C. Weinberger(10)................... 270,000 1.0
Peter Y. Woon, Ph.D. (11).................. 16,537 *
All directors and executive officers
as a group (16 persons)(12)............... 17,106,290 57.1%
</TABLE>
- --------
* Less than 1%
(1) The address of each person in the table other than Advance Publications,
Inc., Greylock Equity Limited Partnership and Tribune Company is c/o Open
Market, Inc. 245 First Street, Cambridge, Massachusetts 02142.
(2) The number of shares beneficially owned by each director and executive
officer is determined under rules promulgated by the Securities and
Exchange Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or
shared voting power or investment power and also any shares which
2
<PAGE>
the individual has the right to acquire within 60 days of January 31, 1997
through the exercise of any stock option or other right. The inclusion
herein of such shares, however, does not constitute an admission that the
named stockholder is a direct or indirect beneficial owner of such shares.
Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares such power with his
spouse) with respect to all shares of capital stock listed as owned by such
person or entity.
(3) Includes 150,000 shares of Common Stock issuable to Dr. Gifford within 60
days of January 31, 1997 upon exercise of stock options. Excludes 600,000
shares beneficially owned by a trust for the benefit of Dr. Gifford's
minor children for which Dr. Gifford disclaims beneficial ownership.
(4) Includes 150,000 shares of Common Stock issuable to Mr. Ghosh within 60
days of January 31, 1997 upon exercise of stock options. Excludes 600,000
shares beneficially owned by a trust for the benefit of Mr. Ghosh's minor
children for which Mr. Ghosh disclaims beneficial ownership.
(5) Includes 150,000 shares of Common Stock held by the Gulrez Arshad 1995
Trust; 142,200 shares of Common Stock held in two revocable trusts of
which Mr. Arshad's children are beneficiaries; 1,091,935 shares of Common
Stock over which Mr. Arshad has shared investment and voting power and
878,635 shares of Common Stock held by N&A 1996 LLC. Mr. Arshad has
shared investment and voting power with respect to the shares held by N&A
1996 LLC. Mr. Arshad, who may be deemed to be the beneficial owner of
such shares, disclaims beneficial ownership of such shares, except to the
extent of his pecuniary interest in such shares. Excludes 71,100 shares
of Common Stock held in an irrevocable trust of which Mr. Arshad's child
is a beneficiary as to which Mr. Arshad disclaims beneficial ownership.
(6) Includes 835,005 shares of Common Stock issuable to Mr. Eichhorn within
60 days of January 31, 1997 upon exercise of stock options and 140,000
shares of Common Stock held by Mr. Eichhorn's spouse.
(7) Includes 4,904,600 shares of Common Stock held by Greylock Equity Limited
Partnership ("Greylock"). Mr. Kaiser is a general partner of Greylock and
may be deemed to share voting and investment power with respect to such
shares. Mr. Kaiser disclaims beneficial ownership of such shares, except
to the extent of his pecuniary interest in such shares.
(8) Mr. Knez is a director nominee of the Corporation. Represents 1,000,000
shares of Common Stock held by KO Corporation, a subsidiary of Harcourt
General, Inc. Mr. Knez is a director and officer of, and member of a
group holding more than a 10% interest in, Harcourt General, Inc. Mr.
Knez disclaims beneficial ownership of such shares, except to the extent
of his pecuniary interest in such shares.
(9) Includes 43,312 shares of Common Stock issuable to Mr. Ross within 60
days of January 31, 1997 upon exercise of stock options and 800 shares of
Common Stock held by Mr. Ross' children.
(10) Includes 195,000 shares of Common Stock issuable to Mr. Weinberger within
60 days of January 31, 1997 upon the exercise of stock options and 3,300
shares of Common Stock held by Mr. Weinberger's children.
(11) Includes 15,937 shares of Common Stock issuable to Mr. Woon within 60
days of January 31, 1997 upon exercise of stock options.
(12) Includes 8,167,370 shares of Common Stock held by entities affiliated
with certain directors as described in Notes 5, 7 and 8 and 1,234,597
shares of Common Stock issuable to all directors and executive officers
as a group which are exercisable within 60 days of January 31, 1997 upon
exercise of stock options.
VOTES REQUIRED
The holders of a majority of the shares of Common Stock issued and
outstanding and entitled to vote at the Meeting shall constitute a quorum for
the transaction of business at the Meeting. Shares of Common Stock present in
person or represented by proxy (including shares which abstain or do not vote
with respect to one or more of the matters presented for stockholder approval)
will be counted for purposes of determining whether a quorum exists at the
Meeting.
3
<PAGE>
The affirmative vote of the holders of a plurality of the votes cast by the
stockholders entitled to vote at the Meeting is required for the election of
directors. The affirmative vote of the holders of a majority of the shares of
Common Stock present or represented by proxy and voting on the matter is
required for the ratification and approval of the amendments to the
Corporation's 1994 Stock Incentive Plan and the ratification of the
appointment of the Corporation's independent accountants.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that
they do not have discretionary authority to vote such shares as to a
particular matter, will not be counted as votes in favor of such matter, and
will also not be counted as votes cast or shares voting on such matter.
Accordingly, abstentions and "broker non-votes" will have no effect on the
voting on a matter that requires the affirmative vote of a certain percentage
of the votes cast or shares voting on a matter.
4
<PAGE>
ELECTION OF DIRECTORS
The Corporation has a classified Board of Directors consisting of three
Class I Directors, two Class II Directors, and three Class III Directors. The
Class I, Class II and Class III Directors will serve until the annual meeting
of stockholders to be held in 1997, 1998 and 1999, respectively, and until
their respective successors are elected and qualified. At each annual meeting
of stockholders, directors are elected for a full term of three years to
succeed those whose terms are expiring.
The persons named in the enclosed proxy will vote to elect, as Class I
Directors, Gary B. Eichhorn, Ray Stata and William S. Kaiser, the three Class
I director nominees named below, unless the proxy is marked otherwise. Messrs.
Eichhorn, Stata and Kaiser are currently directors of the Corporation.
The persons named in the enclosed proxy will also vote to elect, as a Class
II Director, Brian J. Knez, the Class II director nominee named below, unless
the proxy is marked otherwise. Mr. Knez currently is not a director of the
Corporation. Mr. Knez has been nominated to fill the vacancy created by Robert
J. Tarr, Jr. who resigned in December 1996.
Each Class I Director will be elected to hold office until the 2000 annual
meeting of stockholders and until his successor is elected and qualified. The
Class II Director will be elected to hold office until the 1998 annual meeting
of stockholders and until his successor is elected and qualified. Each of the
nominees has indicated his willingness to serve, if elected; however, if any
nominee should be unable to serve, the person acting under the proxy may vote
the proxy for a substitute nominee. The Board of Directors has no reason to
believe that any of the nominees will be unable to serve if elected.
For each member of the Board of Directors, including those who are nominees
for election as Class I Directors, and the nominee for election as a Class II
Director, there follows information given by each concerning his principal
occupation and business experience for the past five years, the names of other
publicly held companies of which he serves as a director and his age and
length of service as a director of the Corporation.
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION, OTHER BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS AND OTHER DIRECTORSHIPS
---- --- -------- -----------------------------------------------
NOMINEES FOR TERMS EXPIRING IN 2000 (CLASS I DIRECTORS)
<C> <C> <C> <S>
Gary B. Eichhorn............ 42 1995 Mr. Eichhorn joined the Corporation as its
President and Chief Executive Officer in
December 1995. He has served as a director
of the Corporation since December 1995.
From September 1991 to November 1995, Mr.
Eichhorn was employed at Hewlett-Packard
Company, a computer company, and served in
a variety of positions, including Vice
President and General Manager of
Workstation Systems Group and, most
recently, as Vice President and General
Manager of the Medical Products Group.
From 1975 to 1991, Mr. Eichhorn held
various sales and management positions at
Digital Equipment Corporation.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION, OTHER BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS AND OTHER DIRECTORSHIPS
---- --- -------- -----------------------------------------------
<C> <C> <C> <S>
William S. Kaiser........... 41 1994 Mr. Kaiser has served as a director of the
Corporation since June 1994. Mr. Kaiser has
been employed by Greylock Management
Corporation, a venture capital firm, since May
1986 and has been a general partner of
Greylock Limited Partnerships since January
1988. Mr. Kaiser is a director of Avid
Technology, Inc., Spyglass, Inc. and Raptor
Systems, Inc.
Ray Stata................... 62 1996 Mr. Stata has served as a director of the
Corporation since May 1996. Since 1973, Mr.
Stata has served as the Chairman of the Board
of Directors of Analog Devices, Inc., a
computer company. Mr. Stata served as Chief
Executive Officer of Analog Devices, Inc. from
1973 to 1996, and as the President of Analog
Devices, Inc. from 1971 to 1991. Mr. Stata is
a director of INSO Corp.
NOMINEE FOR TERM EXPIRING IN 1998 (CLASS II DIRECTOR)
Brian J. Knez............... 39 -- Mr. Knez currently is not a director of the
Corporation. Since May 1989, Mr. Knez has
served in a variety of positions with Harcourt
General, Inc., a publisher and specialty
retailer ("HGI"). Since January 1997, he has
served as President and Co-Chief Operating
Officer of HGI and, since May 1995, he has
served as President and Chief Executive
Officer of Harcourt Brace & Company, a
subsidiary of HGI. From May 1989 to October
1991, he served as Assistant to the President
of General Cinema Corporation. From November
1991 to April 1993, he served as Group Vice
President, Science, Technical, Medical and
Professional Publishers of Harcourt Brace &
Company. From May 1993 to April 1995, he
served as President, Science, Technical,
Medical and Professional Publishers of
Harcourt Brace & Company. From 1991 to 1996,
he served as Vice President of HGI. In 1996,
he served as Group Vice President of HGI. Mr.
Knez is a director of HGI.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION, OTHER BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS AND OTHER DIRECTORSHIPS
---- --- -------- -----------------------------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 1998 (CLASS II DIRECTORS)
<C> <C> <C> <S>
Bruce D. Judson............. 38 1995 Mr. Judson has served as a director of the
Corporation since August 1995. Since September
1993, Mr. Judson has served as General Manager
of new media activities of Time Inc. From
March 1989 to September 1993, Mr. Judson
served in a variety of marketing positions at
Time Inc., including Director of Marketing for
the magazine division of Time Inc.
Gulrez Arshad............... 50 1994 Mr. Arshad has served as a director of the
Corporation since June 1994. Since January
1990, Mr. Arshad has served as Chairman of
Nuland & Arshad, an investment management
form.
DIRECTORS WHOSE TERMS EXPIRE IN 1999 (CLASS III DIRECTORS)
David K. Gifford............ 42 1993 Dr. Gifford, a founder of the Corporation, has
served as a director of the Corporation since
December 1993 and also served as President of
the Corporation from December 1993 to June
1994. Dr. Gifford became the Vice Chairman of
the Board of Directors in December 1995. Since
July 1982, Dr. Gifford has served as a
Professor at the Massachusetts Institute of
Technology.
Shikhar Ghosh............... 39 1994 Mr. Ghosh, a founder of the Corporation, has
served as a director of the Corporation since
June 1994. From June 1994 to December 1995,
Mr. Ghosh served as the Corporation's
President and Chief Executive Officer. In
December 1995, Mr. Ghosh became the Chairman
of the Board of Directors. From 1992 to 1994,
Mr. Ghosh served as Vice President of EDS
Communications Industry Group, a systems
integration corporation, and from 1988 to
1992, Mr. Ghosh served as President and Chief
Executive Officer of EDS Personal
Communications Corporation, a provider of
information services to the personal
communications industry.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION, OTHER BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS AND OTHER DIRECTORSHIPS
---- --- -------- -----------------------------------------------
<C> <C> <C> <S>
Eugene F. Quinn............. 43 1995 Mr. Quinn has served as a director of the
Corporation since April 1995. In March 1997,
Mr. Quinn was named Senior Vice President of
Online and Interactive Services of MTV
Networks, a division of Viacom, Inc. From
September 1994 through February 1997,
Mr. Quinn was General Manager of Tribune
Interactive Network Services of Tribune
Corporation, a publishing company. From
September 1991 to September 1994, Mr. Quinn
served as General Manager of Chicago Online,
an interactive service of The Chicago Tribune
Company. Mr. Quinn is a director of Checkfree
Corporation.
</TABLE>
For information relating to shares of Common Stock owned by each of the
directors, see "Security Ownership of Certain Beneficial Owners and
Management."
BOARD AND COMMITTEE MEETINGS
The Board of Directors met 14 times (including by telephone conference and
by written consent) during 1996. All directors attended at least 75% of the
meetings of the Board of Directors and of the committees on which they served.
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees
of and consultants to the Corporation, establishes and approves salaries and
incentive compensation for certain senior officers and employees and
administers and grants stock options pursuant to the Corporation's stock
option plans. The Compensation Committee held two meetings during 1996. The
members of the Compensation Committee are Messrs. Arshad and Kaiser.
The Board of Directors has an Audit Committee, which reviews the results and
scope of the audit and other services provided by the Corporation's
independent public accountants. The Audit Committee held two meetings during
1996. The members of the Audit Committee are Messrs. Judson, Quinn and Stata.
The Corporation has no nominating committee of the Board of Directors.
DIRECTOR COMPENSATION
All of the directors are reimbursed for their expenses incurred in
connection with their attendance at Board and committee meetings. Employees
and founders of the Corporation are not entitled to cash compensation in their
capacities as directors.
Outside directors are entitled to participate in the Corporation's 1996
Director Option Plan (the "Director Plan") which provides for automatic grants
of non-statutory stock options to directors who are not employees or founders
of the Corporation or any subsidiary of the Corporation (an "Eligible
Director"). The Director Plan
8
<PAGE>
provides for the grant of options to purchase that number of shares of Common
Stock determined by dividing $100,000 by the Option Exercise Price (as defined
below) to each Eligible Director who first becomes a member of the Board of
Directors after May 28, 1996. The Director Plan also provides for the grant of
options to purchase that number of shares of Common Stock determined by
dividing $30,000 by the Option Exercise Price to each Eligible Director on the
date of each Annual Meeting of Stockholders of the Corporation commencing with
this meeting. Each option vests in four equal annual installments beginning on
the date of grant. The exercisability of these options will be accelerated
upon the occurrence of changes in control. The Option Exercise Price of
options granted under the Director Plan will equal the lesser of (i) the last
reported sale price per share of Common Stock thereon on the date of grant (if
no such price is reported on such date, such price on the nearest preceding
date on which such a price is reported) or (ii) the average of the last
reported sales price per share of Common Stock as published in The Wall Street
Journal for a period of ten consecutive trading days prior to the date of
grant.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth the compensation for the fiscal years ended
December 31, 1995 and 1996 for the Corporation's Chief Executive Officer and
its four most highly compensated executive officers (other than the Chief
Executive Officer) whose total annual salary and bonus exceeded $100,000 in
each of the last two fiscal years (the Chief Executive Officer and such other
executive officers are hereinafter referred to as the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-
ANNUAL COMPENSATION TERM COMPENSATION
------------------- -----------------
AWARDS
-----------------
SECURITIES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS COMPENSATION
------------------ ---- ------------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Gary B. Eichhorn(1)..... 1996 $207,500 $600,000 130,000 --
President, Chief Exec-
utive 1995 11,538 500,000 1,275,000 --
Officer and Director
Daniel E. Ross(2)....... 1996 180,000 130,000 -- --
Vice President of
Sales 1995 7,615 -- 225,000 --
Shikhar Ghosh(3)........ 1996 155,000 -- -- --
Chairman of the Board 1995 140,000 -- 150,000 --
Peter Y. Woon(4)........ 1996 134,500 -- 30,000 $34,238
Vice President of En-
gineering 1995 5,000 -- 135,000 --
Robert C. Weinberg-
er(5).................. 1996 128,000 -- -- --
Vice President of Cor-
porate Marketing 1995 110,769 -- 300,000 --
</TABLE>
- --------
(1) Mr. Eichhorn joined the Corporation in December 1995. See "Employment
Agreement" below regarding bonus payments.
(2) Mr. Ross joined the Corporation in December 1995. Mr. Ross' bonus related
to commissions earned in 1996.
(3) Mr. Ghosh served as the President and Chief Executive Officer of the
Corporation until 1995.
(4) Mr. Woon joined the Corporation in December 1995. Mr. Woon's other
compensation represents payment of certain relocation costs.
(5) Mr. Weinberger joined the Corporation in January 1995.
9
<PAGE>
Other Executive Officers.
Joanne C. Conrad, age 44, joined the Corporation in December 1995 as its
Vice President of Human Resources. From March l994 to December 1995, Ms.
Conrad served as a principal of Conrad & Associates, a human resources
consulting company. From February 1988 to February 1994, Ms. Conrad served as
Director of Human Resources and Vice President of Employee Relations of Olsten
Kimberly Quality Care, a healthcare services provider.
Gail Goodman, age 36, joined the Corporation in May 1996 as Vice President
of Product and Industry Marketing. From January 1996 to May 1996, Ms. Goodman
served as Vice President of Marketing at Centra Software. From November 1994
to January 1996, Ms. Goodman served as Vice President of Enterprise Marketing
at Progress Software Corporation, a supplier of application technology. From
March 1993 to November 1994, Ms. Goodman served as Director of Product
Management at Dun & Bradstreet Software, an applications development software
company ("D&B"), and, from May 1991 to March 1993, she served as Director of
Alliances and Acquisitions of D&B.
Thomas A. Nephew, age 45, joined the Corporation in August 1995 as its Vice
President of Service and Operations. From March 1994 to August 1995, Mr.
Nephew served as Director of Technical Services of Progress Software
Corporation, a database software company, and from July 1993 to March 1994,
Mr. Nephew served as Director of Information Services of Phoenix Technologies,
Ltd., a software company. From 1989 to 1993, Mr. Nephew served as the Director
of MIS and more recently as the Director of Customer Service of Proteon, Inc.,
a networking company.
Daniel E. Ross, age 43, joined the Corporation in December 1995 as its Vice
President of Sales. From June 1994 to December 1995, Mr. Ross served as Vice
President and General Manager, Americas of PictureTel Corporation, a
manufacturer of video teleconferencing equipment. From 1978 to June 1994, Mr.
Ross served in various sales positions at Digital Equipment Corporation, most
recently as Director of United States PC Sales.
Regina O. Sommer, age 39, joined the Corporation in January 1995 as its
Chief Financial Officer. In March 1997, Ms. Sommer became a Senior Vice
President of the Corporation. From July 1993 to May 1994, Ms. Sommer served as
Vice President-Finance of Olsten Corporation, a temporary and home healthcare
services provider, and from July 1989 to July 1993, she served as Vice
President of Taxes at Lifetime Corporation, a home healthcare services
provider.
Lawrence C. Stewart, age 41, joined the Corporation in April 1994 as its
Chief Technology Officer. From March 1984 to April 1994, Dr. Stewart held
various engineering positions at Digital Equipment Corporation, most recently
as a Senior Consultant Engineer.
Robert C. Weinberger, age 44, joined the Corporation in January 1995 as Vice
President of Corporate Marketing. From May 1989 to January 1995, Mr.
Weinberger served as a marketing manager of Hewlett-Packard Corporation.
Peter Y. Woon, age 62, joined the Corporation in December 1995 as Vice
President of Engineering. From July 1994 to December 1995, Dr. Woon was
engaged as a founder of a telecommunications consulting company. From January
1991 to July 1994, Dr. Woon served as the Senior Vice President of Engineering
at Centigram Communications Corp., a communications technology company.
Employment Agreement
The Corporation has an employment agreement with Mr. Eichhorn under which
Mr. Eichhorn serves as the President and Chief Executive Officer of the
Corporation. The agreement provides for (i) a signing bonus of
10
<PAGE>
$1,000,000; (ii) an initial annual salary of $200,000; (iii) an option to
purchase 1,275,000 shares of the Corporation's Common Stock at an exercise
price of $.25 per share; and (iv) an annual bonus in the amount of $100,000.
The Corporation paid Mr. Eichhorn the signing bonus in two installments of
$500,000 each in November 1995 and February 1996. The stock option is
exercisable as follows: (i) 125,000 shares from and after December 7, 1995,
(ii) 64,063 shares from and after March 7, 1996, (iii) 125,000 shares from and
after December 7, 1996, (iv) 510,937 shares from and after May 28, 1996 and
(v) the remaining 450,000 shares in fifteen equal quarterly installments
commencing on June 7, 1996. The option is subject to earlier exercise in
certain circumstances, and up to 125,000 shares issuable upon exercise of the
option are subject to repurchase by the Corporation under certain
circumstances. The Corporation has the right to terminate the employment
agreement with Mr. Eichhorn at any time. In the event the Corporation
terminates Mr. Eichhorn's employment agreement other than for cause or total
and permanent disability or Mr. Eichhorn terminates his employment agreement
for good reason, Mr. Eichhorn is entitled to receive a severance payment equal
to his annual base salary in effect on the termination date plus his annual
bonus for the employment year which ended immediately preceding such
termination date; provided, however, if Mr. Eichhorn terminates his employment
agreement by reason of a change of control of the Corporation such severance
payments will only be required to be made if Mr. Eichhorn terminates his
employment within one year of the date on which the change of control occurs.
Option Grants Table
The following table sets forth certain information concerning grants of
stock options made during the year ended December 31, 1996 to each of the
Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------
PERCENTAGE POTENTIAL REALIZABLE VALUE
NUMBER OF OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS EXERCISE OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PER EXPIRATION ---------------------------
NAME GRANTED FISCAL YEAR SHARE DATE (1) 5% 10%
---- ---------- ------------ -------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Gary B. Eichhorn........ 130,000 8.85% $10.00 3/16/06 $ 817,557 $ 2,071,861
Shikhar Ghosh........... -- -- -- -- -- --
Daniel E. Ross.......... -- -- -- -- -- --
Robert C. Weinberger.... -- -- -- -- -- --
Peter Y. Woon........... 30,000 2.04 10.00 3/16/06 188,667 478,121
</TABLE>
- --------
(1) The expiration date of an option is the tenth anniversary of the date on
which the option was originally granted. Shares vest quarterly over four
years.
(2) The amounts shown on this table represent hypothetical gains that could
be achieved for the respective options if exercised at the end of the
option term. These gains are based on assumed rates of stock appreciation
of 5% and 10%, compounded annually from the date the respective options
were granted to their expiration date. The gains shown are net of the
option exercise price, but do not include deductions for taxes or other
expenses associated with the exercise. Actual gains, if any, on stock
option exercises will depend on the future performance of the Common
Stock, the optionholders' continued employment through the option period,
and the date on which the options are exercised.
11
<PAGE>
Aggregated Option Exercises and Year-End Option Table
The following table sets forth certain information concerning each exercise
of a stock option during the year ended December 31, 1996 by each of the Named
Executive Officers and the number and value of unexercised options held by
each of the Named Executive Officers on December 31, 1996:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISABLE
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END(1)
------------------------------ -------------------------
NUMBER OF
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary B. Eichhorn........ 15,000 $ 230,625 799,381 465,619 $10,354,141 $5,139,607
Daniel E. Ross.......... 24,000 282,000 32,250 168,750 387,000 2,025,000
Shikhar Ghosh........... -- -- 150,000 -- 1,997,504 --
Peter Y. Woon........... -- -- 39,375 125,625 424,687 1,300,312
Robert C. Weinberger.... 105,000 1,351,247 195,000 -- 2,599,993 --
</TABLE>
- --------
(1) Based on the fair market value of the Common Stock as of December 31, 1996
($13.50 per share), less the option exercise price, multiplied by the
number of shares underlying the options.
Report of the Compensation Committee on Executive Compensation
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Corporation's Board of Directors (the
"Committee") establishes compensation policies for the Corporation's executive
officers, and determines awards under the Corporation's stock-based
compensation plans. Each member of the Committee is a non-employee director
within the meaning of Rule 16b-3 and an outside director within the meaning of
Section 162(m) of the Internal Revenue Code. This report summarizes the
Corporation's compensation policies for 1996 and their effect on the Chief
Executive Officer and the four executive officers other than the Chief
Executive Officer who, for 1996, were the Corporation's most highly paid
executives (the "Named Executive Officers").
COMPENSATION POLICIES
The Compensation Committee's executive compensation policies are designed to
provide compensation opportunities that are approximately equivalent to those
for similar executives in comparable peer companies, to reward executives
based on the Corporation's performance, to recognize individual performance
and responsibility, to underscore the importance of shareholder value
creation, and to assist the Corporation in attracting and retaining qualified
executives. The principal elements of compensation employed by the Committee
to meet these objectives are base salaries, cash incentive opportunities, and
long term stock-based incentives. All compensation decisions are determined
following a detailed review of many factors that the Committee believes are
relevant, including external competitive data, the Corporation's achievements
over the past year, the individual's contributions to the Corporation's
success, any significant changes in role or responsibility, and the internal
equity of pay relationships.
12
<PAGE>
Total compensation opportunities provided to the Named Executive Officers
are designed to approximate median levels of competitive compensation for
executives with corresponding responsibilities in comparably sized peer firms.
Total compensation opportunities for the Named Executive Officers are adjusted
over time as necessary to meet this objective. Actual compensation earned by
each of the Named Executive Officers will vary with the success of the
Corporation, their individual contributions to that success, and the
shareholder value created.
The competitiveness of the Corporation's total compensation program is
regularly assessed with the assistance of the Committee's outside compensation
consultant. Data for external comparisons is drawn from a number of sources,
including the publicly available disclosures of selected companies of
comparable size and similar products, and national compensation surveys of
information technology companies of similar size. The majority of the
companies employed for this assessment are represented in the peer index
employed in the Performance Graph included in this Proxy Statement.
BASE SALARY
Base salaries for all Named Executive Officers, including the Chief
Executive Officer, are reviewed by the Committee on an annual basis. In
determining appropriate base salaries, the Committee considers external
competitiveness, the roles and responsibilities of the individual, the
internal equity of pay relationships, and the contributions of the individuals
to the Corporation's success.
CASH INCENTIVE OPPORTUNITIES
The Corporation believes that executives should be rewarded for their
contributions to the success of the business and, as such, implemented a cash
incentive plan (the "Plan") for the fourth quarter of 1996 and for 1997.
Incentives under the Plan are linked to the achievement of predetermined
quarterly and annual financial performance objectives. The Compensation
Committee assigns measures in reflection of the Corporation's key objectives.
All Named Executive Officers, including the Chief Executive Officer, are
eligible to participant in the Plan.
LONG TERM STOCK-BASED INCENTIVES
The Committee also believes that it is essential to link executive and
shareholder interests. As such, from time to time the Committee grants stock
options to Named Executive Officers and other employees under the
Corporation's 1994 Stock Incentive Plan. In determining awards, the Committee
considers competitive norms, the contributions of the individual to the
success of the Corporation, and the number and terms of unvested options held
by such individual. All Named Executive Officers, including the Chief
Executive Officer, as well as all other employees of the Corporation, are
eligible to participate in this program.
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation over $1,000,000 paid to its
Named Executive Officers. Qualifying performance-based compensation will not
be subject to the deduction limit if certain requirements are met. The
Committee has recommended and the Board has approved a proposal to
shareholders to limit the number of shares subject to stock options which may
be granted to Corporation employees in a manner that complies with the
performance-based requirements of Section 162(m). The Committee will continue
to monitor the impact of Section 162(m) on the Corporation.
The Committee's policy regarding the compensation of other executive
officers of the firm is consistent with the foregoing approach.
13
<PAGE>
1996 COMPENSATION
Base salaries paid in 1996 reflect the Committee's review of external
competitiveness, the roles and responsibilities of the individuals, the
internal equity of pay relationships, the contractual obligation of the
Corporation to the Chief Executive Officer, and the contributions of the
individual.
Following its 1996 review of compensation, the Committee determined that
base salary levels for certain executive officers should be increased to
better reflect competitive norms. Effective October 1996, the Committee
increased the base salary of the Chief Executive Officer to $230,000.
No short term incentive bonuses were paid to the Named Executive Officers
for the fourth quarter of 1996 in conjunction with the Committee's assessment
of the Corporation's performance. The bonus paid to the Chief Executive
Officer was pursuant to a multi-year employment agreement entered into at the
time he commenced employment with the Corporation.
The Committee determined, based on an assessment of individual contribution
and the number and terms of unvested options held by such individual, that
Messrs. Eichhorn and Woon receive stock option awards for 1996.
COMPENSATION COMMITTEE
Gulrez Arshad
William S. Kaiser
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Corporation's Compensation Committee are Messrs.
Arshad and Kaiser. No executive officer of the Corporation has served as a
director or member of the compensation committee (or other
committee serving an equivalent function) of any other entity, whose executive
officers served as a director of or member of the Compensation Committee of
the Corporation.
CERTAIN TRANSACTIONS
Since January 1, 1996, the Corporation has entered into or engaged in the
following transactions with the following directors, officers and stockholders
who beneficially own more than 5% of the outstanding Common Stock of the
Corporation ("5% Stockholders"), and affiliates of such directors, officers
and 5% Stockholders:
On February 5, 1996, the Corporation loaned $1,500,000 to Dr. David K.
Gifford. The loan is non-recourse to Dr. Gifford, secured by a pledge of
375,000 shares of Common Stock owned by Dr. Gifford, bears interest at a rate
of 5.61% per annum and is due and payable on the earlier of November 1997 or
on the date of a liquidation event. A liquidation event will occur when Dr.
Gifford sells a sufficient number of shares of his Common Stock to repay the
principal and accrued interest on the loan.
In February 1996, the Corporation entered into a software license agreement
with Tribune Interactive Network Services ("Tribune"), a subsidiary of Tribune
Company which owns approximately 6.3% of the outstanding capital stock of the
Corporation, pursuant to which the Corporation granted to Tribune a
nonexclusive license to use certain of the Corporation's software and an
option to license certain additional components of such software, and provided
certain related services to Tribune. In February 1996, the Corporation and
Tribune entered into a services agreement pursuant to which the Corporation
agreed to provide certain start-up services with respect to the software
licensed under the software license agreement. Eugene F. Quinn, a
14
<PAGE>
director of the Corporation, served as the General Manager of Tribune
Interactive Network Services of Tribune Company from September 1994 through
February 1997. Under these agreements, the Corporation recognized an aggregate
of $567,674 in license and related service fees from Tribune during 1996.
In January 1995, the Corporation and Time Inc. New Media ("Time"), which
owns approximately 1.0% of the outstanding capital stock of the Corporation,
entered into a development and service agreement pursuant to which the Company
agreed to grant to Time a nonexclusive license to use certain of the
Corporation's software, as well as provide to Time certain related services.
In 1995, the Corporation received an aggregate of approximately $1,440,000 in
license and service fees from Time pursuant to the agreement, all of which was
deferred and a substantial portion of which was subject to certain acceptance
provisions. During 1996, the Corporation recognized $2,218,059 in license and
related service fees from Time under the agreement. Bruce D. Judson, a
director of the Corporation, also serves as a General Manager of Time Inc. New
Media.
In July 1996, the Corporation entered into a software license agreement with
Harcourt Brace & Company ("Harcourt"), a subsidiary of Harcourt General, Inc.
Pursuant to the agreement the Corporation granted to Harcourt a nonexclusive
license to use certain of the Corporation's software and provided certain
related services to Harcourt. Under these agreements, the Corporation
recognized an aggregate of $457,644 in license and related service fees from
Harcourt during 1996. Brian J. Knez, President and Co-Chief Operating Officer
of Harcourt General, Inc., is a director nominee of the Corporation.
For a description of certain employment and other arrangements between the
Corporation and its executive officers, see "Compensation of Executive
Officers" above. For a description of stock options granted to certain
directors of the Corporation, see "Director Compensation" above.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The Corporation believes that all executive officers, directors and holders
of 10% of the Corporation's Common Stock complied with all Section 16(a)
filing requirements, except that, in May 1996, each of Robert Abramson, Joanne
Conrad, Daniel Ross, Lawrence Stewart, Eugene Quinn and Peter Woon purchased
shares of Common Stock of the Corporation and did not file a Form 4 until July
1996.
15
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Common Stock of the Corporation between May 23, 1996 (the date the
Corporation's Common Stock commenced public trading) and December 31, 1996
with the cumulative total return of (i) the CRSP Total Return Index for the
Nasdaq Stock Market (U.S.) (the "Nasdaq Stock Market--US Index") and (ii) the
Hambrecht & Quist Growth Index, over the same period. This graph assumes the
investment of $100.00 on May 23, 1996 in the Corporation's Common Stock, the
Nasdaq Stock Market--US Index and the Hambrecht & Quist Growth Index, and
assumes any dividends are reinvested.
[GRAPH APPEARS HERE]
CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
OPEN NASDAQ
MARKET STOCK
INC. MARKET-US H&Q GROWTH
-------- --------- ----------
<S> <C> <C> <C>
05/23/96 $ 100 $ 100 $ 100
05/96 $ 176 $ 100 $ 97
06/96 $ 135 $ 95 $ 135
07/96 $ 97 $ 87 $ 72
08/96 $ 78 $ 91 $ 79
09/96 $ 81 $ 98 $ 89
10/96 $ 129 $ 97 $ 83
11/96 $ 79 $ 103 $ 83
12/96 $ 75 $ 103 $ 84
</TABLE>
<TABLE>
<CAPTION>
MAY 23, 1996 DECEMBER 31, 1996
------------ -----------------
<S> <C> <C>
OPEN MARKET, INC................................. $100.00 $ 75.00
NASDAQ STOCK MARKET--US INDEX.................... $100.00 $103.00
HAMBRECHT & QUIST GROWTH INDEX................... $100.00 $ 84.00
</TABLE>
16
<PAGE>
APPROVAL OF AMENDMENTS TO 1994 STOCK INCENTIVE PLAN
On February 5, 1997, the Board of Directors also voted, subject to
stockholder approval, to increase the number of shares of Common Stock
available for issuance under the 1994 Incentive Plan from 13,001,000 to
15,201,000 shares.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), enacted in 1993, generally disallows a tax deduction to public
companies for compensation over $1 million paid to the corporation's Chief
Executive Officer and four other most highly compensated executive officers.
Qualifying performance-based compensation is not subject to the deduction
limit if certain requirements are met. In particular, income recognized upon
the exercise of a stock option is not subject to the deduction limit if the
option was issued under a plan approved by stockholders that provides a limit
to the number of shares that may be issued under the plan to any individual.
Although the Corporation's 1994 Stock Incentive Plan (the "1994 Incentive
Plan") did not include a limit on the number of shares that may be issued to
any participant, options granted under it complied with Section 162(m)
pursuant to a transition rule implementing Section 162(m). The transition rule
expired at the time the plan was amended to increase the number of shares of
Common Stock available under the 1994 Incentive Plan. To comply with Section
162(m), the 1994 Incentive Plan must be amended to include a limit on the
number of shares that may be issued to any participant and the amendment and
the continuance of the 1994 Incentive Plan, as amended for the increase in the
number of shares of Common Stock and the per participant limit, must be
approved by stockholders. Accordingly, on February 5, 1997, the Board of
Directors voted, subject to stockholder approval, (i) to amend the 1994
Incentive Plan to comply with the Section 162(m) per participant limit and
(ii) to continue the 1994 Incentive Plan, as amended. The 1994 Incentive Plan,
as amended and continued, provides that the maximum number of shares of Common
Stock with respect to which any option may be granted to any participant shall
be 1,000,000 shares per calendar year. If the stockholders do not approve the
amendments, the Corporation will not grant any further options nor make any
further awards of restricted stock under the 1994 Incentive Plan.
The Board of Directors believes that the amendments to the 1994 Incentive
Plan are in the best interests of the Corporation and its stockholders and
recommends a vote FOR these proposals.
The following is a brief summary of the provisions of the 1994 Incentive
Plan.
1994 Stock Incentive Plan
The Corporation's 1994 Stock Incentive Plan (the "1994 Incentive Plan") was
adopted by the Corporation's Board of Directors and approved by the
Corporation's stockholders on June 7, 1994. The 1994 Incentive Plan permits
the Corporation to grant options to purchase Common Stock and to make awards
of restricted Common Stock (collectively, the "Awards") to employees, officers
and directors of, and consultants or advisors to, the Corporation. The total
number of shares of Common Stock which may be issued under the 1994 Incentive
Plan is currently 13,001,000 shares. Stock options entitle the optionee to
purchase Common Stock from the Corporation for a specified exercise price
during a period specified in the applicable option agreement. Non-qualified
stock options may be granted at exercise prices which are above, equal to or
below the fair market value of the Common Stock. The exercise price of shares
of Common Stock subject to options qualifying as incentive stock options or
intended to qualify as performance based compensation under Section 162(m) of
the Internal Revenue Code of 1986, as amended, may not be less than the fair
market value of the Common Stock on the date of the grant. Restricted stock
awards entitle the recipient to purchase or otherwise receive Common Stock
from the Corporation under terms which provide for vesting over a period of
time and forfeiture of the
17
<PAGE>
unvested portion of the Common Stock subject to the award upon the termination
of the recipient's employment or other relationship with the Corporation. The
1994 Incentive Plan is administered by the Compensation Committee of the Board
of Directors. The Compensation Committee, itself, based upon recommendations
from management of the Corporation, and, to a limited extent, the President
and Chief Executive Officer of the Corporation to whom it has delegated
certain authority, will select the persons to whom Awards are granted and
determine the number of shares of Common Stock covered by the Awards, the
exercise or purchase price, the vesting schedule and (in the case of stock
options) the expiration dates. Awards granted under the 1994 Incentive Plan
will be generally nontransferable. It is expected that stock options will
generally become exercisable over a four-year period and expire ten years
after the date of grant (subject to earlier termination in the event of the
termination of the optionee's employment or other relationship with the
Corporation).
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to options granted and
awards of restricted stock made under the 1994 Incentive Plan and with respect
to the sale of Common Stock acquired under the 1994 Incentive Plan.
Incentive Stock Options
In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will
recognize taxable income with respect to an incentive stock option only upon
the sale of Common Stock acquired through the exercise of the option ("ISO
Stock"). The exercise of an incentive stock option may, however, subject the
participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least
two years from the date the option was granted (the "Grant Date") and one year
from the date the option was exercised (the "Exercise Date"), then the
participant will recognize long-term capital gain in an amount equal to the
excess of the sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior to
having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of
the gain recognized by the participant will be ordinary compensation income
and the remaining gain, if any, will be a capital gain. This capital gain will
be a long-term capital gain if the participant has held the ISO Stock for more
than one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a long-
term capital loss if the participant has held the ISO Stock for more than one
year prior to the date of sale.
Nonstatutory Stock Options
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a nonstatutory stock option. Unlike
the case of an incentive stock option, however, a participant who exercises a
nonstatutory stock option generally will recognize ordinary compensation
income in an amount equal to the excess of the fair market value of the Common
Stock acquired through the exercise of the option ("NSO Stock") on the
Exercise Date over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the
18
<PAGE>
participant's tax basis in the NSO Stock. This capital gain or loss will be a
long-term gain or loss if the participant has held the NSO stock for more than
one year prior to the date of the sale.
Restricted Stock Awards
A participant will not recognize taxable income upon the grant of a
restricted stock award, unless the participant makes an election under Section
83(b) of the Code (a "Section 83(b) Election"). If the participant makes a
Section 83(b) Election within 30 days of the date of the grant, then the
participant will recognize ordinary income, for the year in which the award is
granted, in an amount equal to the difference between the fair market value of
the Common Stock at the time the award is granted and the purchase price paid
for the Common Stock. If a Section 83(b) Election is not made, the participant
will recognize ordinary income, at the time that the forfeiture provisions or
restrictions on transfer lapse, in an amount equal to the difference between
the fair market value of the Common Stock at the time of such lapse and the
original purchase price paid for the Common Stock. The participant will have a
basis in the Common Stock acquired equal to the sum of the price paid and the
amount of ordinary compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock award, the participant will recognize a capital gain or loss equal to
the difference between the sale price of the Common Stock and the
participant's basis in the Common Stock. The gain or loss will be a long-term
gain or loss if the shares are held for more than one year. For this purpose,
the holding period shall begin just after the date on which the forfeiture
provisions or restrictions lapse if a Section 83(b) Election is not made, or
just after the award is granted if a Section 83(b) Election is made.
Tax Consequences to the Company
The grant of an award under the 1994 Incentive Plan will have no tax
consequences to the Company. Moreover, in general, neither the exercise of an
incentive stock option nor the sale of any Common Stock acquired under the
1994 Incentive Plan will have any tax consequences to the Company. The Company
generally will be entitled to a business-expense deduction, however, with
respect to any ordinary compensation income recognized by a participant under
the 1994 Incentive Plan, including as a result of the exercise of a
nonstatutory stock option, a Disqualifying Disposition or a Section 83(b)
Election. Any such deduction will be subject to the limitations of Section
162(m) of the Code. The Company will have a withholding obligation with
respect to ordinary compensation income recognized by participants under the
1994 Incentive Plan who are employees or otherwise subject to withholding.
RATIFICATION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP as independent
accountants of the Corporation for the year ending December 31, 1997, subject
to ratification by stockholders at the Meeting. If the stockholders do not
ratify the selection of Arthur Andersen LLP, the Board of Directors will
reconsider the matter. A representative of Arthur Andersen LLP, which served
as independent accountants for the year ended December 31, 1996, is expected
to be present at the Meeting to respond to appropriate questions, and to make
a statement if he or she so desires.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 1998 Annual
Meeting of Stockholders must be submitted to the Secretary of the Corporation
at its offices, 245 First Street, Cambridge, Massachusetts 02142, no later
than December 10, 1997 in order to be considered for inclusion in the Proxy
Statement relating to that meeting.
19
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other business which will be presented
for consideration at the Meeting other than that described above. However, if
any other business should come before the Meeting, it is the intention of the
persons named in the enclosed Proxy to vote, or otherwise act, in accordance
with their best judgment on such matters.
The Corporation will bear the costs of soliciting proxies. In addition to
solicitations by mail, the Corporation's directors, officers and regular
employees may, without additional remuneration, solicit proxies by telephone,
telegraph, facsimile and personal interviews. The Corporation will also
request brokerage houses, custodians, nominees and fiduciaries to forward
copies of the proxy material to those persons for whom they hold shares and
request instructions for voting the Proxies. The Corporation will reimburse
such brokerage houses and other persons for their reasonable expenses in
connection with this distribution.
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
By Order of the Board of Directors,
/s/ Regina O. Sommer
Regina O. Sommer, Secretary
April 10, 1997
20
<PAGE>
1522-PS97
<PAGE>
DETACH HERE OPM 2
OPEN MARKET, INC.
P 245 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142
R
1997 ANNUAL MEETING OF STOCKHOLDERS
O TO BE HELD MAY 21, 1997
X THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Y The undersigned hereby appoints Gary B. Eichhorn, Regina O. Sommer and
John H. Chory and each of them the proxies of the undersigned, with power of
substitution to each of them, to vote all shares of Open Market, Inc. (the
"Corporation") which the undersigned is entitled to vote at the 1997 Annual
Meeting of Stockholders of the Corporation to be held on Wednesday, May 21,
1997, at 10:00 a.m. (local time) at Hale and Dorr LLP, 60 State Street,
Boston, Massachusetts 02109 (the "Meeting").
In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the Meeting or any adjournment thereof.
-----------
(CONTINUED AND TO BE DATED AND SIGNED ON THE REVERSE SIDE.) SEE REVERSE
SIDE
-----------
<PAGE>
DETACH HERE OPM 2
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY ELECTION TO OFFICE OR
PROPOSAL SPECIFIED BELOW, THIS PROXY WILL BE VOTED FOR SUCH ELECTION TO OFFICE
OR PROPOSAL.
1. To elect three Class I Directors and one Class II Director.
CLASS I NOMINEES: Gary B. Eichhorn, William S. Kaiser, Ray Stata
CLASS II NOMINEE: Brian J. Knez
FOR WITHHELD
[_] [_]
[_]______________________________________
For all nominees except as noted above
2. To approve amendments to the Corporation's 1994 Stock Incentive Plan, as
described in the Proxy Statement.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. To ratify the selection by the Board of Directors of Arthur Andersen LLP as
the Corporation's independent public accountants for the current year.
FOR AGAINST ABSTAIN
[_] [_] [_]
MARK HERE FOR ADDRESS CHANGE OR COMMENTS [_]
(PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE)
The signature on this proxy should correspond exactly with stockholder's name as
printed to the left. In the case of joint tenancies, co-executors or co-
trustees, both should sign. Persons signing as Attorney, Executor, Trustee,
Administrator or Guardian should give their full title.
Signature:________________________________ Date:_______________
Signature:________________________________ Date:_______________
