<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,
if Other Than the Registrant)
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.
ONE WAYSIDE ROAD
BURLINGTON, MASSACHUSETTS 01803
APRIL 14, 1998
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders to be
held at 10:00 a.m. on May 20, 1998 at the offices of Hale and Dorr LLP, 60
State Street, Boston, Massachusetts.
One of the important items at the Annual Meeting, recommended unanimously
for approval by the Board of Directors, is the proposed amendment to the 1994
Stock Incentive Plan, increasing the number of shares of Common Stock
authorized for issuance under such plan from 15,201,000 to 19,201,000. Like
our competitors, Open Market has long utilized employee stock options as an
important means of attracting and retaining talented employees. Stock options
have become particularly important in recent years as competition for scarce
talent in the Internet software and service industry has become intense. We
recognize that our employees are one of our most valuable resources.
Open Market has always believed that its employee stock options should have
a long-term focus to more closely align our employees' long-term interests to
those of our stockholders. Generally, the vesting of our employee stock
options has historically been over a four-year period from the grant date. It
is the intention of the Corporation to continue this practice. Currently
approximately 34% of outstanding options are exercisable.
We also believe that stock options should be granted to a broad group of
employees who contribute to the long-term success of the Corporation. As of
April 1, 1998, the Corporation had grown to 458 employees from 257 employees
on April 1, 1996. The options currently outstanding are distributed among
approximately 470 present and former employees. As of January 1, 1998, only
approximately 1.25 million shares were available for future grant under the
1994 Stock Incentive Plan.
We believe the additional 4 million shares for which stockholder approval is
sought at the Annual Meeting should provide sufficient shares for option
grants for approximately the next two years.
Your support of the Board of Directors' recommendations is important to the
Corporation's ability to attract and retain a talented and motivated
workforce. Please review the enclosed proxy materials and take the time to
cast your vote.
Sincerely yours,
Shikhar Ghosh Gary B. Eichhorn
Chairman of the Board of Directors President and Chief Executive Officer
<PAGE>
OPEN MARKET, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1998
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 20, 1998 at 10:00 a.m. at Hale and Dorr LLP, 60 State Street,
Boston, Massachusetts 02109 (the "Meeting") for the purpose of considering and
voting upon the following matters:
1. To elect two Class II Directors for the ensuing three years;
2. To approve an amendment to the Corporation's 1994 Stock Incentive Plan
increasing the number of shares of Common Stock authorized for issuance
under such plan from 15,201,000 to 19,201,000;
3. To approve an amendment to the Corporation's 1996 Employee Stock
Purchase Plan increasing the number of shares of Common Stock authorized
for issuance under such plan from 250,000 to 750,000;
4. To approve an amendment to the Corporation's 1996 Director Option Plan,
as set forth in the accompanying Proxy Statement under "Approval of
Amendment to 1996 Director Option Plan;"
5. To ratify the selection of Arthur Andersen LLP by the Board of Directors
as the Corporation's independent public accountants for the fiscal year
ending December 31, 1998; and
6. 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 Friday, March 27,
1998 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, One Wayside Road,
Burlington, Massachusetts 01803, and at the place of the Meeting.
A copy of the Corporation's Annual Report to Stockholders for the year ended
December 31, 1997, 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 14, 1998
Burlington, 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.
ONE WAYSIDE ROAD
BURLINGTON, MASSACHUSETTS 01803
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1998
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 20,
1998 at 10:00 a.m. at 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 27, 1998, the record date for determination of stockholders
entitled to notice of and to vote at the Meeting, there were outstanding and
entitled to vote an aggregate of 32,056,572 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, THE
ENCLOSED LETTER FROM THE CHAIRMAN AND PRESIDENT AND CHIEF EXECUTIVE OFFICER
AND THE CORPORATION'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1997 ARE BEING MAILED TO STOCKHOLDERS ON OR ABOUT APRIL 14, 1998.
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, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WITHOUT
EXHIBITS. PLEASE ADDRESS ALL SUCH REQUESTS TO THE CORPORATION, ATTENTION OF
INVESTOR RELATIONS, ONE WAYSIDE ROAD, BURLINGTON, MASSACHUSETTS 01803.
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 March 27, 1998 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 ---------------------------------
OF BENEFICIAL OWNER(1) NUMBER OF SHARES PERCENT OF CLASS
---------------------- ---------------- ----------------
<S> <C> <C>
Advance Publications, Inc.................. 1,715,000 5.35%
950 Fingerboard Road
Staten Island, NY 10305
Greylock Equity Limited Partnership........ 4,904,600 15.30%
c/o Greylock Management Corp.
One Federal Street
Boston, MA 02110
David K. Gifford(3)........................ 3,682,000 11.43%
Shikhar Ghosh(4)........................... 3,745,000 11.63%
Gulrez Arshad(5)........................... 1,231,669 3.84%
Thomas H. Bruggere......................... -- --
Gary B. Eichhorn(6)........................ 1,107,503 3.36%
William S. Kaiser(7)....................... 4,905,400 15.30%
Brian J. Knez(8)........................... 1,002,666 3.13%
Eugene F. Quinn(9)......................... 1,300 *
Daniel E. Ross(10)......................... 127,840 *
Robert W. Bennett, Jr.(11)................. 25,833 *
Peter Y. Woon(12).......................... 10,312 *
All directors and executive officers
as a group (17 persons)(13)............... 16,351,210 48.30%
</TABLE>
- --------
* Less than 1%
(1) The address of each person in the table other than Advance Publications,
Inc. and Greylock Equity Limited Partnership is c/o Open Market, Inc., One
Wayside Road, Burlington, Massachusetts, 01803.
(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 the
individual has the right to acquire within 60 days of March 27, 1998
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.
2
<PAGE>
(3) Includes 150,000 shares of Common Stock issuable to Dr. Gifford within 60
days of March 27, 1998 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 145,000 shares of Common Stock issuable to Mr. Ghosh within 60
days of March 27, 1998 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 800 shares of Common Stock issuable to Mr. Arshad within 60 days
of March 27, 1998 upon exercise of stock options; 137,783 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; and 527,969 shares of Common Stock held by Nuland & Arshad,
Inc. Mr. Arshad has shared investment and voting power with respect to the
shares held by Nuland & Arshad. Mr. Arshad, who may be deemed to be the
beneficial owner of the shares held by Nuland & Arshad, disclaims
beneficial ownership of 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 952,503 shares of Common Stock issuable to Mr. Eichhorn within 60
days of March 27, 1998 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. Also includes 800
shares of Common Stock issuable to Mr. Kaiser within 60 days of March 27,
1998 upon exercise of stock options.
(8) Represents 1,000,000 shares of Common Stock held by KO Corporation, a
subsidiary of Harcourt General, Inc. Mr. Knez is a director, officer 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. Also includes 2,666
shares of Common Stock issuable to Mr. Knez within 60 days of March 27,
1998 upon the exercise of stock options. Mr. Knez received these options
in connection with his role as a director of the Corporation and assigned
his economic interest in these options to Harcourt General, Inc.
(9) Includes 800 shares of Common Stock issuable to Mr. Quinn within 60 days
of March 27, 1998 upon exercise of stock options.
(10) Includes 96,562 shares of Common Stock issuable to Mr. Ross within 60
days of March 27, 1998 upon exercise of stock options and 800 shares of
Common Stock held by Mr. Ross' children.
(11) Includes 25,000 shares of Common Stock issuable to Mr. Bennett within 60
days of March 27, 1998 upon exercise of stock options.
(12) Includes 10,312 shares of Common Stock issuable to Dr. Woon within 60
days of March 27, 1998 upon exercise of stock options.
(13) Includes 6,432,569 shares of Common Stock held by entities affiliated
with certain directors as described in notes 5, 7 and 8 above and
1,794,380 shares of Common Stock issuable to all directors and executive
officers as a group within 60 days of March 27, 1998 upon exercise of
stock options.
3
<PAGE>
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 at the meeting) will be
counted for purposes of determining whether a quorum exists at the Meeting.
The affirmative vote of the holders of a plurality of the shares voting on
the matter is required for the election of directors (Proposal 1). 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
approval of the amendments to the Corporation's 1994 Stock Incentive Plan
(Proposal 2), 1996 Employee Stock Purchase Plan (Proposal 3) and 1996 Director
Stock Option Plan (Proposal 4), and the ratification of Arthur Andersen LLP as
the Corporation's independent public accountants for the year ending December
31, 1998 (Proposal 5).
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 ("broker non-votes"), will not be counted as shares voted in
favor of such matter and will not be counted as 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 shares voting on a matter.
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 2000, 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 II
Directors, Brian J. Knez and Gulrez Arshad, the two Class II Director nominees
named below, unless the proxy is marked otherwise. Messrs. Knez and Arshad are
currently directors of the Corporation.
Each Class II Director will be elected to hold office until the 2001 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 II Directors, 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.
4
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, OTHER BUSINESS
EXPERIENCE DURING PAST FIVE
NAME AGE YEARS AND OTHER DIRECTORSHIPS
---- --- ------------------------------------
<C> <C> <S>
NOMINEES FOR TERMS EXPIRING IN 2001 (CLASS II DIRECTORS)
Brian J. Knez(1).... 40 Mr. Knez has served as a director of the
Corporation since 1997. Mr. Knez has been President
and Co-Chief Operating Officer of Harcourt General,
Inc. since January 1997 and President and Chief
Executive Officer of Harcourt Brace & Company (a
subsidiary of Harcourt General) since May 1995. Mr.
Knez was President of the Scientific, Technical,
Medical and Professional Group of Harcourt Brace
from 1993 to May 1995. Mr. Knez was Group Vice
President of the Scientific, Technical and Medical
Group of Harcourt Brace from 1991 to 1993. Mr. Knez
is a director of Harcourt General and of The Neiman
Marcus Group, Inc.
Gulrez Arshad(2).... 51 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 firm.
DIRECTORS WHOSE TERMS EXPIRE IN 1999 (CLASS III DIRECTORS)
David K. Gifford.... 43 Dr. Gifford, a founder of the Corporation, has
served as a director of the Corporation since
December 1993. Dr. Gifford also served as President
of the Corporation from December 1993 to June 1994
and as the Vice Chairman of the Board of Directors
from December 1995 to March 1998. Since July 1982,
Dr. Gifford has served as a Professor at the
Massachusetts Institute of Technology.
Shikhar Ghosh....... 40 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.
Eugene F. Quinn(1).. 44 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 to February 1997,
Mr. Quinn was General Manager of Tribune
Interactive Network Services of Tribune
Corporation, a publishing corporation. 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, a
financial services and software company.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, OTHER BUSINESS
EXPERIENCE DURING PAST FIVE
NAME AGE YEARS AND OTHER DIRECTORSHIPS
---- --- ------------------------------------
<C> <C> <S>
DIRECTORS WHOSE TERMS EXPIRE IN 2000 (CLASS I DIRECTORS)
Thomas H. Bruggere(1).. 52 Mr. Bruggere has served as a director of the
Corporation since December 1997. Since 1994, he
has been a private investor and consultant. In
1996, Mr. Bruggere was a candidate for the U.S.
Senate. From 1981 to 1994, he was chairman and CEO
of Mentor Graphics Corporation.
Gary B. Eichhorn....... 43 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. Mr. Eichhorn is a
director of Ansys, Inc.
William S. Kaiser(2)... 42 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. He has been
a general partner of Greylock Limited Partnership
since 1990, of Greylock Equity Limited Partnership
since 1994 and of Greylock IX Limited Partnership
since 1997. Mr. Kaiser is a director of Avid
Technology.
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
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 eight times (including by telephone conference)
during 1997. 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 reviews and
approves salaries and incentive compensation for executive officers of the
Corporation. In addition, the Compensation Committee reviews and approves
elements of various broad-based, compensation programs and stock option plans.
The Compensation Committee held five meetings during 1997. The current 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
1997. The current members of the Audit Committee are Messrs. Bruggere, Knez
and Quinn.
The Corporation has no nominating committee of the Board of Directors.
6
<PAGE>
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 nonstatutory 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 currently 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. 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 certain 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 such date. For information relating to a proposed amendment to
the Director Plan, see "Approval of Amendment to 1996 Director Option Plan."
7
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth the compensation for the fiscal years ended
December 31, 1995, 1996 and 1997 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 three 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>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
----------------- ------------
NAME AND OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS SARS COMPENSATION
------------------ ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gary B. Eichhorn(1).......... 1997 $230,000 $115,000 100,000 $ --
President, Chief Executive 1996 207,500 600,000 130,000 --
Officer and Director 1995 11,538 500,000 1,275,000 --
Shikhar Ghosh(2)............. 1997 200,000 30,000 75,000 --
Chairman of the Board 1996 155,000 -- -- --
1995 140,000 -- 150,000 --
Daniel E. Ross(3)............ 1997 222,167 107,179 60,000 --
Vice President, Worldwide 1996 180,000 130,000 -- --
Sales 1995 7,615 -- 225,000 --
Robert W. Bennett(4)......... 1997 150,175 87,274 100,000 --
Vice President and General
Manager, Folio Products
Group
Peter Y. Woon(5)............. 1997 149,667 29,185 30,000 --
Vice President, Engineering 1996 134,500 -- 30,000 34,238
1995 5,000 -- 135,000 --
</TABLE>
- --------
(1) Mr. Eichhorn joined the Corporation in December 1995. See "Employment
Agreement" below regarding bonus payments.
(2) Mr. Ghosh served as the President and Chief Executive Officer of the
Corporation until December 1995.
(3) Mr. Ross joined the Corporation in December 1995.
(4) Mr. Bennett joined the Corporation in March 1997.
(5) Mr. Woon joined the Corporation in December 1995. Mr. Woon's other
compensation in 1996 represents reimbursement for certain relocation
costs.
Other Executive Officers
Robert W. Bennett, age 41, joined the Corporation in March 1997 as its Vice
President and General Manager, Folio Products Group. Mr. Bennett served as
President of Folio Corporation from October 1995 to March 1997 and as Vice
President, Sales of Folio Corporation from November 1993 to October 1995. From
January 1991 to November 1993, Mr. Bennett was a marketing manager at IBM.
Kurt L. Freidrich, age 48, joined the Corporation in October 1997 as its
Chief Technology Officer. From July 1993 to April 1997, Mr. Freidrich was the
Senior Vice President of Engineering for Tandem Computers, Inc.
8
<PAGE>
Gail Goodman, age 37, joined the Corporation in May 1996 as its Vice
President and General Manager, Commerce Products Group. From January 1996 to
May 1996, Ms. Goodman served as Vice President of Marketing at Centra
Software, an internet software and services provider. 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.
Michael S. Messier, age 35, joined the Corporation in December 1997 as its
Vice President, Human Resources. From November 1996 to December 1997, Mr.
Messier served as Director, Human Resources of Rational Software Corporation,
a software tools company. From April 1991 to November 1996, Mr. Messier served
as Director, Human Resources of Stratus Computer, Inc. a computer systems
manufacturer.
Thomas A. Nephew, age 45, joined the Corporation in August 1995 as its Vice
President, Services. From March 1994 to August 1995, Mr. Nephew served as
Director of Technical Services of Progress Software Corporation, 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 44, joined the Corporation in December 1995 as its Vice
President, Worldwide 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 40, 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 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.
Robert C. Weinberger, age 45, joined the Corporation in January 1995 as its
Vice President, Corporate Marketing. From May 1989 to January 1995, Mr.
Weinberger served as a marketing manager of Hewlett-Packard Corporation.
Peter Y. Woon, age 63, joined the Corporation in December 1995 as its Vice
President, Engineering. From July 1994 to December 1995, Dr. Woon was
President and Chief Executive Officer of Communications Solutions, 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.
9
<PAGE>
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 $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.
Executive Retention Agreements
In November, 1997, the Board of Directors of the Corporation approved
Executive Retention Agreements (the "Agreements") for each of the
Corporation's current and future officers subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (each, an
"Executive").
The purpose of the Agreements is to assure that the Corporation will have
the continued dedication of the Executives, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined in the Agreements). In
the event of a Change of Control, and the termination of the Executive's
employment by the Corporation at any time within the 12-month period
thereafter (other than for cause, disability or death) or by the Executive for
Good Reason (as defined in the Agreements), the Executive shall be eligible to
receive (i) a cash severance payment equal to the Executive's annual base
salary plus any other amounts earned through the date of termination (to the
extent not previously paid), (ii) an additional lump sum cash payment equal to
one-half the sum of (a) the Executive's annual base salary in effect at the
time of the Change of Control and (b) the Highest Annual Bonus (defined below)
and (iii) any amounts or benefits required to be paid or provided to the
Executive or which the Executive is eligible to receive following the
Executive's termination under any plan, program, policy, practice, contract or
agreement of the Corporation. In addition, for a period of six months after
termination, the Corporation shall continue to provide the Executive with
certain benefits (excluding any benefits under any of the Corporation's
savings and/or retirement plans) that are provided to other peer executives of
the Corporation. However, if the Executive becomes employed with another
employer during the six month period after termination and is eligible to
receive benefits, the Corporation's benefits shall be secondary to those
provided by the new employer. Good Reason is defined to include, among other
things, a material reduction in employment responsibilities, compensation or
benefits.
10
<PAGE>
Option Grants Table
The following table sets forth certain information concerning grants of
stock options made during the year ended December 31, 1997 to each of the
Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL OPTION GRANTS
-------------------------------------------
PERCENTAGE POTENTIAL REALIZABLE
OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES PRICE OPTION TERM(2)
OPTIONS IN FISCAL PER EXPIRATION -----------------------
GRANTED YEAR SHARE DATE(1) 5% 10%
---------- ---------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gary B. Eichhorn........ 100,000(3) 3.69% $11.25 6/18/07 $ 687,140 $ 1,760,533
Shikhar Ghosh........... 75,000(3) 2.77 11.25 6/18/07 515,355 1,320,399
Daniel E. Ross.......... 60,000 2.22 11.25 6/18/07 412,284 1,056,321
Robert W. Bennett....... 100,000 3.69 12.38 3/07/07 757,890 1,939,830
Peter Y. Woon........... 30,000 1.11 11.25 6/18/07 206,141 528,160
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- --------
(1) The expiration date of an option is the tenth anniversary of the date on
which the option was originally granted. Unless otherwise stated, shares
vest annually 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.
(3) If the fair market value of the Corporation's Common Stock as quoted on
the Nasdaq National Market exceeds $20.00 per share for 10 consecutive
quotation days during the 12-month period beginning July 1, 1997, then
options for the purchase of 25,000 shares held by Mr. Eichhorn and options
for the purchase of 15,000 shares held by Mr. Ghosh become immediately
exercisable. Otherwise, such options become exercisable in June 2004.
11
<PAGE>
Aggregated Option Exercises and Year-End Option Table
The following table sets forth certain information regarding the exercise of
stock options during the year ended December 31, 1997 and stock options held
as of December 31, 1997 by each of the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISABLE
NUMBER OF OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS AT
SHARES END FISCAL YEAR END(1)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary B. Eichhorn........ 37,500 $416,875 914,379 413,121 $8,039,099 $2,249,962
Shikhar Ghosh........... 5,000 47,834 98,125 121,875 926,466 442,579
Daniel E. Ross.......... 6,000 61,890 82,500 172,500 670,312 914,062
Robert W. Bennett....... -- -- -- 100,000 -- --
Peter Y. Woon........... 33,750 421,875 46,875 114,375 274,218 548,437
</TABLE>
- --------
(1) Based on the fair market value of the Common Stock as of December 31, 1997
($9.625 per share), less the option exercise price, multiplied by the
number of shares underlying the options.
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 under the Exchange Act and an outside
director within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). This report summarizes the Corporation's
compensation policies for 1997 and their effect on the Chief Executive Officer
and the four executive officers other than the Chief Executive Officer who,
for 1997, were 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 stockholder 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
stockholder value created.
The competitiveness of the Corporation's total compensation program is
assessed periodically during the year. 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.
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, has a cash
incentive plan (the "Plan"). 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 participate in the Plan.
Long-Term Stock-Based Incentives
The Committee also believes that it is essential to link executive and
stockholder 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 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 1994 Incentive Plan
limits the number of shares subject to stock options which may be granted to
the Corporation's 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 Corporation is consistent with the foregoing approach.
13
<PAGE>
Executive Retention Agreements
In November 1997, the Board of Directors approved Executive Retention
Agreements for all of the Corporation's current and future Executives. The
purpose of the Agreements is to assure that the Corporation will have the
continued dedication of the Executives, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined in the Agreements).
See "Executive Retention Agreements."
1997 Compensation
Base salaries paid in 1997 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.
Short-term incentive bonuses were paid to the Named Executive Officers for
the first, second and third quarters of 1997 based on performance against Plan
criteria and the Committee's assessment of the Corporation's performance. No
incentives were paid in the fourth quarter of 1997, with the exception of Mr.
Ross, as the Corporation's performance failed to meet the minimum threshold
required for payment as stated in the Plan. A portion of 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. Messrs.
Eichhorn and Ghosh also received a bonus based on the Corporation's annual net
income or loss performance.
COMPENSATION COMMITTEE
Gulrez Arshad
William S. Kaiser
Ray Stata
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Corporation's Compensation Committee are Messrs.
Arshad and Kaiser. Ray Stata served on the Compensation Committee from the
date of his election to the Board in May 1996 until his resignation as a
director of the Corporation in March 1998. 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, 1997, 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. Gifford. The
loan was non-recourse to Dr. Gifford, was secured by a pledge of 375,000
shares of Common Stock owned by Dr. Gifford, and had an interest rate of 5.61%
per annum. As of March 1998, Dr. Gifford had repaid all of the outstanding
principal and interest on the loan.
14
<PAGE>
On June 8, 1994, the Corporation entered into a consulting agreement with
Dr. Gifford. For the year ended December 31, 1997, the Corporation paid Dr.
Gifford consulting fees in the amount of $81,239. This consulting agreement
terminates in June 1998.
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 $137,272 in related service fees from Harcourt
during 1997. Mr. Knez, President and Co-Chief Operating Officer of Harcourt
General, Inc., is a director 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.
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, 1997
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.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
MAY 23, 1996 DECEMBER 31, 1996 DECEMBER 31, 1997
------------ ----------------- -----------------
<S> <C> <C> <C>
OPEN MARKET, INC. ........... $100.00 $ 75.00 $ 53.00
NASDAQ STOCK MARKET--US
INDEX ...................... $100.00 $103.00 $127.00
HAMBRECHT & QUIST GROWTH
INDEX ...................... $100.00 $ 81.00 $ 83.00
</TABLE>
16
<PAGE>
APPROVAL OF AMENDMENT TO 1994 STOCK INCENTIVE PLAN
The Board of Directors believes that the future growth and success of the
Corporation depends, in large part, on its ability to attract, retain and
motivate key employees, consultants and advisors and that stock option grants
under the Corporation's 1994 Stock Incentive Plan (the "1994 Incentive Plan")
have been, and will continue to be, an important compensation element in
attracting, retaining and motivating such persons. Accordingly, on March 13,
1998, the Board of Directors voted, subject to stockholder approval, to
increase the number of shares of Common Stock available for issuance under the
1994 Incentive Plan from 15,201,000 to 19,201,000 shares.
The Board of Directors believes that the amendment to the 1994 Incentive
Plan is in the best interests of the Corporation and its stockholders and
recommends a vote FOR this proposal.
The following is a brief summary of the provisions of the 1994 Incentive
Plan.
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 15,201,000 shares. As of
December 31, 1997, there were approximately 1,254,000 shares available for
future grant under the 1994 Incentive Plan. 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 options
qualifying as incentive stock options or intended to qualify as performance-
based compensation under Section 162(m) of the Code 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 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 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
generally will be 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). Under the 1994 Incentive Plan, the maximum number of shares of
Common Stock with respect to which options may be granted to any person shall
be 1,000,000 shares per calendar year.
The 1994 Incentive Plan authorizes the Board of Directors, with the consent
of the applicable optionees, to amend any or all outstanding stock options to
provide an exercise price per share which may be lower or higher than the
original exercise price and/or to cancel any such options and in substitution
therefor to grant new options covering the same or a different number of
shares of Common Stock having an option exercise price per share which may be
lower or higher than the exercise price of the cancelled options. The 1994
Incentive Plan also
17
<PAGE>
provides that upon the acquisition or liquidation of the Corporation, in
certain cases, the Board of Directors may (i) provide that outstanding Awards
shall be assumed, or substantially equivalent Awards shall be substituted, by
the acquiring or succeeding entity, (ii) upon notice to the participants,
provide that all unexercised options, whether or not exercisable, will be
exercisable in full prior to the effective date of any such acquisition event
and will terminate immediately prior to the consummation of such event unless
exercised within a specified period following the date of such notice, or
(iii) provide that all or any outstanding Awards shall become exercisable or
realizable in full prior to the effective date of any such acquisition. The
Board of Directors may amend, suspend or terminate the 1994 Incentive Plan or
any portion thereof at any time, provided that no amendment shall be made
without stockholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirement.
As of December 31, 1997, options for approximately 1,976,000 shares had been
exercised under the 1994 Incentive Plan and options for approximately
6,237,000 shares were outstanding under the 1994 Incentive Plan at exercise
prices ranging from $0.17 to $35.13 per share. As of December 31, 1997,
approximately 5,739,000 shares of restricted Common Stock had been issued
under the 1994 Incentive Plan.
Because Awards under the 1994 Incentive Plan are determined on a case-by-
case basis by the Compensation Committee of the Board of Directors, the
benefits to be received by any particular current executive officer, by all
current executive officers as a group, or by non-executive officer employees
as a group cannot be determined by the Corporation at this time. During 1997,
all current executive officers as a group received options to purchase 745,000
shares of Common Stock, at a weighted average exercise price of $9.55 per
share, and all employees, excluding all current executive officers as a group,
received options to purchase 1,963,000 shares of Common Stock at a weighted
average exercise price of $11.17 per share. During 1997, no current director
of the Corporation other than Messrs. Eichhorn and Ghosh received Awards under
the 1994 Incentive Plan.
On March 31, 1998, the closing sale price of the Corporation's Common Stock
on the Nasdaq National Market was $20.625.
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, however, may 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
18
<PAGE>
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 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 compensation 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, then the participant will recognize ordinary compensation 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 tax 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 tax 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 Corporation
The grant of an Award under the 1994 Incentive Plan will have no tax
consequences to the Corporation. 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 Corporation. The
Corporation 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.
19
<PAGE>
APPROVAL OF AMENDMENT TO 1996 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors believes that the future growth and success of the
Corporation depends, in large part, on its ability to attract, retain and
motivate employees and that providing employees with an opportunity to acquire
a proprietary interest in the Corporation through the purchase of Common Stock
under the Corporation's 1996 Employee Stock Purchase Plan (the "Purchase
Plan") has been, and will continue to be, an important compensation element in
attracting, retaining and motivating such persons. Accordingly, on March 13,
1998, the Board of Directors voted, subject to stockholder approval, to
increase the number of shares of Common Stock available for issuance under the
Purchase Plan from 250,000 to 750,000.
The Board of Directors believes that the amendment to the Purchase Plan is
in the best interests of the Corporation and its stockholders and recommends a
vote FOR this proposal.
The following is a brief summary of the provisions of the Purchase Plan.
1996 Employee Stock Purchase Plan
The Corporation's Purchase Plan authorizes the issuance of up to a total of
250,000 shares of Common Stock to participating employees.
With certain limited exceptions in the case of employees already holding a
significant amount of Common Stock, all employees of the Corporation
(including directors who are employees) and all employees of its participating
subsidiary whose customary employment is more than 20 hours per week and for
more than five months in any calendar year are eligible to participate in the
Purchase Plan. As of March 27, 1998, approximately 400 of the Corporation's
employees are eligible to participate in the Purchase Plan.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Corporation grants to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock
as follows: the employee may authorize an amount (a whole percentage from 1%
to 10% of such employee's regular pay) to be deducted by the Corporation from
such pay during the Offering Period. On the last day of the Offering Period,
the employee is deemed to have exercised the option, at the option exercise
price, to the extent of accumulated payroll deductions. Under the terms of the
Purchase Plan, the option exercise price is an amount equal to 85% of the fair
market value per share of the Common Stock on either the first day or the last
day of the Offering Period, whichever is lower. In no event may an employee
purchase in any one Offering Period a number of shares which is more than 15%
of the employee's annualized base pay for the six-month period prior to the
Offering Period divided by 85% of the market value of a share of Common Stock
on the commencement date of the Offering Period. The Compensation Committee
may, in its discretion, choose an Offering Period of six months or less for
each of the offerings and choose a different Offering Period for each
offering.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's
rights under the Purchase Plan terminate upon voluntary withdrawal from the
Purchase Plan at any time, or when such employee ceases employment for any
reason, except that upon termination of employment because of death, the
employee's beneficiary has certain rights to elect to exercise the option to
purchase the shares which the accumulated payroll deductions in the
participant's account would purchase at the date of death.
Because participation in the Purchase Plan is voluntary, the Company cannot
determine the number of shares of Common Stock to be purchased in the future
by any particular current executive officer, by all current executive officers
as a group or by non-executive employees as a group.
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FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to purchases made under
the Purchase Plan and with respect to the sale of Common Stock acquired under
the Purchase Plan.
Tax Consequences to Participants
In general, a participant will not recognize taxable income upon enrolling
in the Purchase Plan or upon purchasing shares of Common Stock at the end of
an offering. Instead, if a participant sells Common Stock acquired under the
Purchase Plan at a sale price that exceeds the price at which the participant
purchased the Common Stock, then the participant will recognize taxable income
in an amount equal to the excess of the sale price of the Common Stock over
the price at which the participant purchased the Common Stock. A portion of
that taxable income will be ordinary income, and a portion may be capital
gain.
If the participant sells the Common Stock more than one year after acquiring
it and more than two years after the date on which the offering commenced (the
"Grant Date"), then the participant will be taxed as follows. If the sale
price of the Common Stock is higher than the price at which the participant
purchased the Common Stock, then the participant will recognize ordinary
compensation income in an amount equal to the lesser of:
(i) fifteen percent of the fair market value of the Common Stock on the
Grant Date; and
(ii) the excess of the sale price of the Common Stock over the price at
which the participant purchased the Common Stock.
Any further income will be long-term capital gain. If the sale price of the
Common Stock is less than the price at which the participant purchased the
Common Stock, then the participant will recognize long-term capital loss in an
amount equal to the excess of the price at which the participant purchased the
Common Stock over the sale price of the Common Stock.
If the participant sells the Common Stock within one year after acquiring it
or within two years after the Grant Date (a "Disqualifying Disposition"), then
the participant will recognize ordinary compensation income in an amount equal
to the excess of the fair market value of the Common Stock on the date that it
was purchased over the price at which the participant purchased the Common
Stock. The participant will also recognize capital gain in an amount equal to
the excess of the sale price of the Common Stock over the fair market value of
the Common Stock on the date that it was purchased, or capital loss in an
amount equal to the excess of the fair market value of the Common Stock on the
date that it was purchased over the sale price of the Common Stock. This
capital gain or loss will be a long-term capital gain or loss if the
participant has held the Common Stock for more than one year prior to the date
of the sale and will be a short-term capital gain or loss if the participant
has held the Common Stock for a shorter period.
Tax Consequences to the Corporation
The offering of Common Stock under the Purchase Plan will have no tax
consequences to the Corporation. Moreover, in general, neither the purchase
nor the sale of Common Stock acquired under the Purchase Plan will have any
tax consequences to the Corporation except that the Corporation will be
entitled to a business-expense deduction with respect to any ordinary
compensation income recognized by a participant upon making a Disqualifying
Disposition. Any such deduction will be subject to the limitations of Section
162(m) of the Code.
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APPROVAL OF AMENDMENT TO 1996 DIRECTOR OPTION PLAN
The Board of Directors believes that the future growth and success of the
Corporation depends, in large part, on its ability to attract and retain
qualified non-employee ("outside") directors and that stock option grants
under the Corporation's 1996 Director Option Plan (the "Director Plan") have
provided and will continue to provide outside directors with an important
incentive to continue as directors of the Corporation. Accordingly, on March
13, 1998, the Board of Directors voted to amend the Director Plan. The
amendment, which is subject to the approval of the stockholders, would provide
the following:
(i) Initial Option Grant. An initial grant to each outside director at the
time of his or her initial election to the Board of an option to purchase
20,000 shares of Common Stock. The Director Plan currently provides for
an initial grant to each outside director at the time of his or her
initial election to the Board of an option to purchase that number of
shares of Common Stock determined by dividing $100,000 by the Option
Exercise Price (as defined below).
(ii) Annual Option Grant. An annual grant to each outside director of an
option to purchase 6,000 shares of Common Stock. The Director Plan
currently provides for an annual grant to each outside director of an
option to purchase that number of shares of Common Stock determined by
dividing $30,000 by the Option Exercise Price.
The Board of Directors believes that the amendment to the Director Plan is
in the best interests of the Corporation and its stockholders and recommends a
vote FOR this proposal.
The following is a brief summary of the provisions of the Director Plan.
1996 Director Option Plan.
The Director Plan was adopted by the Board of Directors and approved by the
stockholders of the Corporation in April 1996. Each option granted under the
Director Plan becomes exercisable in four equal annual installments beginning
on the date of the grant. The exercisability of these options will be
accelerated upon the occurrence of a Change in Control (as defined in the
Director Plan). The Option Exercise Price of options granted under the
Director Plan equals the lesser of (i) the last reported sale price per share
of Common Stock on the date of grant (or, 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 sale price per share of
Common Stock as published in The Wall Street Journal for a period of ten
consecutive trading days prior to such date.
Options granted under the Director Plan are not transferrable by the
optionee except by will or by the laws of descent and distribution. In the
event an optionee ceases to serve as a director, each option may be exercised
by the optionee for the portion then exercisable within 60 days after the
optionee ceases to serve as a director; provided, however, that in the event
that the optionee ceases to serve as a director due to his death or
disability, then the optionee, or his or her administrator, executor or heirs
may exercise the exercisable portion of the option for up to 180 days
following the date the optionee ceased to serve as a director. No option is
exercisable after the expiration of ten years from the date of grant.
As of December 31, 1997 no options for shares had been exercised under the
Director Plan and options for 26,667 shares were outstanding under the
Director Plan at an exercise price of $4.375 per share.
22
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to the grant and exercise
of stock options under the Director Plan and with respect to the sale of
Common Stock acquired under the Director Plan.
Tax Consequences to Participants
A participant will not recognize taxable income upon the grant of an option
under the Director Plan. However, a participant will recognize ordinary
compensation income upon the exercise of the option in an amount equal to the
excess of the fair market value of the Common Stock acquired through the
exercise of the option (the "Option Stock") on the exercise date over the
exercise price.
A participant will have a tax basis for any Option Stock equal to the
exercise price plus any income recognized with respect to the option. Upon
selling Option Stock, a participant generally will recognize capital gain or
loss in an amount equal to the difference between the sale price of the Option
Stock and the participant's tax basis in the Option Stock. This capital gain
or loss will be a long-term capital gain or loss if the participant has held
the Option Stock for more than one year prior to the date of the sale and will
be a short-term capital gain or loss if the participant has held the Option
Stock for a shorter period.
Tax Consequences to the Corporation
The grant of a stock option under the Director Plan will have no tax
consequences to the Corporation except that the Corporation generally will be
entitled to a business-expense deduction with respect to any ordinary
compensation income recognized by a participant under the Director Plan.
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, 1998, 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, which served as
independent accountants for the year ended December 31, 1997, 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 1999 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 1999 Annual
Meeting of Stockholders must be submitted to the Secretary of the Corporation
at its offices, One Wayside Road, Burlington, Massachusetts 01803, no later
than December 15, 1998 in order to be considered for inclusion in the Proxy
Statement relating to that meeting.
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<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. Corporate Investor
Communications, Inc. has been hired by the Corporation to solicit proxies by
mail, courier, telephone and facsimile and to request brokerage houses and
other nominees to forward soliciting material to beneficial owners. For these
services the Corporation will pay a fee of $4,500 plus expenses. 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 14, 1998
24
<PAGE>
PROXY
OPEN MARKET, INC.
One Wayside Road
Burlington, Massachusetts 01803
1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Gary B. Eichhorn, Regina O. Sommer and John
H. Chory 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 1998 Annual Meeting of
Stockholders of the Corporation to be held on Wednesday, May 20, 1998, 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.
- ------------- -------------
SEE REVERSE (CONTINUED AND TO BE DATED AND SEE REVERSE
SIDE SIGNED ON THE REVERSE SIDE) SIDE
- ------------- -------------
<PAGE>
-------------
PLEASE MARK
[X] 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 two Class II Directors.
Nominees: Gulrez Arshad and
Brian J. Knez
FOR WITHHELD
[ ] [ ]
[ ]
-------------------------------------
For both nominees except as noted above.
FOR AGAINST ABSTAIN
2. To approve an amendment to the Corporation's [ ] [ ] [ ]
1994 Stock Incentive Plan increasing the
number of shares of Common Stock authorized
for issuance under such plan from 15,201,000
to 19,201,000.
3. To approve an amendment to the Corporation's [ ] [ ] [ ]
1996 Employee Stock Purchase Plan increasing
the number of shares of Common Stock authorized
for issuance under such plan from 250,000 to
750,000.
4. To approve an amendment to the Corporation's [ ] [ ] [ ]
1996 Director Option Plan, as described in the
Proxy Statement.
5. To ratify the selection of Arthur Andersen, LLP [ ] [ ] [ ]
by the Board of Directors as the Corporation's
independent public accountants for the fiscal
year ending December 31, 1998.
MARK HERE FOR ADDRESS CHANGE
OR COMMENTS AND NOTE AT LEFT [ ]
(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:
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Signature: Date:
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