<PAGE>
As filed with the Securities and Exchange Commission on August 6, 1999
Registration No. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
OPEN MARKET, INC.
(Exact name of registrant as specified in its charter)
--------------
Delaware 7372 04-3214536
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification)
of incorporation or
organization Number)
--------------
One Wayside Road, Burlington, Massachusetts 01803 (781) 359-3000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
Gary B. Eichhorn
President and Chief Executive Officer
Open Market, Inc.
One Wayside Road
Burlington, Massachusetts 01803
(781) 359-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Jeffrey N. Carp, Esq. Mark J. Macenka, Esq.
Hale and Dorr LLP Testa, Hurwitz & Thibeault, LLP
60 State Street 125 High Street
Boston, Massachusetts 02109 Boston, Massachusetts 02110
Telephone: (617) 526-6000 Telephone: (617) 248-7000
Telecopy: (617) 526-5000 Telecopy: (617) 248-7100
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective and certain
other conditions under the Merger Agreement are met or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
--------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of each class of
securities to be Amount to be Proposed maximum Proposed maximum Amount of
registered registered(1) offering price per share(2) aggregate offering price(2) registration fee
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
common stock, $.001 par
value per share
(including the
preferred stock
purchase rights
attached thereto)(3).. 7,700,000 shares $.0002 $1,275 $100
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the estimated maximum number of shares of common stock of the
Registrant issuable in the merger described herein to stockholders of
FutureTense.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended
(the "Securities Act"), and computed on the basis of one-third of the total
par value of FutureTense common stock and preferred stock (on an
as-converted basis) of $3,823.
(3) Shares of Open Market common stock being registered hereby are accompanied
by Open Market's preferred stock purchase rights. Until the occurrence of
certain prescribed events, such rights are not exercisable, are evidenced
by the certificates for the Open Market common stock and will be
transferred along with and only with the Open Market common stock.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Sources of Additional Information
This joint proxy statement/prospectus incorporates important business and
financial information about Open Market that is not included or delivered
with this document. Such information is available without charge to Open
Market and FutureTense stockholders upon written or oral request. Contact
Open Market at One Wayside Road, Burlington, Massachusetts 01803, attn.:
Eric J. Pyenson, Secretary. Open Market's telephone number is (781) 359-
3000.
To obtain timely delivery of requested documents prior to the special
meeting of Open Market stockholders or the special meeting of FutureTense
stockholders, you must request them no later than , 1999, which is
five business days prior to the date of such meetings.
Also see "Where You Can Find More Information" in this joint proxy
statement/prospectus.
<PAGE>
[Insert Open Market Logo] [Insert FutureTense Logo]
SPECIAL MEETING OF STOCKHOLDERS
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
To the Stockholders of Open Market and FutureTense:
The board of directors of Open Market, Inc. and FutureTense, Inc. have
approved a merger agreement that will result in FutureTense becoming a wholly-
owned subsidiary of Open Market.
If the merger is completed:
. Open Market stockholders will continue to own their existing shares of
Open Market common stock;
. each share of FutureTense Series A preferred stock, Series B preferred
stock and Series C preferred stock you own will be converted into five
shares of FutureTense common stock;
. each share of FutureTense Series D preferred stock you own will be
converted into one share of FutureTense common stock; and
. it is estimated that each share of FutureTense common stock you own,
including the shares issued upon the conversions described above, will
be exchanged for between .3590 and .4011 shares of Open Market common
stock.
The shares of Open Market common stock to be issued to holders of
FutureTense stock will be determined by a conversion formula. It is estimated
that FutureTense stockholders will receive between 6,800,000 and 7,700,000
shares of Open Market common stock in the merger, or between 18.85% and 21.34%
of the issued and outstanding shares of Open Market common stock following the
merger. A vote in favor of the merger agreement or the related issuance of Open
Market common stock will be effective whether or not the actual shares of Open
Market common stock to be issued in the merger or the actual conversion ratio
falls within the ranges described above. Open Market common stock is quoted on
the Nasdaq National Market under the symbol "OMKT".
The merger cannot be completed unless FutureTense's stockholders approve the
merger agreement and Open Market stockholders approve the issuance of Open
Market common stock pursuant to the merger agreement. We have scheduled special
meetings for you to vote on the merger agreement and the related issuance of
shares of Open Market common stock. The exact conversion formula will not be
determined by the date of the special meetings. Whether or not you plan to
attend a special meeting, please take the time to vote by completing and
mailing the enclosed proxy card to us. Your vote is very important.
For Open Market stockholders: For FutureTense stockholders:
, 1999 , 1999
10:00 a.m. local time 10:00 a.m. local time
Hale and Dorr LLP Testa, Hurwitz & Thibeault, LLP
60 State Street 125 High Street
Boston, Massachusetts 02109 Boston, Massachusetts 02110
This document provides you with detailed information about the proposed
merger. We encourage you to read this entire document carefully. In particular,
please see the section entitled "Risk Factors" on page 6 of this document for a
discussion of risks associated with the merger.
Gary B. Eichhorn Ronald J. Matros
President and Chief Executive Officer President and Chief Executive
Open Market, Inc. Officer
FutureTense, Inc.
Neither the United States Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the Open Market common
stock to be issued in the merger or determined if this joint proxy
statement/prospectus is accurate or adequate. Any representation to the
contrary is a criminal offense.
Joint Proxy Statement/Prospectus dated , 1999
First mailed to stockholders on or about , 1999
<PAGE>
Open Market, Inc.
One Wayside Road
Burlington, Massachusetts 01803
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On , 1999
----------------
To the Stockholders of Open Market:
A special meeting of stockholders of Open Market, Inc., a Delaware
corporation, will be held on , 1999, at 10:00 a.m., local time, at
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts, for the following
purposes:
1.To consider and vote upon a proposal to approve the issuance of up to an
estimated maximum of 7,700,000 shares of Open Market common stock to
FutureTense stockholders as contemplated by the agreement and plan of
merger, dated as of July 14, 1999, among Open Market, OM/SA Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of Open
Market, and FutureTense, Inc., a Delaware corporation, pursuant to which
OM/SA Acquisition Corporation will be merged with and into FutureTense,
with FutureTense being the surviving corporation. If this proposal is
approved, outstanding FutureTense stock options will be assumed by Open
Market and will convert into options to purchase up to an additional
estimated maximum of 1,332,367 shares of Open Market common stock at
various exercise prices.
2.To transact such other business as may properly come before the Open
Market special meeting or any adjournment or postponement of the Open
Market special meeting, including without limitation, potential
adjournments or postponements of the Open Market special meeting for the
purpose of soliciting additional proxies in order to approve the proposed
issuance of Open Market common stock in connection with the merger.
Open Market's board of directors has approved the merger and the merger
agreement and recommends that you vote FOR approval of the proposed issuance of
Open Market common stock in the merger. A vote in favor of the proposed
issuance of Open Market common stock will be effective whether or not the
actual shares of Open Market common stock to be issued in the merger exceeds
7,700,000 shares. We have described the proposal in more detail in the
accompanying joint proxy statement/prospectus, which you should read in its
entirety before voting. A copy of the merger agreement is attached as Annex A
to the accompanying joint proxy statement/prospectus.
The close of business on , 1999 has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at,
the Open Market special meeting or any adjournment or postponement of the
meeting. Only holders of record of Open Market common stock at the close of
business on the record date may vote at the Open Market special meeting.
The affirmative vote of a majority of the outstanding shares of Open Market
common stock is required to approve the proposed issuance of shares of Open
Market common stock in the merger.
All holders of Open Market common stock are cordially invited to attend the
Open Market special meeting in person. However, to ensure your representation
at the Open Market special meeting, you are urged to complete, sign and return
the enclosed proxy card as promptly as possible in the enclosed postage-prepaid
envelope. You may revoke your proxy in the manner described in the accompanying
joint proxy statement/prospectus at any time before it is voted at the Open
Market special meeting. Executed proxies with no instructions indicated thereon
will be voted "FOR" approval of the issuance of Open Market common stock in
connection with the merger. If you fail to return a properly executed proxy
card or vote in person at the
<PAGE>
Open Market special meeting, the effect will be a vote against the proposed
issuance of Open Market common stock in the merger.
Burlington, Massachusetts Eric J. Pyenson
, 1999 Secretary
THE BOARD OF DIRECTORS OF OPEN MARKET RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PROPOSED ISSUANCE OF OPEN MARKET COMMON STOCK IN THE MERGER.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE.
<PAGE>
FutureTense
43 Nagog Park
Acton, Massachusetts 01720
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On , 1999
----------------
To the Stockholders of FutureTense:
A special meeting of stockholders of FutureTense, a Delaware corporation,
will be held on , 1999, at 10:00 a.m., local time, at Testa,
Hurwitz & Thibeault, LLP, 125 High Street, Boston, Massachusetts, for the
following purposes:
1. To approve and adopt the agreement and plan of merger, dated as of July
14, 1999, among Open Market, Inc., a Delaware corporation, OM/SA
Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Open Market, and FutureTense, that will result in FutureTense
becoming a wholly-owned subsidiary of Open Market.
2. To approve the appointment of Jarrett Collins, currently a director of
FutureTense, as the indemnification representative (and the appointment of
Barry Fidelman in the event Mr. Collins is unable to continue as the
indemnification representative) to act on behalf of the FutureTense
stockholders in connection with the merger and the escrow agreement
referred to in the merger agreement.
3. To transact such other business as may properly come before the
FutureTense special meeting or any adjournment or postponement of the
FutureTense special meeting, including without limitation, potential
adjournments or postponements of the FutureTense special meeting for the
purpose of soliciting additional proxies in order to approve and adopt the
merger agreement.
FutureTense's board of directors has approved the merger agreement and the
appointment of the indemnification representative and recommends that you vote
FOR approval and adoption of the merger agreement and approval of the related
appointment of Jarrett Collins as the indemnification representative under the
escrow agreement referred to in the merger agreement. We have described the
proposals in more detail in the accompanying joint proxy statement/prospectus,
which you should read in its entirety before voting. A copy of the merger
agreement is attached as Annex A to the accompanying joint proxy
statement/prospectus.
The close of business on , 1999 has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at,
the FutureTense special meeting or any adjournment or postponement of the
meeting. Holders of record of FutureTense common stock and preferred stock at
the close of business on the record date may vote at the FutureTense special
meeting.
The affirmative vote of a majority of the outstanding shares of FutureTense
common stock, seventy-five percent of the outstanding shares of FutureTense
Series A preferred stock, Series B preferred stock, Series C preferred stock
and Series D preferred stock, voting together on an as-converted basis with
FutureTense common stock, a majority of the outstanding shares of FutureTense
Series C preferred stock, voting separately as a class, and a majority of the
outstanding shares of FutureTense Series D preferred stock, voting separately
as a class, is required to approve the merger agreement.
All holders of FutureTense common stock, Series A preferred stock, Series B
preferred stock, Series C preferred stock and Series D preferred stock are
cordially invited to attend the FutureTense special meeting in person. However,
to ensure your representation at the FutureTense special meeting, you are urged
to complete, sign and return the enclosed proxy card as promptly as possible in
the enclosed postage-prepaid envelope. You may revoke your proxy in the manner
described in the accompanying joint proxy statement/prospectus at any time
before it is voted at the FutureTense special meeting. Executed proxies with no
instructions indicated
<PAGE>
thereon will be voted "FOR" adoption of the merger agreement and the
transactions contemplated thereby. If you fail to return a properly executed
proxy card or vote in person at the FutureTense special meeting, the effect
will be a vote against the merger agreement.
Acton, Massachusetts Bagepalli Cheluva Krishna
, 1999 Secretary
THE BOARD OF DIRECTORS OF FUTURETENSE RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY.................................................................. 1
RISK FACTORS............................................................. 6
SELECTED HISTORICAL CONSOLIDATED AND UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION................................................... 17
MARKET PRICE INFORMATION................................................. 21
THE OPEN MARKET SPECIAL MEETING.......................................... 22
General................................................................. 22
Matters to be Considered................................................ 22
Open Market Board of Directors Recommendation........................... 22
Record Date and Voting.................................................. 22
Voting and Revocation of Proxies........................................ 23
THE FUTURETENSE SPECIAL MEETING.......................................... 25
General................................................................. 25
Matters to be Considered................................................ 25
FutureTense Board of Directors' Recommendation.......................... 25
Record Date and Voting.................................................. 25
Voting and Revocation of Proxies........................................ 26
THE MERGER............................................................... 28
Background of the Merger................................................ 28
Joint Reasons for the Merger............................................ 31
Recommendation of the Board of Directors of Open Market; Open Market's
Reasons for the Merger................................................. 31
Recommendation of the Board of Directors of FutureTense; FutureTense's
Reasons for the Merger................................................. 32
FutureTense's Reasons for the Merger.................................... 32
Opinion of Financial Advisor to Open Market............................. 32
Interests of Executive Officers and Directors of FutureTense in the
Merger................................................................. 36
Treatment of FutureTense Common Stock and Preferred Stock............... 38
Accounting Treatment of the Merger...................................... 38
Regulatory Approvals.................................................... 39
Material United States Federal Income Tax Considerations................ 39
Nasdaq National Market Quotation........................................ 42
Resales of Open Market Common Stock Issued in Connection with the
Merger; Affiliate Agreements........................................... 42
Cautionary Statement Concerning Forward-Looking Statements.............. 42
THE MERGER AGREEMENT..................................................... 44
General................................................................. 44
Conversion of Shares.................................................... 44
Creation of Escrow...................................................... 45
Treatment of FutureTense Stock Options.................................. 45
Treatment of FutureTense Warrants....................................... 45
Exchange of Stock Certificates.......................................... 45
Representations and Warranties.......................................... 46
Certain Covenants....................................................... 47
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Related Matters After the Merger......................................... 49
Indemnification of Open Market by Stockholders........................... 50
Conditions to Obligations to Effect Merger............................... 50
Termination; Fees and Expenses........................................... 52
Amendment and Waiver..................................................... 53
OTHER AGREEMENTS.......................................................... 54
Voting Agreements........................................................ 54
Escrow Agreement......................................................... 54
DESCRIPTION OF OPEN MARKET................................................ 55
DESCRIPTION OF FUTURETENSE................................................ 56
Business................................................................. 56
Management's Discussions and Analysis of Financial Condition and Results
of Operations........................................................... 57
Management............................................................... 64
Executive Compensation................................................... 65
Certain Transactions..................................................... 66
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS............... 68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT OF OPEN
MARKET................................................................... 76
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT OF
FUTURETENSE.............................................................. 77
SECURITY OWNERSHIP OF MANAGEMENT OF OPEN MARKET FOLLOWING THE MERGER...... 79
DESCRIPTION OF OPEN MARKET CAPITAL STOCK.................................. 80
General................................................................. 80
Open Market Common Stock................................................ 80
Description of Series A Junior Participating Preferred Stock............ 80
Open Market Preferred Stock............................................. 81
APPRAISAL RIGHTS.......................................................... 82
COMPARISON OF STOCKHOLDER RIGHTS.......................................... 84
General................................................................. 84
Capitalization.......................................................... 84
Voting Rights........................................................... 84
Number and Classification of Directors.................................. 84
Removal of Directors.................................................... 85
Filling Vacancies on the Board of Directors............................. 85
Charter Amendments...................................................... 85
Amendments to By-Laws................................................... 86
Action by Written Consent............................................... 86
Notice of Stockholder Actions........................................... 86
Right to Call Special Meeting of Stockholders........................... 86
Limitation of Personal Liability of Directors........................... 87
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Dividends................................................................ 87
Conversion and Redemption................................................ 88
Liquidation.............................................................. 89
Rights Agreement......................................................... 89
Rights in an Acquisition Event........................................... 90
STOCKHOLDER PROPOSALS...................................................... 90
LEGAL MATTERS.............................................................. 90
EXPERTS.................................................................... 91
WHERE YOU CAN FIND MORE INFORMATION........................................ 92
FINANCIAL STATEMENTS OF FUTURETENSE........................................ F-1
ANNEXES
A. Agreement and Plan of Merger
B. Opinion of PaineWebber Incorporated
C. Section 262 of the Delaware General Corporation Law
</TABLE>
iii
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" on page
92. We have included page references parenthetically to direct you to a more
complete description of the topics in this summary.
The Companies
Open Market, Inc.
One Wayside Road
Burlington, Massachusetts 01803
(781) 359-3000
Open Market develops, markets, licenses and supports a family of application
software products that allow its customers to engage in business-to-business
and business-to-consumer Internet commerce, information commerce and commercial
publishing. Open Market's software includes a wide spectrum of functionality
required to effectively conduct business on the Internet, allowing companies to
attract customers to their Web sites, interest them in acting upon an offer,
complete a transaction and service them once a transaction has been completed.
FutureTense, Inc.
43 Nagog Park
Acton, Massachusetts 01720
(978) 635-3600
FutureTense is a leading developer of content management software used as a
platform upon which to build e-publishing and e-business applications.
FutureTense's flagship product, the Internet Publishing System, enables
businesses to easily and economically contribute, publish, and share
information throughout an enterprise and with users of the Internet.
FutureTense focuses its marketing efforts towards on-line publishers, financial
service organizations, Fortune 1000 corporations for both Internet and Intranet
use, and large Internet portals.
The Merger
Through the merger, FutureTense will become a wholly-owned subsidiary of
Open Market. FutureTense stockholders will receive Open Market common stock in
exchange for their shares of FutureTense common stock, Series A preferred
stock, Series B preferred stock, Series C preferred stock and Series D
preferred stock. The merger agreement is attached to this joint proxy
statement/prospectus as Annex A. We encourage you to read the merger agreement
as it is the legal document that governs the merger.
Votes Required
(Pages 22 and 25)
Pursuant to applicable rules of the Nasdaq National Market, approval of the
proposed issuance of Open Market common stock in connection with the merger
requires the vote of a majority of the outstanding shares of Open Market common
stock because such issuance of shares of Open Market common stock may exceed
20% of the outstanding shares of Open Market common stock after the merger.
Approval of the merger agreement requires the vote of a majority of the
outstanding shares of FutureTense common stock, 75% of the outstanding shares
of FutureTense Series A preferred stock, Series B preferred stock, Series C
preferred stock and Series D preferred stock, voting together on an as-
converted basis with the FutureTense common stock, a majority of the
outstanding shares of FutureTense Series C preferred stock, voting separately
as a class, and a majority of the outstanding shares of FutureTense Series D
preferred stock, voting separately as a class.
The directors and officers who collectively beneficially own approximately
16% of the outstanding voting power of Open Market have already agreed under
voting agreements to vote in favor of the merger agreement.
1
<PAGE>
The directors, officers, founders and holders of five percent or more of the
outstanding voting power of FutureTense common stock, Series A preferred stock,
Series B preferred stock, Series C preferred stock and Series D preferred stock
who collectively beneficially own approximately 91% of the outstanding voting
power of FutureTense have already agreed under voting agreements to vote in
favor of the merger agreement. In addition, holders of an additional 2% are
contractually bound to vote for the merger under a voting agreement entered
into on January 26, 1996 between FutureTense and its founders.
Our Recommendations to Stockholders
(Pages 22 and 25)
To Open Market stockholders:
The Open Market board of directors voted to approve the merger and the
merger agreement and the proposed issuance of Open Market common stock in
connection with the merger. The Open Market board believes that the merger is
advisable and in your best interests and recommends that you vote FOR the
proposed issuance of Open Market common stock in the merger.
To FutureTense stockholders:
The FutureTense board of directors voted to approve the merger agreement and
the transactions contemplated thereby. The FutureTense board believes that the
merger is advisable and in your best interests and recommends that you vote FOR
the proposal to approve the merger agreement and the transactions contemplated
thereby.
What Holders of FutureTense
Common Stock Will Receive
(Page 44)
Holders of at least two-thirds of each series of FutureTense preferred stock
have agreed to convert their preferred stock to common stock immediately prior
to the merger. As a result, immediately prior to the merger each outstanding
share of FutureTense Series A preferred stock, Series B preferred stock and
Series C preferred stock will be converted into five shares of FutureTense
common stock and each outstanding share of FutureTense Series D preferred stock
will be converted into one share of FutureTense common stock.
Based upon an agreed upon conversion formula, it is estimated that each
share of FutureTense common stock will be exchanged for between .3590 and .4011
shares of Open Market common stock. The exact conversion ratio will be
determined immediately prior to the closing and may fall outside of the .3590
to .4011 range.
Open Market will not issue fractional shares of Open Market common stock in
connection with the merger. Instead, cash will be paid with respect to
fractional shares. Additionally, pursuant to a rights agreement between Open
Market and BankBoston N.A., one non-voting preferred stock purchase right will
be issued together with and will attach to each share of Open Market common
stock issued in the merger. For a description of the non-voting preferred stock
purchase rights, see page 80.
Based on 4,442,468 shares of FutureTense common stock, 380,651 shares of
FutureTense Series A preferred stock (which will be converted into 1,903,255
shares of FutureTense common stock), 754,178 shares of FutureTense Series B
preferred stock (which will be converted into 3,770,890 shares of FutureTense
common stock), 711,842 shares of FutureTense Series C preferred stock (which
will be converted into 3,559,210 shares of FutureTense common stock), and
5,436,837 shares of Series D preferred stock (which will be converted into
5,436,837 shares of FutureTense common stock) outstanding on July 1, 1999, it
is estimated that FutureTense stockholders will receive between 6,800,000 and
7,700,000 shares of Open Market common stock in the merger, or between 18.85%
and 21.34% of the issued and outstanding shares of Open Market common stock
following the merger. This estimate is based on certain assumptions, including,
FutureTense's future results of operations, the amount of FutureTense
transaction costs and expenses and the amount and exercise price of future
option issuances of FutureTense.
2
<PAGE>
Conditions to the Merger
(Page 50)
The completion of the merger depends upon meeting a number of conditions,
including the following:
. the approval of the stockholders of Open Market and FutureTense;
. all applicable waiting periods, and any extensions of these periods,
under the Hart Scott Rodino Act shall have expired or otherwise been
terminated;
. the holders of no more than 3% of the outstanding voting stock of
FutureTense exercise appraisal rights under Delaware General Corporation
Law;
. the approval of the listing on the Nasdaq National Market of the Open
Market common stock to be issued to FutureTense stockholders in the
merger;
. the receipt of legal opinions regarding material tax consequences of the
merger; and
. other customary contractual conditions specified in the merger
agreement.
Certain of the conditions to the merger may be waived by the company
entitled to assert the condition.
Indemnification
(Page 50)
If the merger agreement is approved and the merger occurs, all stockholders
of FutureTense who have not perfected dissenter's rights under the Delaware
General Corporation Law, by receipt of Open Market common stock in the merger,
will be deemed to have agreed to the terms of the escrow agreement referred to
in the merger agreement and to indemnify Open Market against damages due to (1)
the misrepresentation or breach of FutureTense's representations, warranties or
covenants in the merger agreement, (2) claims made by FutureTense stockholders
or former FutureTense stockholders based upon ownership or other stockholder
rights or (3) liability from the failure of FutureTense to file a material tax
return. This obligation to indemnify Open Market is limited to no more than 10%
of the total number of shares of Open Market common stock issued in the merger.
An escrow arrangement will be established at closing to hold this 10% amount.
If the stockholders approve of his selection, Jarrett Collins, currently a
director of FutureTense, will serve as the indemnification representative to
administer the escrow on behalf of all former FutureTense stockholders. The
escrow and indemnification obligations will end one year after closing. At that
time, if Open Market has not made a claim for the escrowed property, the
escrowed property will be released to the former FutureTense stockholders.
No Solicitation by FutureTense
(Page 48)
FutureTense has agreed that it will not initiate or engage in any discussion
regarding a business combination of FutureTense with any other party.
FutureTense has further agreed to cause each of its officers, directors,
employees, representatives and agents not to do any of these things.
Termination of the Merger Agreement
(Page 52)
Open Market and FutureTense can mutually agree to terminate the merger
agreement without completing the merger, and either Open Market or FutureTense
can terminate the merger agreement if any of the following occurs:
. the other party breaches any material representation, warranty or
covenant under the merger agreement;
. the approval of the stockholders of Open Market is not obtained;
. the merger is not completed by January 7, 2000; or
. in the event that before January 7, 2000 because:
(1) Open Market is sold pursuant to a sale, tender offer or other
transaction,
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the issuance of the shares of Open Market are not approved by the
stockholders of Open Market and FutureTense has satisfied certain
closing conditions and FutureTense is not otherwise in breach of the
merger agreement, or
(2) the merger agreement is terminated by FutureTense prior to January
7, 2000 if the above circumstances arise,
upon the closing of the sale, tender offer or other transaction, Open
Market will pay FutureTense $5,000,000.
Opinion of Financial Advisor
(Page 32)
In deciding to approve the merger, Open Market's board of directors received
an opinion from its financial advisor PaineWebber Incorporated as to the
fairness of the purchase price from a financial point of view. The full text of
the opinion is attached as Annex B to this joint proxy statement/prospectus and
should be read carefully in its entirety. The opinion of PaineWebber is
directed to the board of directors of Open Market and does not constitute a
recommendation to any stockholder with respect to matters relating to the
merger.
Interests of Executive Officers and Directors of FutureTense in the Merger
(Page 36)
In considering the recommendation of the FutureTense board, you should be
aware of the interests that executive officers and directors of FutureTense
have in the merger. These include:
. acceleration of vesting of stock options;
. employment and consulting agreements;
. indemnification and directors and officers' liability insurance; and
. becoming officers and/or directors of Open Market.
In discussing the fairness of the merger to stockholders of FutureTense,
FutureTense's board of directors took into account these interests. These
interests are different from and in addition to your and their interests as
stockholders. The executive officers and directors have stock options that will
be converted under the terms of FutureTense's stock option plan into options to
purchase shares of Open Market common stock. As of July 1, 1999, the executive
officers and directors of FutureTense held stock options to purchase an
aggregate of 1,545,000 shares of FutureTense common stock of which
approximately 571,401 shares are exercisable. Assuming the merger is completed
in September 1999, approximately 907,736 shares of FutureTense
common stock will become exercisable upon completion of the merger. In
addition, as of July 1, 1999, executive officers and directors held
1,767,540 shares of FutureTense common stock (including shares of preferred
stock which are convertible into common stock), of which 425,000 are subject to
FutureTense's right to repurchase. Assuming the merger is completed in
September 1999, FutureTense's right to repurchase will terminate with respect
to an additional 340,000 of these shares. FutureTense has the right to issue
options to purchase approximately 365,500 additional shares of FutureTense
common stock to its employees prior to the closing of the merger.
Open Market has entered into employment agreements with Ronald J. Matros,
Carol J. Mitchell, Julie A. Melbin, Daniel E. Latham and Bagepalli Cheluva
Krishna, which become effective upon completion of the merger. These agreements
provide for option grants, bonus plan participation, noncompetition provisions
and severance payments. In addition, Open Market has entered into a one year
consulting agreement with Howard Webber.
Accounting Treatment
(Page 38)
We expect the merger to qualify as a pooling of interests under United
States generally accepted accounting principles, which means that for
accounting and financial reporting purposes, Open Market will treat Open Market
and FutureTense as if they had always been a combined entity.
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Material United States
Federal Income Tax Considerations
(Page 39)
We have structured the merger so that no gain or loss generally will be
recognized by FutureTense stockholders for federal income tax purposes on the
exchange of shares of FutureTense common stock, Series A preferred stock,
Series B preferred stock, Series C preferred stock or Series D preferred stock
for shares of Open Market common stock.
Tax matters are very complicated, and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your tax
advisor for a full understanding of the tax consequences of the merger to you.
FutureTense Stockholders'
Right of Appraisal
(Page 82)
Under Delaware law, FutureTense stockholders who vote against the merger and
comply with notice requirements and other procedures will have the right to
receive the "fair value" of their shares in cash rather than the Open Market
common stock specified in the merger agreement. "Fair value" will be determined
by a Delaware court and may be more than, the same as, or less than the value
of the consideration to be paid to other FutureTense stockholders. In addition
to reading "Appraisal Rights," see Annex C which sets forth Section 262 of the
Delaware corporation statute.
How the Rights of
FutureTense Stockholders
Will Differ as an
Open Market Stockholder
(Page 84)
The rights of investors as stockholders of Open Market after the merger will
be governed by Open Market's charter and by-laws. Those rights differ from
rights of FutureTense stockholders under FutureTense's charter and by-laws.
Forward-Looking Statements
May Prove Inaccurate
(Page 42)
We have made forward-looking statements in this document (and in documents
that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of Open Market, including the
anticipated cost savings and revenue enhancements from the merger. Also, when
we use words such as "believes", "expects", "anticipates" or similar
expressions, we are making forward-looking statements. Stockholders should note
that many factors could affect the future financial results of Open Market and
FutureTense, and could cause these results to differ materially from those
expressed in our forward-looking statements. These factors include the
following:
. the risk that we are unable to achieve the anticipated cost savings and
revenue enhancements;
. the risk that we encounter greater than expected costs and difficulties
related to the integration of the businesses of Open Market and
FutureTense;
. the risk that we are unable to firmly develop, introduce and gain
customer acceptance of new products;
. economic, political and competitive forces affecting our businesses; and
. the risk that our analyses of these risks and forces could be incorrect
and/or that the strategies developed to address them could be
unsuccessful.
Open Market Price Information
(Page 21)
Shares of Open Market common stock are listed on the Nasdaq National Market.
On July 13, 1999, the last full trading day prior to the public announcement of
the proposed merger, Open Market common stock closed at $14.9375 per share. On
, 1999, Open Market common stock closed at $ per share.
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RISK FACTORS
You should carefully consider the following risk factors relating to the
merger before you decide whether to vote to approve and adopt the merger
agreement and the proposed issuance of Open Market common stock in connection
with the merger You should also consider the other information in this joint
proxy statement/prospectus and the additional information in Open Market's
other reports on file with the SEC and in the other documents incorporated by
reference in this joint proxy statement/prospectus. See "Where You Can Find
More Information" on page 92.
Risks Relating to the Merger
FutureTense stockholders may never receive 10% of the shares of Open Market
common stock issued in the merger.
Ten percent of the shares of Open Market common stock that would otherwise
be received by FutureTense stockholders in the merger will be placed in
escrow. The escrow will terminate one year after the date of the merger if
Open Market makes no claims for indemnification. Open Market may recover
damages out of this escrow resulting from breaches by FutureTense of
representations, warranties, and covenants contained in the merger agreement
and upon other contingencies and events described in the merger agreement.
Therefore, FutureTense stockholders may never receive the 10% of the shares of
Open Market common stock issued in the merger and placed into escrow.
Open Market may face challenges in integrating Open Market and FutureTense
and, as a result, may not realize the expected benefits of the anticipated
merger.
Integrating the operations and personnel of Open Market and FutureTense
will be a complex process, and Open Market is uncertain that the integration
will be completed rapidly or will achieve the anticipated benefits of the
merger. The successful integration of our companies will require, among other
things, integration of our sales and marketing groups and coordination of our
development efforts. The diversion of the attention of our management and any
difficulties encountered in the process of combining our companies could cause
the disruption of, or a loss of momentum in, the activities of the combined
company's business. Further, the process of combining our companies could
negatively affect employee morale and the ability of the combined company to
retain some of its key employees after the merger. In addition, the
announcement and completion of the merger could cause customers to delay or
change orders for products as a result of uncertainty over the integration of
our software products. The inability to successfully integrate the operations
and personnel of Open Market and FutureTense, or any significant delay in
achieving integration, could have a material adverse effect on the business,
financial condition and operating results of the combined company after the
merger.
Open Market's stock price is volatile and the value of the Open Market common
stock issued in the merger will depend on its market price at the time of the
merger, and no adjustment will be made as a result of changes in the market
price of Open Market's common stock.
Under the merger agreement, the conversion ratios used to determine the
number of shares of Open Market's common stock that FutureTense stockholders
will receive is unaffected by the share price of Open Market's common stock.
Increases in the value of Open Market's common stock will result in a higher
price being paid by Open Market for FutureTense and more value received by
FutureTense stockholders in the merger. Decreases in the value of Open
Market's common stock will result in a lower price being paid by Open Market
for FutureTense and less value received by FutureTense stockholders in the
merger. It is likely that you will not know the value of Open Market's common
stock to be issued in the merger at the time of either the Open Market special
meeting of stockholders or the FutureTense special meeting of stockholders.
Under the merger agreement, neither Open Market nor FutureTense will have the
right to terminate or renegotiate the merger agreement or to resolicit proxies
as a result of any increase or decrease in the value of Open Market's common
stock. The market price of Open Market's common stock, like that for the
shares of many other high technology and Internet companies, has been and may
continue to be volatile. For example, from January 1, 1997 to June 30, 1999,
the Open Market common stock traded as high as $27.00 per share and
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as low as $4.25 per share. Recently, the stock market in general and the shares
of software and Internet companies in particular have experienced significant
price fluctuations. The market price may continue to fluctuate significantly in
response to various factors, including:
. quarterly variations in operating results or growth rates;
. the announcement of technological innovations;
. the introduction of new products by Open Market and its competitors;
. changes in estimates by securities analysts;
. market conditions in the industry;
. announcements and actions by competitors;
. regulatory and judicial actions; and
. general economic conditions.
Significant merger-related charges against earnings will increase Open
Market's losses in the quarter in which we consummate the merger and during
the post-merger integration period.
We expect to incur charges of approximately $4.0 million in connection with
the merger which relates to fees, legal and accounting services and other
integration costs. These costs may be higher than we anticipate. In addition,
we may incur other additional unanticipated merger costs. These costs may delay
the anticipated benefits of the merger. Some of these nonrecurring costs will
be charged to operations in the fiscal quarter in which the merger is
consummated while others will be expensed as incurred during the post-merger
integration period. The Unaudited Pro Forma Combined Balance Sheet reflects
these estimated transaction costs, but the effects of these costs are not
reflected in the Unaudited Pro Forma Combined Statements of Operations.
Customers of Open Market and FutureTense may delay or cancel orders as a
result of concerns over the merger.
The announcement and closing of the merger could cause customers and
potential customers of Open Market and FutureTense to delay or cancel orders
for products as a result of customer concerns and uncertainty over product
evolution, integration and support over the combined company's products. Such a
delay or cancellation of orders could have a material adverse effect on the
business, operating results and financial condition of Open Market or
FutureTense.
Risks Relating to Open Market
Demand for Open Market's products may decrease if Open Market is unable to
adapt continually to rapid changes in the market for Internet-based software
applications.
The market for Internet-based software applications is characterized by
rapid technological change. As a result, there is uncertainty about the
widespread acceptance of new products that can cause significant delays in the
sales cycle. The introduction of product or service enhancements or new
products or services embodying new technologies, industry standards, or
customer requirements could supplant or make our existing products and services
obsolete. Open Market must continue to upgrade its technologies and
commercialize products and services incorporating such technologies, which may
lengthen Open Market's sales cycles.
Open Market's operating results are largely dependent upon the continued
development and acceptance of Internet commerce.
The market for our Internet products and services has only recently begun to
develop, is rapidly evolving and has an increasing number of market entrants
that have introduced and developed products and services for Internet commerce
that compete with Open Market. Open Market's future operating results depend
upon the development and growth of the market for Internet-based packaged
software applications, including electronic commerce applications. The
widespread acceptance of electronic commerce in general and, in particular, the
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Internet as a sales, marketing, order receipt and processing medium are highly
uncertain and subject to a number of risks. The following critical issues
remain unresolved and may impact the growth of Internet commerce:
. security;
. reliability;
. ease of use;
. quality;
. service; and
. government regulation.
If the Internet commerce market fails to continue to develop or develops more
slowly than expected, Open Market's business, operating results and financial
condition could be materially adversely affected.
Government regulation of and legal uncertainties relating to the Internet may
adversely affect Open Market's ability to market products facilitating
Internet commerce.
Open Market is not currently subject to direct regulation by any U.S.
government agency, other than regulations applicable to businesses generally,
and there are currently few laws or regulations directly applicable to access
to, or commerce on, the Internet. Moreover, the applicability to the Internet
of existing laws governing issues such as property ownership, libel and
personal privacy is uncertain. However, due to the increasing popularity and
use of the Internet, it is possible that a number of laws and regulations may
be adopted with respect to the Internet both in the U.S. and internationally,
covering issues such as user privacy, taxation, the content of products and the
nature of services. The adoption of any such laws or regulations may decrease
the growth of the Internet or inhibit electronic commerce, which could in turn
adversely affect Open Market's business, operating results or financial
condition. Due to the encryption technology contained in Open Market's
products, such products are subject to U.S. export controls. U.S. export
controls, either in their current form or as may be subsequently enacted, may
delay the introduction of new products or limit Open Market's ability to
distribute products outside of the United States. In addition, federal or state
legislation or regulation may further limit levels of encryption or
authentication technology. Further, various countries regulate the import of
certain encryption technology and have adopted laws relating to personal
privacy issues that could limit our ability to distribute products in those
countries. Any such export or import restrictions, new legislation or
regulation or government enforcement of existing regulations could have a
material adverse effect on Open Market's business, operating results and
financial condition.
The sales cycles for Open Market's products may be lengthy due to the
complexity of Open Market's products and could negatively impact Open Market's
operating results.
Open Market's products are complex and prospective customers often must make
significant investment decisions to purchase Open Market's products.
Accordingly, licensing such complex software products may require Open Market
to provide a significant level of education to prospective customers regarding
the use and benefits of its products, which may be time consuming. As a result,
Open Market's sales cycles may be lengthy and subject to a number of
significant delays. Delays due to lengthy sales cycles or delays in Open
Market's generation of customers or deployment of its Internet commerce
products could have a material adverse effect on Open Market's business,
operating results and financial condition and could be expected to cause Open
Market's operating results to vary significantly from quarter to quarter.
Failure to provide secure transmission of information over the Internet could
adversely impact the acceptance of Open Market's Internet commerce products.
A significant barrier to market acceptance of online commerce and
communication is the concern regarding the secure exchange of valuable and
confidential information over public networks. Open Market
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relies on encryption and authentication technology to provide the security and
authentication necessary to effect the secure exchange of valuable and
confidential information. There can be no assurance that advances in computer
capabilities, new discoveries in the field of cryptography or other events or
developments (such as break-ins and similar disruptive problems caused by
Internet users) will not result in a compromise or breach of algorithms used by
Open Market in Open Market's products to protect customer transaction data. If
any such compromise or breach were to occur, it could have a material adverse
effect on Open Market's business, financial condition, and operating results.
Demand for Open Market's products may decrease if Open Market cannot compete
successfully in the Internet commerce software market.
The market for Internet commerce software is new and intensely competitive.
The Internet is characterized by an increasing number of market entrants that
have introduced or developed products and services for commerce on the
Internet. Open Market's failure to introduce new products, services or product
enhancements on a timely basis may delay or hinder market acceptance and allow
competitors to gain a greater market share than Open Market. Many of Open
Market's competitors have greater financial, technical and marketing resources
and greater name recognition than Open Market does. Due to competition, Open
Market may have to reduce the prices of its products substantially or introduce
lower-priced lines of products to gain greater market share. Open Market's
operating results will be affected by the number of competitors it has and
their pricing strategies and market acceptance of their products. Open Market
cannot assure you that it will be able to compete successfully against these
companies.
Open Market will depend on the continued service of its key technical and
senior management personnel after the merger to secure, maintain and enhance
its industry position.
Open Market's future success depends in significant part upon the continued
service of its key technical and senior management personnel, and its
continuing ability to attract and retain highly qualified technical and
managerial personnel in a highly competitive market. Open Market's ability to
establish and maintain a position of technology leadership in the Internet
commerce industry depends in large part upon the skills of its development
personnel.
Fluctuations in Open Market's quarterly revenue and operating results may
result in reduced profitability and lead to reduced prices for its stock.
Open Market's expense levels are fixed in advance and are based in part on
its expectations as to future revenues. Quarterly sales and operating results
will generally depend on the volume and timing of orders received within the
quarter. Open Market may be unable to adjust spending in a timely manner to
compensate for unexpected revenue shortfalls. Open Market expects in the future
to experience significant fluctuations in quarterly operating results that may
be caused by many factors, including, among other things, the following:
. the number, timing and significance of product enhancements and new
product announcements by Open Market or its competitors;
. the length of Open Market's sales cycle;
. market acceptance of, and demand for, Open Market's products;
. the pace of development of electronic commerce conducted on the
Internet;
. customer order deferrals in anticipation of enhancements or new products
offered by Open Market or Open Market's competitors;
. non-renewal of service agreements;
. software defects and other product quality problems;
. Open Market's ability to attract and retain key personnel;
. the extent of international sales;
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. changes in the level of operating expenses; and
. general economic conditions.
As a result, Open Market's operating results in future quarters may be below
the expectations of market analysts and investors. In that event, the price of
Open Market's common stock would likely decrease.
Difficulties presented by international markets could negatively impact Open
Market's business.
For the fiscal year ended December 31, 1998, Open Market's international
gross sales comprised approximately 32% of its total gross sales. A downturn in
foreign economies may result in decreased sales of Open Market's products.
Generally, sales and manufacturing operations are subject to the risks normally
associated with international operations, including the following:
. currency conversion risks and currency fluctuations limitations,
including taxes, on the repatriation of earnings;
. political instability, civil unrest and economic instability;
. greater difficulty enforcing intellectual property rights and weaker
laws protecting such rights;
. greater difficulty and expense in conducting business abroad;
. complications in complying with foreign laws and changes in governmental
policies;
. transportation delays and interruptions; and
. the imposition of tariffs.
These risks could negatively impact international sales and manufacturing
operations, which could have a material adverse effect on Open Market's
business, financial condition and operating results.
Open Market will continue to depend on intellectual property rights to protect
its products although it may not always be able to protect such rights.
Open Market's success is dependent to a significant degree on its
proprietary software technology. Open Market provides its products to end users
generally under non-exclusive, non-transferable licenses for the term of the
agreement, which is usually in perpetuity. Open Market's policy is to enter
into confidentiality and assignment agreements with its employees, consultants,
and vendors and generally to control access to, and distribution of, its
software, documentation, and other proprietary information. Notwithstanding
these precautions, it may be possible for a third party to copy or otherwise
obtain and use Open Market's software or other proprietary information without
authorization or to develop similar software independently. Although Open
Market holds five U.S. patents covering certain aspects or uses of electronic
commerce software, it cannot be sure of the degree of intellectual property
protection such patents will provide. Policing unauthorized use of Open
Market's products is difficult, particularly because the global nature of the
Internet makes it difficult to control the ultimate destination or security of
software or other data transmitted. The laws of other countries may afford Open
Market little or no effective protection of its intellectual property. There
can be no assurance that the steps taken by Open Market will prevent
misappropriation of its technology or that agreements entered into for that
purpose would be enforceable.
Other parties may claim that Open Market has infringed their intellectual
property rights and such claims may interrupt Open Market's regular business
operations.
In the future, other parties may assert claims for infringement or
invalidity (or claims for indemnification from Open Market customers resulting
from infringement claims) against Open Market for violation of patent,
trademark, copyright or other proprietary rights as a result of the use by Open
Market, Open Market's customers or other third parties of Open Market's
products to transmit, disseminate, or display information over or on the
Internet. Such claims are likely to become increasingly prevalent as the
Internet gains more
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widespread use and new parties enter already competitive markets where
intellectual property rights are essential to conducting business. Any such
claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays, or require us to enter into royalty or licensing agreements.
There can be no assurance that any licenses would be available on reasonable
terms, if at all, and the assertion or prosecution of any such claims could
have a material adverse effect on Open Market's business, financial condition
and operating results.
Open Market's products may contain undetected defects which may prove costly
and time-consuming for Open Market to correct.
Sophisticated software products, such as those Open Market produces and
markets, may contain undetected errors or failures that become apparent when
Open Market introduces the products or when it provides an increased volume of
services. Open Market cannot assure you that its testing and its potential
customers will detect all errors in Open Market's products prior to licensing
or sale. Correcting such errors may result in loss of revenues, delay in market
acceptance, diversion of development resources, damage to Open Market's
reputation, or increased service and warranty costs, which would have a
material adverse effect on Open Market's business, financial condition and
operating results.
Open Market may need to engage in litigation to protect its intellectual
property rights in the competitive market for Internet software products and
services.
Litigation may be necessary in the future to enforce Open Market's
intellectual property rights, to protect its patents, copyrights, trademarks or
trade secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation, whether successful or unsuccessful, could result in substantial
costs and diversions of resources, which may have a material adverse effect on
Open Market's business, financial condition and operating results. Litigation
regarding intellectual property rights, copyrights, trademarks and patents is
increasingly common in the software industry. Intellectual property litigation
is complex and expensive and the outcome of such litigation is difficult to
predict.
Delays in Open Market's planned release schedule may result in a loss of
market share.
Delays in the planned release of Open Market's new products may adversely
affect forecasted revenues and create operational inefficiencies resulting from
staffing levels designed to support the forecasted revenues. Open Market's
failure to introduce new products, services or product enhancements on a timely
basis may delay or hinder market acceptance and allow competitors to gain
greater market share than Open Market.
Open Market may not be able to retain key employees of FutureTense.
Because of the high valuation Open Market placed on FutureTense, its key
founders and employees have received or will receive a substantial number of
Open Market shares and can sell these shares at substantial gains. In many
cases, these individuals could become financially independent through these
sales, before the products of either company have fully matured into
commercially deliverable products commanding reasonable market share.
Additionally, startup and other companies will seek out these individuals due
to the financial result they have achieved for their investors. Under the
circumstances, Open Market faces a difficult and significant task of retaining
and motivating the key personnel of FutureTense to stay committed to Open
Market. Open Market has entered into employment agreements with only six
employees of FutureTense. Open Market may nonetheless be unsuccessful in
retaining these employees or any other FutureTense employees.
Open Market has a limited operating history.
Open Market began operations in 1994. Open Market's ability to successfully
market its existing products and to develop and market new products must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets like the Internet.
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The failure of Open Market's software products and internal computer systems
and software programs to be year 2000 compliant could negatively impact its
business.
Many currently installed computer systems and software products only accept
two digits to identify the year in any date. Thus, the year 2000 will appear
as "00," which a system might consider to be the year 1900 rather than the
year 2000. This could result in software product failures, system failures,
delays or miscalculations causing disruptions to Open Market's operations.
Open Market has begun and will continue to assess the impact of year 2000 date
recognition problems on its commercial products and internal systems. Open
Market cannot be certain that it will identify all of the potential risks to
its business that could result from year 2000-related issues. However, Open
Market has identified the following risks of which you should be aware:
. Year 2000 problems that affect Open Market's internal systems. Open
Market has relied on the representations and certifications by its
software vendors regarding the year 2000 readiness of its information
technology systems and has not conducted extensive independent testing
of these systems. It is possible that these systems could contain
undetected problems that could cause serious disruptions which would
have a material adverse effect on Open Market's business, financial
condition and operating results.
. Year 2000 problems that affect Open Market's software products. Open
Market is implementing a detailed year 2000 test procedure for the phase
review and software release process to ensure that its software products
will be year 2000 compliant. This testing began in October 1998, and
Open Market expects that such testing will continue through 1999 and
into 2000. As part of this process, Open Market must also determine,
through a combination of internal and external testing, whether the
components of its software products supplied to Open Market by vendors
are year 2000 compliant. Open Market cannot be certain that such testing
will detect all potential year 2000 problems. The failure of Open
Market's products to be year 2000 compliant could result in claims by or
liability to Open Market's customers, which could have a material
adverse effect on Open Market's business, financial condition and
operating results.
. The costs associated with remedying year 2000 problems. Open Market has
assessed the cost of achieving year 2000 compliance to be in the range
of $700,000 to $1 million. To date, Open Market has incurred costs of
approximately $700,000 for its year 2000 projects. Such costs may
include those for research and development, capital equipment, outside
software tools, outside contractors or internal resources which may be
allocated to year 2000 projects. There can be no assurance that these
costs will not increase or be subject to reassessment as testing of Open
Market's products and essential technology information systems
continues. Open Market may incur significant costs to avoid disruptions
in customer service, technical support, access to on-line services and
products and product functionality. Failure to contain costs could have
a material adverse effect on Open Market's business, financial condition
and results of operations.
Risks Relating to FutureTense
FutureTense expects to incur future losses.
FutureTense incurred net losses of $2.6 million for the year ended December
31, 1996, $4.5 million for the year ended December 31, 1997 and $6.4 million
for the year ended December 31, 1998. As of June 30, 1999, FutureTense had an
accumulated deficit of $17.8 million. FutureTense has not achieved
profitability and as an independent company FutureTense would expect to incur
net losses for the foreseeable future as it would continue to incur
significant product development, sales and marketing, and administrative
expenses. As a result, FutureTense would need to generate significant revenues
to achieve and maintain profitability. Although FutureTense's revenues have
grown significantly in recent quarters, FutureTense cannot be certain that it
can sustain these growth rates or that it will achieve sufficient revenues for
profitability. If FutureTense does achieve profitability, FutureTense cannot
be certain that it can sustain or increase profitability on a quarterly or
annual basis in the future.
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FutureTense has a limited operating history with its Internet Publishing
System.
FutureTense began operations as an independent company in 1995. FutureTense
launched the Internet Publishing System, or IPS, in June 1998. FutureTense's
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies focusing on a new product line,
particularly companies in the new and rapidly evolving market for Web-based
interactive business solutions.
FutureTense is growing rapidly and effectively managing its growth may be
difficult.
FutureTense has significantly increased its employee base to meet increasing
demand for its products and services. FutureTense's revenues have increased
from $187,000 for the year ended December 31, 1997 to $2.4 million for the year
ended December 31, 1998 and $3.0 million for the six months ended June 30,
1999. FutureTense's management and operations have been strained by this growth
and will continue to be strained should rapid growth continue. To compete
effectively and to manage future growth, FutureTense must continue to improve
its financial and management controls, reporting systems and procedures on a
timely basis. FutureTense must also expand, train and manage its employee base.
If FutureTense is not successful managing growth, its business may be harmed.
FutureTense will need additional financing in the future.
While FutureTense currently has a line of credit with a bank and is
negotiating additional borrowings from the bank and Open Market, FutureTense
expects to need additional funding for its operations if the closing of the
merger does not occur before January 7, 2000. FutureTense may also need
additional funding before that date and such funding may not be available on
reasonable terms, if at all. Additional indebtedness incurred by FutureTense
may decrease the proceeds to FutureTense's stockholders in the merger.
FutureTense may lose access to third-party technology used in its products.
FutureTense incorporates into its product technology licensed from third
parties, such as Netscape. The loss of access to this technology could result
in delays in the licensing of current products and the development and
introduction of new products or enhancements until equivalent or replacement
technology could be accessed, if available, or developed internally, if
feasible. These delays could have a material adverse effect on our business,
operating results and financial condition. It is possible that technology from
third parties will not be available to us on commercially reasonable terms, if
at all.
FutureTense faces intense competition for content management software which
could make it difficult to acquire and retain clients.
The Internet software market is intensely competitive. FutureTense's
clients' requirements and the technology available to satisfy those
requirements continually change. FutureTense expects competition to persist and
intensify in the future.
FutureTense's principal competitors include in-house development efforts by
potential clients or partners and other software vendors that address content
management, such as Vignette and Inso Corporation. In addition, FutureTense may
face competition from companies that develop application servers if they begin
to develop products with functionality similar to its products. These
companies, as well as some other competitors, have longer operating histories
and significantly greater financial, technical, marketing and other resources
than FutureTense does. Many of these companies can also leverage extensive
customer bases and adopt aggressive pricing policies to gain market share. It
is possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share.
Competitive pressure may make it difficult for FutureTense to acquire and
retain clients and may require FutureTense to reduce the price of its products
and services. FutureTense cannot be certain that it will be able to compete
successfully with existing or new competitors. If FutureTense fails to compete
successfully with existing or new competitors, FutureTense's business,
operating results and financial condition would be materially adversely
affected.
13
<PAGE>
FutureTense's business will be adversely affected if web-based electronic
business solutions are not widely adopted.
FutureTense's content management solutions address the needs of a new and
emerging market for Web-based, interactive electronic business solutions.
Therefore, its future success depends substantially upon the widespread
adoption of the Web as a primary medium for commerce and business
applications. The failure of this market to develop, or a delay in the
development of this market, would have a material adverse effect on
FutureTense's business, financial condition and operating results. Critical
issues concerning the commercial use of the Web, such as security,
reliability, cost, accessibility and quality of service, remain unresolved and
may negatively affect the growth of Web use or the attractiveness of commerce
and business communication over the Web. In addition, the Web could lose its
viability due to delays in the development or adoption of new standards and
protocols to handle increased activity or due to increased government
regulation and taxation of Internet commerce.
FutureTense's performance will depend on the new market for content
management software.
The market for content management software is new and rapidly evolving.
FutureTense expects that it will continue to need intensive marketing and
sales efforts to educate prospective clients about the uses and benefits of
its products and services. Accordingly, FutureTense cannot be certain that a
viable market for its products will emerge or be sustainable. Enterprises that
have already invested substantial resources in other methods of conducting
business may be reluctant or slow to adopt a new approach that may replace,
limit or compete with their existing systems.
If FutureTense is unable to meet the rapid changes in Internet technology its
existing products and services could become obsolete.
The market for FutureTense's products is marked by rapid technological
change, frequent new product introductions and Internet-related technology
enhancements, uncertain product life cycles, changes in client demands and
evolving industry standards. FutureTense cannot be certain that it will
successfully develop and market new products and services, new product
enhancements or new products compliant with present or emerging Internet
technology standards. New products based on new technologies or new industry
standards can render existing products obsolete and unmarketable. To succeed,
FutureTense will need to enhance its current products and services and develop
new products and services on a timely basis to keep pace with developments
related to Internet technology and to satisfy the increasingly sophisticated
requirements of its clients. Any delays in developing and releasing enhanced
or new products and services could have a material adverse effect on
FutureTense's business, operating results and financial condition.
FutureTense's quarterly results often depend on a small number of large
orders.
FutureTense derives a significant portion of its software license revenues
in each quarter from a small number of relatively large orders. FutureTense's
operating results could be materially adversely affected if it were unable to
complete one or more substantial license sales in any future period. In
addition, small delays in customer orders or product implementations can cause
significant variability in its license revenues and operating results for any
particular period. Because FutureTense derives a substantial portion of its
revenue from the sale of products with related installation services,
FutureTense's revenue recognition policy requires it to substantially complete
the implementation of these products before it can recognize software license
revenue. Therefore any end of quarter delays in product implementation could
materially adversely affect operating results for that quarter.
FutureTense develops complex software products susceptible to software errors
or defects that could result in lost revenues, or delayed or limited market
acceptance.
Complex software products such as FutureTense's often contain errors or
defects, particularly when first introduced or when new versions or
enhancements are released. Despite internal testing and testing by current and
potential customers, FutureTense's current and future products may contain
serious defects, including year 2000 errors. Serious defects or errors could
result in lost revenues or a delay in market acceptance, which
14
<PAGE>
would have a material adverse effect on FutureTense's business, operating
results and financial condition. In addition, since FutureTense's clients use
its products for mission critical applications such as Internet commerce,
errors, defects or other performance problems could result in financial or
other damages to FutureTense's clients. They could seek damages for losses
from FutureTense, which, if successful, could have a material adverse effect
on its business, operating results or financial condition. Furthermore, any
product liability claim brought against FutureTense, even if not successful,
would likely be time consuming and costly.
FutureTense's business is based on its intellectual property and it could
incur substantial costs defending its intellectual property from infringement
or a claim of infringement.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. FutureTense could
incur substantial costs to prosecute or defend any such litigation. Although
FutureTense is not currently involved in any intellectual property litigation,
it may be a party to litigation in the future to protect its intellectual
property or as a result of an alleged infringement of others intellectual
property, forcing FutureTense to do one or more of the following:
. cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
. obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms; and
. redesign those products or services that incorporate such technology.
FutureTense relies on a combination of patent, trademark, trade secret and
copyright law and contractual restrictions to protect its technology. These
legal protections provide only limited protection. If FutureTense litigated to
enforce its rights, it would be expensive, divert management resources and may
not be adequate to protect its business.
FutureTense may be unable to hire and retain the skilled personnel it needs.
Qualified personnel are in great demand throughout the software industry.
The demand for qualified personnel is particularly acute in the New England
area, due to the large number of software companies and the low unemployment
in the region. FutureTense's success depends in large part upon its ability to
attract, train, motivate and retain highly skilled employees, particularly
marketing personnel, software engineers and other senior personnel.
FutureTense's failure to attract and retain the highly trained technical
personnel that are integral to its product development, professional services
and support teams may limit the rate on which FutureTense can develop new
products or product enhancements. This could have a material adverse effect on
FutureTense's business, operating results and financial condition.
FutureTense's software often requires a lengthy installation process.
Implementation of FutureTense's product may be a lengthy process and may
require participation by its professional services group. FutureTense may not
be able to expand that group or train and retain third-party implementors to
meet the needs of its clients. This may limit FutureTense's ability to make
sales in the future.
FutureTense may be affected by unexpected year 2000 problems.
Many existing computer systems and software products do not properly
recognize dates after December 31, 1999. This year 2000 problem could result
in miscalculations, data corruption, system failures or disruptions of
operations. FutureTense is subject to potential year 2000 problems affecting
its products, its customers systems, its internal systems and the systems of
its vendors, any of which could have a material adverse effect on
FutureTense's business, operating results and financial condition.
Changing purchasing patterns of customers impacted by year 2000 issues may
result in reduced resources available for purchases of FutureTense's products
and services. In addition, there can be no assurance that year 2000 errors or
defects will not be discovered in FutureTense's internal software systems and,
if such errors or defects are discovered, there can be no assurance that the
costs of making such systems year 2000 compliant will not be material.
15
<PAGE>
Year 2000 errors or defects in the internal systems maintained by
FutureTense's vendors could require FutureTense to incur significant
unanticipated expenses to remedy any problems or replace affected vendors. See
"Description of FutureTense--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Readiness Disclosure."
16
<PAGE>
SELECTED HISTORICAL CONSOLIDATED AND UNAUDITED
PRO FORMA COMBINED FINANCIAL INFORMATION
The following selected historical consolidated financial information of Open
Market and FutureTense has been derived from their respective historical
consolidated financial statements and include their notes, and should be read
in conjunction with these consolidated financial statements and the notes. The
historical financial statements of FutureTense for the years ended December 31,
1996, 1997 and 1998, including their notes, were audited by
PricewaterhouseCoopers LLP, independent accountants, and begin on page F-1. The
historical consolidated financial statements of Open Market were audited by
Arthur Andersen LLP, independent accountants and are incorporated herein by
reference. See "Where You Can Find More Information" and "Incorporation of
Certain Documents by Reference." The Open Market and FutureTense historical
financial information as of and for the interim periods presented below has
been prepared on the same basis as that derived from historical financial
statements prepared on an annual basis and, in the opinion of management of the
respective companies, includes all adjustments, consisting of normally
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations of the respective companies as of these
dates and for these periods. The results of the interim periods presented are
not necessarily indicative of the results to be expected for future periods.
The selected unaudited pro forma combined financial data which has been
derived from the selected historical consolidated financial statements,
appearing elsewhere in this joint proxy statement/prospectus, gives effect to
the merger as a pooling of interest. This pro forma combined financial
information should be read in conjunction with the unaudited pro forma combined
financial information and their notes. We present the selected unaudited pro
forma combined financial information for illustrative purposes only. This
information is not necessarily indicative of the operating results or financial
position that would have occurred if the merger had been consummated. In
addition, it does not necessarily represent or predict the future operating
results of the financial position of the combined company. For the purpose of
the pro forma combined statement of operations data, Open Market's results of
operations for the period from inception (April 25, 1994) to December 31, 1994
and for fiscal years ended December 31, 1994, 1995, 1996, 1997 and 1998 and the
six months ended June 30, 1998 and 1999 have been combined with FutureTense's
results of operations for the same fiscal periods from inception (April 5,
1995). For the purpose of the pro forma balance sheet, Open Market's
consolidated balance sheet as of June 30, 1999 has been combined with
FutureTense's consolidated balance sheet as of June 30, 1999, giving the effect
to the merger as if it had occurred on June 30, 1999.
Open Market expects to incur merger-related pre-tax charges covering the
costs of the merger principally in the quarter in which the merger is
consummated. Such pre-tax charges, which are currently estimated to be $4.0
million, will primarily consist of direct costs of the merger, including fees
to financial advisors, legal counsel and independent auditors, and printing and
other fees and expenses relating to holding a meeting of stockholders and
preparing this joint proxy statement/prospectus. However, additional
unanticipated expenses may be incurred in connection with this transaction.
Additionally, upon the consummation of the merger, FutureTense will record a
compensation charge of approximately $275,000 related to the acceleration of
certain stock options granted at a price below fair market value for accounting
purposes. The unaudited pro forma combined balance sheet reflects these
estimated transaction costs and the compensation charge. But the effects on
these costs are not reflected in the unaudited pro forma combined statement of
operations.
The pro forma and the historical tax provision for the financial statements
provided in this joint proxy statement/prospectus are based on the effective
rates for Open Market and are exclusive of any tax benefits that may have
arisen from the combined operations of Open Market and FutureTense.
17
<PAGE>
Selected Historical Consolidated and Unaudited Pro Forma Combined Financial
Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
----------------------------------------------- ------------------
1994(1) 1995 1996 1997(2) 1998(3) 1998 1999
------- -------- -------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Open Market--Statement
of Operations Data
Net revenues............ $ -- $ 1,806 $ 22,501 $ 61,260 $ 62,145 $ 31,728 $ 34,146
Gross profit............ -- 793 17,008 49,617 44,846 23,977 24,366
Operating loss.......... (1,280) (14,028) (29,120) (59,254) (30,138) (16,900) (5,115)
Net loss................ (1,250) (13,872) (26,510) (58,006) (30,472) (16,964) (5,165)
Net loss per share-basic
and diluted............ -- (1.49) (1.31) (1.87) (0.91) (0.53) (0.14)
Open Market--Balance
Sheet Data
Working capital......... $ 461 $ (5,783) $ 66,820 $ 18,840 $ 27,845 $ 15,040 $ 29,836
Total assets............ 959 7,947 85,802 80,874 94,958 82,496 85,085
Long-term debt, net of
current maturities..... 195 659 128 99 2,789 54 2,720
Stockholders' (deficit)
equity................. (1,283) (15,187) 72,367 43,459 54,993 46,848 52,733
- --------
(1) Statement of operations data for 1994 is for the period from inception
(April 25, 1994) to December 31, 1994.
(2) In connection with the acquisition of Waypoint Software Corporation and
Folio Corporation in 1997, Open Market allocated $34,250 of the combined
purchase price to in-process research and development, which was
immediately expensed upon the closing of the transactions.
(3) In connection with the acquisition of ICentral, Incorporated in 1998, Open
Market allocated $5,700 of the purchase price to in-process research and
development, which was immediately expensed upon the closing of the
transaction. Additionally, Open Market recorded a $2,000 restructuring
charge in the fourth quarter of 1998.
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
-------------------------------------- ------------------
1995(1) 1996 1997(2) 1998 1998 1999
-------- -------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Future Tense--Statement of
Operations Data
Total revenue........... $ 45 $ 16 $ 187 $ 2,401 $ 1,077 $ 3,012
Gross profit (loss)..... 25 13 (23) 1,121 562 1,668
Loss from operations.... (42) (2,668) (4,503) (6,366) (2,965) (4,152)
Net loss................ (42) (2,584) (4,454) (6,443) (2,993) (4,109)
Net loss per share--ba-
sic and diluted........ -- (3.24) (2.50) (2.50) (1.26) (1.28)
Future Tense--Balance
Sheet Data
Working capital......... $ (23) $ 3,045 $ (2,385) $ 428 $ 208 $ 706
Total assets............ 21 3,444 2,716 4,244 3,403 6,114
Long-term debt, net of
current maturities..... -- 129 11 148 246 76
Redeemable convertible
preferred stock........ -- 5,749 6,686 15,425 11,875 19,925
Stockholders' deficit... (21) (2,644) (7,079) (13,558) (10,087) (17,625)
</TABLE>
- --------
(1) FutureTense was incorporated on April 5, 1995. Accordingly, no previous
financial information is available and the statement of operations data for
1995 is for the period from FutureTense's inception (April 5, 1995) to
December 31, 1995.
(2) In connection with the acquisition of Mission Critical Technologies, Inc.
in 1997, FutureTense allocated $429 of the purchase price to in-process
research and development, which was immediately expensed upon the closing
of the transaction.
18
<PAGE>
Selected Historical Consolidated and Unaudited Pro Forma Combined Financial
Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
----------------------------------------------- -----------------
1994(1) 1995(2) 1996 1997 1998 1998 1999(3)
------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Pro Forma Combined
Statement of Operations
Data
Net revenues............ $ -- $ 1,851 $ 22,517 $ 61,447 $ 64,546 $ 32,805 $37,158
Gross profit............ -- 818 17,021 49,594 45,967 24,539 26,034
Operating loss.......... (1,280) (14,070) (31,788) (63,757) (36,504) (19,865) (9,267)
Net loss................ (1,250) (13,914) (29,094) (62,460) (36,915) (19,957) (9,274)
Net loss per share-basic
and diluted(4)......... (1.49) (1.42) (1.98) (1.08) (0.60) (0.25)
Net loss per share-pro
forma(5)............... (0.61) (1.06) (1.87) (0.99) (0.56) (0.22)
Pro Forma Combined Bal-
ance Sheet Data
Working capital......... $ 461 $ (5,806) $ 69,866 $ 16,455 $ 28,273 $ 15,247 $26,541
Total assets............ 959 7,968 89,246 83,590 99,202 85,898 91,199
Long-term debt, net of
current maturities..... 195 659 257 110 2,937 307 2,796
Stockholders' (deficit)
equity................. (1,283) (15,187) (12,082) 43,066 56,860 48,636 51,033
</TABLE>
- --------
(1) Statement of operations data for 1994 is for the period from Open Market's
inception (April 25, 1994) to December 31, 1994; accordingly no loss per
share is presented.
(2) FutureTense was incorporated on April 5, 1995. Therefore, the pro forma
information prior to April 5, 1995, is the same as Open Market's historical
financial statements.
(3) The unaudited pro forma balance sheet as of June 30, 1999 includes
estimated merger costs of approximately $4.0 million of direct costs of the
merger, fees to financial advisors, legal counsel and independent auditors.
Additionally, upon the consummation of the merger, FutureTense will record
a compensation charge of approximately $275,000 related to the acceleration
of certain options previously granted at a price below fair market value
for accounting purposes. However, the effects of these costs and the
compensation charge are not reflected in the unaudited pro forma statement
of operations.
(4) Basic net loss per share is based upon the weighted average number of
shares of Open Market common stock, and FutureTense common stock and
preferred stock on an as-converted basis outstanding for each period using
a conversion ratio of .37802 shares of Open Market common stock for each
share of FutureTense common stock and preferred stock on an as-converted
basis. The diluted net loss per share is the same as basic net loss per
share for each period presented, as the effects of the potential common
stock are anti-dilutive. Basic and diluted net loss per share would have
been $(0.53), $(1.37), $(1.97), $(1.07), $(0.60) and $(0.25), assuming a
minimum of 6,800,000 shares of Open Market common stock were exchanged for
FutureTense common stock and preferred stock on an as-converted basis. The
conversion ratio equals the number determined by dividing (a) the
difference between (i) the sum of $125,000,000 and the aggregate amount
receivable by FutureTense upon the exercise of outstanding options of
FutureTense and (ii) certain deductible obligations by (b) $14.7064, and
then dividing the quotient by the sum of (x) the number of shares of common
stock of FutureTense issued and outstanding, (y) the number of shares of
common stock of FutureTense issuable upon the exercise of outstanding
options and warrants and (z) the number of shares of common stock issuable
by FutureTense upon conversion of its preferred stock in connection with
the merger.
(5) Pro forma basic and diluted net loss per share is based upon the weighted
average number of shares of Open Market and FutureTense common stock
outstanding for each period plus the FutureTense preferred stock on an as-
converted basis for each period using a conversion ratio of .37802 shares
of Open Market common stock for each share of FutureTense common stock and
preferred stock on an as-converted basis. Pro forma basic and diluted would
have been $(0.53), $(1.31), $(1.86), $(0.98), $(0.55) and $(0.22), assuming
a minimum of 6,800,000 shares of Open Market common stock were exchanged
for FutureTense common stock and preferred stock on an as-converted basis.
19
<PAGE>
Comparative Per Share Data
(unaudited)
The following table summarizes certain per share information for Open Market
and FutureTense on a historical pro forma combined and equivalent pro forma
combined basis. You should read the information below along with the selected
consolidated financial data and the unaudited pro forma combined financial data
included elsewhere in this joint proxy statement/prospectus. The pro forma
combined financial data are not necessarily indicative of the operating results
of future operations or the actual results that would have occurred at the
beginning of the period presented.
<TABLE>
<CAPTION>
Six Months
Years Ended December Ended June
31, 30,
---------------------- --------------
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Historical-Open Market:
Net loss per share-basic and diluted.. $(1.31) $(1.87) $(0.91) $(0.53) $(0.14)
Book value per share at period
end(1)............................... $ 1.56 $ 1.46
Historical-FutureTense:
Net loss per share-basic and diluted.. $(3.24) $(2.50) $(2.50) $(1.26) $(1.28)
Book value per share at period
end(1)............................... $(3.06) $(3.97)
Pro Forma Combined-Per Open Market
share at 0.37802:1 conversion(2):
Net loss per share--basic and
diluted.............................. $(1.42) $(1.98) $(1.08) $(0.60) $(0.25)
Net loss per share--pro forma......... $(1.06) $(1.87) $(0.99) $(0.56) $(0.22)
Book value per share at period
end(1)............................... $ 1.37 $ 1.18
Equivalent Pro Forma Combined-Per
FutureTense share at 2.64536:1
conversion(3):
Net loss per share--basic and
diluted.............................. $(0.46) $(0.83) $(0.45) $(0.25) $(0.11)
Net loss per share--pro forma......... $(0.44) $(0.77) $(0.41) $(0.23) $(0.09)
Book value per share at period
end(1)............................... $ 0.52 $ 0.45
</TABLE>
- --------
(1) Book value is computed by dividing total stockholders' equity (deficit) by
the number of shares outstanding at December 31, 1998 and June 30, 1999.
(2) Open Market pro forma combined book value per share is computed by dividing
pro forma stockholders' equity by the pro forma number of shares of Open
Market common stock which would have been outstanding had the merger been
consummated as of each balance sheet date.
(3) FutureTense equivalent pro forma combined amounts are calculated by
multiplying the Open Market pro forma combined per share amounts and book
value by the conversion ratio assuming the conversion ratio is 0.37802
shares of Open Market common stock for each share of FutureTense common
stock.
20
<PAGE>
MARKET PRICE INFORMATION
Open Market
Open Market common stock has traded on the Nasdaq National Market under the
symbol "OMKT" since May 28, 1996.
The table below sets forth, for the periods indicated, the reported high and
low sale prices of Open Market common stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
Open Market
Common Stock
-------------
High Low
------ ------
<S> <C> <C>
Calendar 1997
Quarter ended March 31, 1997................................... $16.25 $ 8.63
Quarter ended June 30, 1997.................................... 13.63 6.50
Quarter ended September 30, 1997............................... 16.38 9.50
Quarter ended December 31, 1997................................ 17.38 8.88
Calendar 1998
Quarter ended March 31, 1998................................... 21.38 9.50
Quarter ended June 30, 1998.................................... 29.13 14.50
Quarter ended September 30, 1998............................... 21.63 8.50
Quarter ended December 31, 1998................................ 27.00 4.25
Calendar 1999
Quarter ended March 31, 1999................................... 17.44 11.19
Quarter ended June 30, 1999.................................... 17.50 11.50
Quarter ended September 30, 1999 (through , 1999)........
</TABLE>
On July 13, 1999, the last full trading day prior to the public announcement
of the proposed merger, the last reported sale price of Open Market common
stock on the Nasdaq National Market was $14.9375 per share. On
, 1999, the most recent practicable date prior to the
printing of this joint proxy statement/prospectus, the last reported sale price
of Open Market common stock on the Nasdaq National Market was $ per share.
Because the market price of Open Market common stock may fluctuate, the
market price per share of the shares of Open Market common stock that holders
of FutureTense stock will receive in the merger may increase or decrease prior
to the merger.
We urge FutureTense stockholders to obtain a current market quotation for
Open Market common stock.
FutureTense
FutureTense common stock is not publicly traded. At the record date, there
were FutureTense stockholders. FutureTense has not paid any cash dividends
since its inception.
21
<PAGE>
THE OPEN MARKET SPECIAL MEETING
General
This joint proxy statement/prospectus is being furnished to stockholders of
Open Market, Inc., a Delaware corporation as part of the solicitation of
proxies by the Open Market board of directors for use at a special meeting of
stockholders of Open Market to be held on , 1999, at 10:00 a.m.,
local time, at Hale and Dorr LLP, 60 State Street, Boston, Massachusetts, and
at any adjournment or postponement of such meeting. This joint proxy
statement/prospectus and the enclosed form of proxy are first being mailed to
stockholders of Open Market on or about , 1999.
Matters to be Considered
The purpose of the Open Market special meeting is:
1. To consider and vote upon a proposal to approve the issuance of up to an
estimated maximum of 7,700,000 shares of Open Market common stock to
FutureTense stockholders in connection with the agreement and plan of
merger, dated as of July 14, 1999, among Open Market, OM/SA Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of Open
Market, and FutureTense pursuant to which:
(a) OM/SA Acquisition Corporation will be merged with and into
FutureTense, with FutureTense being the surviving corporation; and
(b) each issued and outstanding share of common stock, $.0002 par value
per share, of FutureTense (other than shares of FutureTense common
stock held by stockholders exercising dissenters' appraisal rights),
will be changed and converted into and represent the right to receive
shares of common stock, $.001 par value per share, of Open Market,
which based upon an agreed upon conversion formula, is estimated to be
between .3590 and .4011 of a share.
If this proposal is approved, FutureTense stock options will be assumed by
Open Market and will convert into options to purchase an additional
estimated 1,332,367 shares of Open Market common stock at various exercise
prices.
A vote in favor of the proposed issuance of Open Market common stock will
be effective whether or not the actual number of shares to be issued in the
merger and options to be assumed by Open Market exceeds the above estimated
maximums.
2. To transact such other business as may properly come before the Open
Market special meeting or any adjournment or postponement of the Open
Market special meeting, including without limitation, potential
adjournments or postponements of the Open Market special meeting for the
purpose of soliciting additional proxies in order to approve the proposed
issuance of Open Market common stock in connection with the merger.
Open Market Board of Directors Recommendation
The Open Market board of directors, after careful consideration, has
approved the merger agreement and the merger and recommends a vote FOR the
proposed issuance of Open Market common stock in connection with the merger.
Record Date and Voting
Holders of record of shares of Open Market common stock at the close of
business on , 1999, referred to in this joint proxy
statement/prospectus as the Open Market record date, are entitled to notice of
and to vote at the Open Market special meeting. On the record date there were
outstanding shares of Open Market common stock, each of which will be
entitled to one vote. The representation, in person or by properly
22
<PAGE>
executed proxy, of the holders of a majority of all of the shares of common
stock entitled to vote at the Open Market special meeting is necessary to
constitute a quorum at the Open Market special meeting.
Pursuant to applicable rules of the Nasdaq National Market, the proposed
issuance of Open Market common stock in connection with the merger will require
the affirmative vote of the holders of a majority of the votes represented by
the shares of Open Market common stock outstanding on the Open Market record
date because such issuance of shares of Open Market common stock in the merger
will exceed 20% of the outstanding shares of Open Market common stock after the
merger.
Shares of Open Market common stock represented in person or by proxy will be
counted for the purposes of determining whether a quorum is present at the Open
Market special meeting. Shares which abstain from voting as to the proposal to
approve the proposed issuance of Open Market common stock in connection with
the merger will be treated as shares that are present and entitled to vote at
the Open Market special meeting for purposes of determining whether a quorum
exists, but abstentions will have the same effect as votes against approval of
the proposed issuance of Open Market common stock in connection with the
merger. Brokers or nominees holding shares of record for customers generally
will not be entitled to vote on the proposal to approve the issuance of Open
Market common stock in connection with the merger unless they receive voting
instructions from their customers. Because the approval of the issuance of Open
Market common stock in connection with the merger is the only matter for which
specific approval is being solicited, any shares held by brokers or nominees
for which no instructions are given by the beneficial owners thereof will not
be voted, meaning that such shares will have the same effect as shares voted
against approval of the issuance of Open Market common stock in connection with
the merger.
As of the Open Market record date for the Open Market special meeting,
directors and executive officers of Open Market and their affiliates who may be
deemed to be beneficial owners of approximately % of the outstanding shares
of Open Market common stock have agreed to vote their shares in favor of the
approval and issuance of Open Market common stock in connection with the
merger.
Voting and Revocation of Proxies
All shares of Open Market common stock which are entitled to vote and are
represented at the Open Market special meeting by properly executed proxies
received prior to or at such meeting, and not revoked, will be voted at such
meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated (other than broker non-votes), such proxies will be
voted for approval of the proposed issuance of Open Market common stock in
connection with the merger.
The Open Market board does not know of any matters other than those
described in the notice of the Open Market special meeting that are to come
before such meeting. If any other matters are properly presented at the Open
Market special meeting for consideration, including, among other things,
consideration of a motion to adjourn or postpone such meeting to another time
and/or place (including, without limitation, for the purposes of soliciting
additional proxies or allowing additional time for the satisfaction of
conditions to the merger), the persons named in the enclosed forms of proxy and
acting thereunder generally will have discretion to vote on such matters in
accordance with their best judgment. Notwithstanding the foregoing, proxies
voting against a specific proposal may not be used by the persons named in the
proxies to vote for adjournment or postponement of the meeting for the purpose
of giving management additional time to solicit votes to approve such proposal.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Open Market, at or before the taking of the vote at the
Open Market special meeting, a written notice of revocation bearing a later
date than the proxy, (ii) duly executing a later dated proxy relating to the
same shares and delivering it to the Secretary of Open Market before the taking
of the vote at the Open Market special meeting or (iii) attending the Open
Market special meeting and voting in person (although attendance at the Open
Market special meeting will not in and
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of itself constitute a revocation of a proxy). Any written notice of revocation
or subsequent proxy should be sent to Open Market, One Wayside Road,
Burlington, Massachusetts 01803, Attention: Secretary, or hand delivered to the
Secretary of Open Market at or before the taking of the vote at the Open Market
special meeting. Stockholders that have instructed a broker to vote their
shares must follow directions received from such broker in order to change
their vote or to vote at the Open Market special meeting.
All expenses of Open Market's solicitation of proxies for the Open Market
special meeting will be borne by Open Market. In addition to solicitation by
use of the mails, proxies may be solicited from Open Market stockholders by
directors, officers and employees of Open Market in person or by telephone,
facsimile or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation. Open
Market has retained Corporate Investor Communications, Inc., a proxy
solicitation firm, for assistance in connection with the solicitation of
proxies for the Open Market special meeting at a cost of approximately $6,500
plus reimbursement of reasonable out-of-pocket expenses. Arrangements will also
be made with brokerage houses, custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such brokerage houses, custodians, nominees and fiduciaries, and
Open Market will reimburse such brokerage houses, custodians, nominees and
fiduciaries for their reasonable expenses incurred in connection therewith.
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THE FUTURETENSE SPECIAL MEETING
General
This joint proxy statement/prospectus is being furnished to stockholders of
FutureTense, Inc., a Delaware corporation, as part of the solicitation of
proxies by the FutureTense board of directors for use at a special meeting of
stockholders of FutureTense to be held on , 1999, at 10:00 a.m.,
local time, at Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston,
Massachusetts, and at any adjournment or postponement of such meeting. This
joint proxy statement/prospectus and the enclosed form of proxy are first being
mailed to stockholders of FutureTense on or about , 1999.
Matters to be Considered
The purpose of the FutureTense special meeting is:
1. To approve and adopt the agreement and plan of merger, dated as of July
14, 1999, among Open Market, Inc., a Delaware corporation, OM/SA
Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Open Market, and FutureTense, that will result in FutureTense
becoming a wholly-owned subsidiary of Open Market.
2. To approve the appointment of Jarrett Collins, currently a director of
FutureTense, as the indemnification representative (and the appointment of
Barry Fidelman in the event Mr. Collins is unable to continue as the
indemnification representative) to act on behalf of the FutureTense
stockholders in connection with the merger and the escrow agreement
referred to in the merger agreement.
3. To transact such other business as may properly come before the
FutureTense special meeting or any adjournment or postponement of the
FutureTense special meeting, including without limitation, potential
adjournments or postponements of the FutureTense special meeting for the
purpose of soliciting additional proxies in order to approve the proposed
issuance of FutureTense common stock in connection with the merger.
FutureTense Board of Directors' Recommendation
The FutureTense board of directors, after careful consideration, has
approved the merger agreement and the appointment of the indemnification
representative and has declared the merger agreement advisable and in the best
interests of FutureTense and its stockholders. The FutureTense board of
directors recommends a vote FOR the approval and adoption of the merger
agreement and the appointment of the indemnification representative, and the
transactions contemplated thereby and the related appointment of Jarrett
Collins as the indemnification representative under the escrow agreement
referred to in the merger agreement.
Record Date and Voting
Holders of record of shares of FutureTense common stock, Series A preferred
stock, Series B preferred stock, Series C preferred stock and Series D
preferred stock at the close of business on , 1999, referred to in
this joint proxy statement/prospectus as the FutureTense record date, are
entitled to notice of and to vote at the FutureTense special meeting. At such
date there were 4,442,468, 380,651, 754,178, 711,842 and 5,436,837 outstanding
shares of FutureTense common stock, Series A preferred stock, Series B
preferred stock, Series C preferred stock and Series D preferred stock,
respectively. Each share of FutureTense common stock, Series A preferred stock,
Series B preferred stock, Series C preferred stock and Series D preferred stock
will be entitled to 4,442,468, 1,903,255, 3,770,890, 3,559,210 and 5,436,837
votes, respectively. The representation, in person or by properly executed
proxy, of the holders of a majority of all of the shares of common stock,
Series A preferred stock, Series B preferred stock, Series C preferred stock
and Series D preferred stock, voting together on an as converted basis,
entitled to vote at the FutureTense special meeting is necessary to constitute
a quorum at the FutureTense special meeting.
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The approval and adoption of the merger agreement will require the
affirmative vote of the holders of a majority of the votes represented by the
shares of FutureTense common stock, seventy-five percent of the votes
represented by the shares of FutureTense Series A preferred stock, Series B
preferred stock, Series C preferred stock and Series D preferred stock, voting
on an as converted basis with the common stock, a majority of the votes
represented by the shares of FutureTense Series C preferred stock, voting
separately as a class, and a majority of the votes represented by the shares of
FutureTense Series D preferred stock, voting separately as a class, outstanding
on the FutureTense record date. The appointment of Jarrett Collins as the
indemnification representative will require the affirmative vote of the holders
of a majority of the votes represented by the shares of FutureTense common
stock, Series A preferred stock, Series B preferred stock, Series C preferred
stock and Series D preferred stock, voting on an as-converted basis with the
common stock.
Shares of FutureTense common stock, Series A preferred stock, Series B
preferred stock, Series C preferred stock and Series D preferred stock
represented in person or by proxy will be counted for the purposes of
determining whether a quorum is present at the FutureTense special meeting. All
shares with respect to which holders abstain from voting as to the proposal to
adopt the merger agreement will be treated as shares that are present and
entitled to vote at the FutureTense special meeting for purposes of determining
whether a quorum exists, but abstentions will have the same effect as votes
against approval of the merger agreement.
Directors, officers, founders and 5% stockholders of FutureTense have each
executed a Voting Agreement with Open Market whereby they have agreed to vote
an aggregate of 17,439,447 shares of FutureTense common stock (including
FutureTense preferred stock on an as-converted basis), representing
approximately 91% of the votes entitled to vote at the FutureTense special
meeting, in favor of the approval and adoption of the merger agreement and the
merger. See "Other Agreements--Voting Agreement." In addition, pursuant to a
January 26, 1996 voting agreement between FutureTense and certain of its
founders an additional 403,100 shares of FutureTense common stock, representing
approximately 2% of the votes entitled to vote at the FutureTense special
meeting, are required to vote their shares in accordance with the instructions
of certain designated stockholders. All of these designated stockholders have
executed the Voting Agreement described above and have agreed to give notice to
the other parties to the stockholders agreement to vote their shares in favor
of the adoption of the merger agreement.
Voting and Revocation of Proxies
All shares of FutureTense common stock, Series A preferred stock, Series B
preferred stock, Series C preferred stock and Series D preferred stock which
are entitled to vote and are represented at the FutureTense special meeting by
properly executed proxies received prior to or at such meeting, and not
revoked, will be voted at such meeting in accordance with the instructions
indicated on such proxies. If no instructions are indicated, such proxies will
be voted for each proposal.
The FutureTense board of directors does not know of any matters other than
those described in the notice of the FutureTense special meeting that are to
come before such meeting. If any other matters are properly presented at the
FutureTense special meeting for consideration, including, among other things,
consideration of a motion to adjourn or postpone such meeting to another time
and/or place (including, without limitation, for the purposes of soliciting
additional proxies or allowing additional time for the satisfaction of
conditions to the merger), the persons named in the enclosed forms of proxy and
acting thereunder generally will have discretion to vote on such matters in
accordance with their best judgment. Notwithstanding the foregoing, proxies
voting against a specific proposal may not be used by the persons named in the
proxies to vote for adjournment or postponement of the meeting for the purpose
of giving management additional time to solicit votes to approve such proposal.
Any proxy given in connection with this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of FutureTense, at or before the taking of the vote
at the FutureTense special meeting, a written notice of revocation bearing a
later date than the proxy, (ii) duly executing a later dated proxy relating to
the same shares and delivering it to the Secretary
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of FutureTense before the taking of the vote at the FutureTense special meeting
or (iii) attending the FutureTense special meeting and voting in person
(although attendance at the FutureTense special meeting will not in and of
itself constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent to FutureTense, 43 Nagog Park, Acton,
Massachusetts 01720, Attention: Secretary, or hand delivered to the Secretary
of FutureTense at or before the taking of the vote at the FutureTense special
meeting.
All expenses of FutureTense's solicitation of proxies for the FutureTense
special meeting will be borne by FutureTense and Open Market. In addition to
solicitation by use of the mails, proxies may be solicited from FutureTense
stockholders by directors, officers and employees of FutureTense in person or
by telephone, facsimile or other means of communication. Such directors,
officers and employees will not be additionally compensated, but may be
reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation.
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THE MERGER
Background of the Merger
Open Market is regularly involved in the review of private and public
companies with which it may form strategic partnerships to further its
objectives in the Internet commerce market. During the course of 1998, Open
Market was made aware of FutureTense by William Kaiser, an Open Market
director and a FutureTense director who is affiliated with Greylock, a venture
capital firm. Because Mr. Kaiser is a member of the board of directors of
FutureTense and Open Market, Mr. Kaiser thereafter recused himself from any
further Open Market and FutureTense board discussions regarding FutureTense or
Open Market.
On January 8, 1999, as part of a regularly scheduled FutureTense board of
directors meeting, FutureTense's management made a presentation to the
FutureTense board concerning FutureTense's long-term strategy and the
strategic and financial alternatives available to FutureTense. Following this
meeting, Mr. Matros, Chief Executive Officer and President of FutureTense,
with the authorization of the FutureTense board of directors, discussed
potential alliances with several companies, including Open Market.
On January 26, 1999, Gary Eichhorn, Open Market's President and Chief
Executive Officer, and Jeffrey Bussgang, Open Market's Vice President of
Marketing, met at FutureTense's offices in Acton, Massachusetts with Ronald
Matros and Peter Masucci, FutureTense's Vice President of Business
Development. The discussion focused on an introduction to FutureTense's
strategy, products, and customers and a high-level exploration of strategic
partnering opportunities.
On March 1, 1999, Mark DeBinder, Open Market's Director of Strategic
Partnering, met with Mr. Massuci at FutureTense's offices. The discussion was
a further exploration of partnering opportunities between the two companies,
including a discussion of a reseller or OEM arrangement.
On March 12, 1999, Open Market's senior management team met in a regularly
scheduled meeting to discuss product strategy, led by the marketing
organization. During this review, the discussion focused on Open Market's need
to round out its e-commerce offering with some combination of content
management, personalization, and application server software. The management
team decided to commission a special project, codenamed "Deep Impact", to
survey the market and meet with companies in these categories to determine a
strategy moving forward. This strategy explicitly included the possibility of
purchasing companies that might help expand Open Market's offerings, as well
as traditional partnering strategies such as co-marketing and reselling. Mr.
Bussgang was named the executive sponsor of this project and Mr. DeBinder was
appointed as the project leader.
On March 22, 1999, Mr. DeBinder and Winfield Treese, Open Market's Vice
President of Architecture, met with Mr. Massuci and other members of
FutureTense's engineering team to further the strategic partnering discussions
as well as explore specific points of technical integration. The discussion
also focused on a possible reseller or OEM arrangement.
On March 23, 1999, a Non-Disclosure Agreement was executed between Open
Market and FutureTense.
On April 13, 1999, members of Open Market's technical staff met with
FutureTense's technical staff to further discuss points of product integration
between the two companies.
On April 16, 1999, the Deep Impact team presented the results of the Deep
Impact project to Open Market's senior management team during a regularly
scheduled meeting. The project team had met with a broad range of companies in
the content management, personalization, and application server software
categories. After a series of internal discussions between the project team
and senior members of the marketing and engineering organizations, the team
presented possible strategies, including making an acquisition in the content
management and personalization category and enhancing Open Market's offerings.
Mr. Eichhorn and Mr. Bussgang began to embark on a series of private meetings
to explore the acquisition strategy, with the targeted activity being an
acquisition of FutureTense.
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On April 19, 1999, Mr. Eichhorn met with Mr. Matros. At this meeting, Mr.
Eichhorn initiated a discussion that the two companies merge. These discussions
continued at a meeting on April 23, 1999.
On April 27, 1999, Mr. Bussgang and Eswar Priyadarshan, Open Market's Vice
President of Technology, met with Mr. Matros, Bagepalli Cheluva Krishna,
FutureTense's Chief Technology Officer, and Julie Melbin, FutureTense's Product
Architect. The discussion at this meeting was specifically focused on the
possibility of combining the two companies and a more detailed review of the
FutureTense business, technology, customers, and organization as well as the
fit of culture, organization, and vision among the two companies.
On May 5, 1999, at a regularly scheduled meeting of Open Market's Board of
Directors, Mr. Eichhorn and Mr. Bussgang presented a recommendation to acquire
FutureTense to the board if the parties could reach reasonable terms. Mr.
Krishna attended a portion of this meeting in order to present the companys
history, technology, customers, and business to the Open Market Board of
Directors. The board approved this recommendation and authorized management to
initiate negotiations with FutureTense.
On May 7, 1999, May 15, 1999 and May 28, 1999, the FutureTense board met and
discussed FutureTenses long-term strategy and strategic relationships. At each
meeting, Mr. Matros reported on discussions with Open Market and other
companies concerning potential strategic alliances with FutureTense. At each
meeting, the FutureTense board of directors authorized and instructed
management to continue discussions and to explore one or more potential
strategic alliances. Following each of these meetings, Mr. Matros continued
discussions with Open Market and other companies concerning potential strategic
alliances.
On May 10, 1999, Mr. Eichhorn and Open Market's Vice President of Corporate
Development, Paul Esdale, met with Mr. Matros and FutureTense's Chief Financial
Officer, Paul Hallee, to commence the negotiations relating to the potential
structure and pricing of the potential acquisition.
On May 11, 1999, Open Market and FutureTense entered into a confidentiality
agreement providing for the exchange of certain confidential information.
On May 14, 1999, May 21, 1999 and May 27, 1999, the Open Market Board of
Directors met telephonically to discuss the potential acquisition. At each
meeting, the board reviewed with management information regarding the strategic
fit between the two companies and the progress of negotiations.
On May 17, 1999, Mr. Eichhorn and Mr. Esdale met with Mr. Matros and Harland
LaVigne, a member of FutureTense's Board of Directors, to further the
negotiations regarding structure and pricing related to the potential
acquisition.
On May 24, 1999, Mr. Esdale engaged in a telephone meeting with Stephen
Cheheyl, a consultant retained by FutureTense for the purpose of managing and
negotiating the potential transaction for FutureTense. The purpose of the
meeting was to discuss the process and schedule related to a potential
transaction.
Between the dates of May 24, 1999 and June 14, 1999 Mr. Cheheyl and Mr.
Esdale engaged in a series of telephone conversations related to the
development and negotiation of a letter of intent related to the potential
transaction. Open Market's outside legal advisors, Hale and Dorr LLP, and
FutureTense's legal advisors, Testa, Hurwitz & Thibeault, LLP, participated in
some of the telephone meetings.
On June 1, 1999, Mr. Bussgang met with Mr. Matros and Mr. Masucci at
FutureTense's offices to initiate the due diligence process.
On June 4, 1999, Open Market retained the services of PaineWebber,
Incorporated as financial advisors to Open Market related to the potential
acquisition.
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During the weeks of June 1, 8, and 15, 1999, due diligence teams
representing Open Market met with representatives of FutureTense at a nearby
hotel. The teams focused on an in-depth analysis of the technical and
development status of FutureTense's products, plans for future products,
organizational processes, and general business operations.
Throughout May and until June 11, 1999, FutureTense management and its
consultant met with senior management of another company at such company's
offices to discuss the terms of a possible business combination. During this
period, that company conducted a due diligence review of FutureTense and held
various meetings with FutureTense concerning the business, operations and
technology of each company and the combined company that would result from a
possible strategic alliance.
On June 11, 1999, the FutureTense board of directors met by telephone
conference call to again discuss potential strategic alliances. Mr. Matros and
Mr. Cheheyl reported on ongoing discussions with Open Market and the other
company it was in discussions with concerning potential strategic combinations.
Testa, Hurwitz & Thibeault, LLP, FutureTense's legal counsel, discussed with
the board of directors their fiduciary duties in connection with the potential
transactions. The FutureTense board of directors authorized and instructed
FutureTense management to negotiate and enter into the letter of intent with
Open Market and to terminate discussions with the other company.
On June 14, 1999, Open Market and FutureTense executed a non-binding Letter
of Intent which broadly defined the terms of a potential acquisition of
FutureTense by Open Market in the form of a tax free pooling of interests
transaction.
The Open Market Board of Directors met telephonically on June 4, 1999, June
11, 1999, and June 18, 1999 to discuss the proposed merger. At each meeting,
the board reviewed with management information regarding the strategic fit
between the two companies, due diligence assessments, and remaining issues to
be negotiated or addressed prior to execution of the definitive merger
agreement. The board informally endorsed continuing with the negotiations.
On June 24, 1999, Open Market's Board of Directors met at Open Market's
offices to receive final due diligence reports from management and preliminary
assessments of the proposed transaction. Outside counsel to Open Market advised
the board with respect to the structure and material terms of the proposed
acquisitions, as well as legal requirements. Outside accountants to Open Market
presented a financial due diligence report to the board including a review of
FutureTense's financial statements, cash position, stock valuation and tax
considerations.
Between the dates of June 22, 1999 and July 14, 1999 Mr. Esdale and Mr.
Cheheyl and the respective financial, legal and accounting advisors for Open
Market and FutureTense negotiated the terms of the merger agreement.
On July 9, 1999, at a regularly scheduled meeting of the FutureTense board
of directors, management and Mr. Cheheyl reported on the status of the merger
discussions with Open Market and the FutureTense board of directors discussed
various issues relating to the proposed business combination. Testa, Hurwitz &
Thibeault, LLP reviewed with the board of directors their fiduciary duties in
connection with the proposed transaction.
On July 10, 1999, at a special meeting of the Open Market board of
directors, management reported on the status of the merger discussions with
FutureTense and the Open Market board of directors discussed various issues
relating to the proposed business combination. The board considered and voted
upon the proposed merger agreement and related transactions. At such meeting,
PaineWebber, Open Market's financial advisor, presented their opinion regarding
the fairness to Open Market, from a financial point of view, of the purchase
price. Additionally, Open Market's outside legal counsel made a presentation
regarding the significant terms of the merger agreement and the voting
agreement to be entered into by certain stockholders of Open Market and
reviewed with the board their fiduciary duties in connection with the proposed
transaction. Following such presentations and further discussion, the execution
of such documents and related matters were approved by the Open Market board.
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On July 11, 1999, at a special meeting of the FutureTense board of
directors, (i) the management of FutureTense and Mr. Cheheyl reported on the
business terms of the proposed merger, (ii) Testa, Hurwitz & Thibeault, LLP
reviewed the proposed terms of the merger agreement, and (iii) the FutureTense
board of directors approved the merger agreement.
On July 13, 1999, at a special meeting of the Open Market board of
directors, the board reviewed preliminary results of operations of FutureTense
for the second quarter ended June 30, 1999. After such review, PaineWebber
confirmed its opinion of the fairness, from a financial point of view, of the
purchase price. Thereafter, the board was informed of any outstanding issues in
the merger agreement negotiations and was provided with an estimate of the
potential timing of signing a definitive merger agreement.
On July 14, 1999, following final approval by the Open Market board and the
FutureTense board, the Merger Agreement was executed by both companies.
On July 14, 1999, at the close of trading on the Nasdaq National Market,
Open Market and FutureTense issued a joint press release announcing the Merger.
Joint Reasons for the Merger
The Open Market board and the FutureTense board each believe that the
combined company will have potential for greater financial strength, market
power and growth potential than either Open Market or FutureTense would have on
its own. The Open Market board and the FutureTense board identified a number of
potential benefits to the merger which they believe could contribute to the
success of the combined company and thus benefit stockholders of both
companies, including the following:
. the merger may enhance the opportunity for the potential realization of
the strategic objective of the combined company to expand its market
share and increase the combined companys ability to compete effectively
in the highly competitive Internet commerce software market
. the broadening of the companies' product lines resulting from the merger
may enable the combined company to offer a more comprehensive,
competitive solution to customers seeking Internet commerce software
. the merger may provide the combined company with the financial resources
and expanded product offerings to expand the scope of distribution of
the combined companys products and to obtain efficiencies in the
development, marketing, and selling of its product offerings
. the combined experience, financial resources, size, and breadth of
product offerings of the combined company may allow it to respond more
quickly and effectively to technological change, increased competition,
and market demands in an industry experiencing rapid innovation and
change
. the combined company expects to have stronger presence in international
markets through Open Market's operations in France, Germany, the
Netherlands, Italy, the United Kingdom, Japan, Australia and the Pacific
Rim. Open Market expects to be able to market and sell the FutureTense
products through these channels to expand sales
. combined financial and technological resources may allow the combined
company to compete more effectively in a rapidly consolidating market by
providing the combined company with enhanced ability to develop new
products and greater functionality for existing and future products
Recommendation of the Board of Directors of Open Market; Open Market's Reasons
for the Merger
THE OPEN MARKET BOARD HAS APPROVED THE MERGER AND MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE TERMS OF THE MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, OPEN MARKET AND ITS STOCKHOLDERS. THE
OPEN MARKET BOARD RECOMMENDS A VOTE FOR THE PROPOSED ISSUANCE OF OPEN MARKET
COMMON STOCK IN CONNECTION WITH THE MERGER.
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Open Market's Reasons for the Merger
In reaching its conclusion to approve the merger and merger agreement, the
Open Market board considered the factors described above under "Joint Reasons
for the Merger," as well as the opportunity of the Open Market stockholders to
participate in the potential growth of the combined company after the merger.
The Open Market board also considered and reviewed with management the
additional positive factors listed below in reaching its decision to approve
the merger and the merger agreement and to recommend that Open Market's
stockholders vote to approve the proposed issuance of Open Market common stock
in connection with the merger:
. owning FutureTense will satisfy a need of Open Market's ecommerce
customers for effective content management capabilities. This will
provide Open Market with cross-selling opportunities to existing Open
Market customers as well as enable Open Market to attract new sales
opportunities for its existing products
. owning FutureTense will enhance Open Market's technical and sales staff
with experience FutureTense technical and sales personnel
Recommendation of the Board of Directors of FutureTense; FutureTense's Reasons
for the Merger
THE FUTURETENSE BOARD HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO, AND
IN THE BEST INTERESTS OF, FUTURETENSE AND ITS STOCKHOLDERS. THE FUTURETENSE
BOARD RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
FutureTense's Reasons for the Merger
In addition to the anticipated joint benefits described above, we believe
that the following are additional reasons the merger will be beneficial to
FutureTense and its stockholders:
. merging with Open Market will enable FutureTense to capitalize on both
international and domestic sales, marketing and distribution expertise
and resources of Open Market and thereby increase the visibility and
accessibility of FutureTense's products
. Open Market's research and development staff will enable FutureTense to
accelerate its product development activities and Open Market's
professional services staff will enable FutureTense to accelerate its
product implementation activities
. the merger will provide FutureTense with immediate access to additional
financial resources to accelerate its growth, as well as access to the
public markets for further capital if needed
. the consideration to be paid to FutureTense's stockholders in the merger
will be shares of Open Market common stock, which are securities that
are publicly traded on the Nasdaq National Market and are more readily
marketable than shares of FutureTense stock
Opinion of Financial Advisor to Open Market
The full text of the opinion of PaineWebber, dated July 13, 1999, which sets
forth the assumptions made, procedures followed, matters considered and
limitations on the review undertaken, is attached as Annex B to this document.
Open Market stockholders are urged to read such opinion carefully and in its
entirety. The summary of the PaineWebber opinion set forth in this document is
qualified in its entirety by reference to the full text of such opinion.
In connection with Open Market board's consideration of the merger
agreement, PaineWebber delivered its written opinion, dated July 13, 1999, to
the effect that, as of such date, and based upon its review and assumptions and
subject to the limitations summarized below, the consideration was fair, from a
financial point
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of view, to Open Market. The opinion was directed to, and prepared at the
request and for the information of, the Open Market board and does not
constitute a recommendation to any holder of Open Market common stock as to how
any such stockholder should vote with respect to the merger.
In arriving at its opinion, PaineWebber, among other things:
. reviewed, among other public information, Open Market's annual reports,
Forms 10-K and related financial information for the two fiscal years
ended December 31, 1998 and Open Markets Form 10-Q and the related
unaudited financial information for the three months ended March 31,
1999
. reviewed certain information, including financial forecasts for the
fiscal years ending 1999 and 2000, relating to the business, earnings,
cash flow, assets and prospects of Open Market and FutureTense,
furnished to PaineWebber by or on behalf of Open Market and FutureTense
. conducted discussions with members of senior management of Open Market
and FutureTense concerning their respective businesses and prospects
. conducted discussions with members of senior management of Open Market
and FutureTense concerning information relating to certain strategic,
financial and operational benefits anticipated by such management to
result from the merger
. reviewed the historical market prices and trading activity for Open
Market common stock and compared them with those of certain other
publicly traded companies which PaineWebber deemed relevant
. compared the financial position and results of operations of Open Market
and FutureTense with those of certain other publicly traded companies
which PaineWebber deemed relevant
. compared the proposed financial terms of the transaction contemplated by
the merger agreement with the financial terms of certain other business
combinations which PaineWebber deemed relevant
. considered the pro forma effect of the merger on Open Market's
capitalization ratios and earnings, revenues and cash flow per share
. reviewed a draft of the merger agreement in the form presented to the
Open Market board, dated July 11, 1999
. reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as
PaineWebber deemed necessary, including PaineWebber's assessment of
general economic, market and monetary conditions
In preparing its opinion, PaineWebber relied on the accuracy and
completeness of all information publicly available, supplied or otherwise
communicated to PaineWebber by or on behalf of Open Market and FutureTense, and
PaineWebber did not assume any responsibility to independently verify such
information. With respect to the financial forecasts examined by PaineWebber,
PaineWebber assumed, with Open Market's and FutureTense's consent, that they
were reasonably prepared on bases reflecting the best currently available
estimates as to the future performance of Open Market and FutureTense.
PaineWebber also relied upon assurances of the management of Open Market and
FutureTense that they were unaware of any facts that would make the information
or financial forecasts provided to PaineWebber incomplete or misleading.
PaineWebber was not engaged to make and did not make an independent evaluation
or appraisal of the assets or liabilities, contingent or otherwise, of Open
Market or FutureTense, nor was PaineWebber furnished with any such evaluations
or appraisals. PaineWebber also assumed, with the consent of Open Market and
FutureTense, that:
. the merger will be a tax-free reorganization
. all material assets and liabilities, contingent or otherwise, known or
unknown, of Open Market and FutureTense are as set forth in their
financial statements
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The PaineWebber opinion was based upon economic, monetary and market
conditions existing on the date thereof. Furthermore, PaineWebber expressed no
opinion as to the price or trading ranges at which the Open Market common stock
will trade after the date of the opinion. The PaineWebber opinion does not
address the relative merits of the merger and any other transactions or
business strategies that may have been discussed by the Open Market board as
alternatives to the merger, or the decision of the Open Market board to proceed
with the merger. Open Market did not place any limitations upon PaineWebber
with respect to the procedures followed or factors considered in rendering the
opinion.
The following paragraphs summarize the significant analyses performed by
PaineWebber in arriving at its opinion:
Historical Stock Performance. PaineWebber reviewed trading prices for the
shares of the Open Market common stock. This stock performance review indicated
that for Open Market's latest twelve months ended July 6, 1999, the low and
high closing prices were $5.00 and $20.75. PaineWebber also reviewed the Open
Market common stock price on July 6, 1999 and averages over periods prior to
July 6, 1999 as set forth in the following table:
<TABLE>
<CAPTION>
Trading Period Closing Price
-------------- -------------
<S> <C>
July 6, 1999................... $15.00
<CAPTION>
Trading Period Average Price
-------------- -------------
<S> <C>
Last 30 days................... $13.27
Last 60 days................... 12.97
Last 90 days................... 13.33
Last 120 days.................. 13.18
Latest twelve months........... 12.43
</TABLE>
Selected Comparable Public Company Analysis. Using publicly available
information, PaineWebber compared selected historical financial, operating and
stock market performance data of Open Market and FutureTense to the
corresponding data of certain publicly traded companies that PaineWebber deemed
relevant for Open Market and FutureTense. The Open Market comparable companies
consisted of:
<TABLE>
<S> <C> <C>
Ariba Clarus Concur Technologies
Connect Cybercash CyberSource
Digital River Elcom International Harbinger
Portal Software PcOrder.com Sterling Commerce
The FutureTense comparable companies consisted of:
BackWeb Technologies BroadVision Infospace
Inso Marimba Netgravity
Net Perceptions Silknet Software Verity
Vignette
</TABLE>
With respect to both the Open Market and the FutureTense comparable
companies, PaineWebber analyzed a number of different data items including the
market value of the total outstanding equity and its multiples based on latest
twelve months revenue, last-quarter-annualized revenue, and projected revenues.
PaineWebber also examined the product portfolios and operations of Open
Market relative to the Open Market comparable companies and the product
portfolios and operations of FutureTense relative to the FutureTense comparable
companies. However, because of the inherent differences between the product
portfolios and operations of Open Market and FutureTense and the Open Market
and FutureTense comparable
34
<PAGE>
companies, PaineWebber believed that a purely quantitative analysis would be
insufficient and not adequately reliable to render a fairness opinion. As
PaineWebber informed the Open Market board, an appropriate use of comparable
company analysis in this instance would involve qualitative judgments
concerning differences between the financial and operating characteristics and
products under development which would affect the public trading values of Open
Market and FutureTense comparable companies and Open Market and FutureTense.
Selected Comparable Transaction Analysis. PaineWebber reviewed publicly
available financial information for selected mergers and acquisitions of
software companies by/with other software companies. The selected software
mergers and acquisitions PaineWebber analyzed included (acquiror/target):
<TABLE>
<S> <C>
Security First Technology/Edify Vignette/Diffusion
America Online/Netscape Communications Symantec/Quarterdeck
Epicor Software/DataWorks Network Associates/Cybermedia
Platinum Technology/Logic Works Open Market/Folio
</TABLE>
With respect to the recent software transactions PaineWebber analyzed,
PaineWebber reviewed a number of different data items including the market
value of the total outstanding equity and its multiples based on latest twelve
months revenue and projected revenues.
Because the reasons for and the circumstances surrounding each of the
transactions analyzed were specific to each transaction and because of the
inherent differences between the businesses, operations and prospects of Open
Market and FutureTense compared to the businesses, operations and prospects of
the companies that were parties to the selected mergers and acquisitions
PaineWebber analyzed, PaineWebber believed it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the analysis, and
accordingly also made qualitative judgments concerning differences between the
characteristics of these transactions. These qualitative judgments did not lead
to specific conclusions regarding the fairness of the merger consideration, but
rather were part of PaineWebber's evaluation of the relevance of this analysis
under the particular circumstances of the merger.
Pro Forma Analysis. PaineWebber performed an analysis of the potential pro
forma effect of the transaction on Open Market's earnings per share and revenue
per share for the fiscal years ending December 31, 1999 and December 31, 2000.
PaineWebber combined the projected operating results of FutureTense as provided
by FutureTense management with the projected operating results of Open Market
as provided by the management of Open Market to arrive at the combined company
projected net income and projected revenue, giving effect to synergies provided
by Open Market management which may result from the transaction. PaineWebber
divided these results by the approximate number of diluted shares outstanding
following the transaction to arrive at a combined company diluted earnings per
share and revenue per share. PaineWebber then compared the combined company
earnings per share and revenue per share to Open Market's projected earnings
per share and projected revenue per share on a stand-alone basis as provided by
Open Market management.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses
and the application of those methods to the particular circumstances and,
therefore, such an opinion is not readily susceptible to partial analysis or
summary description. Accordingly, PaineWebber believes that its analysis must
be considered as a whole and that considering any portion of such analysis and
of the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the opinion.
In its analyses, PaineWebber made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond the control of Open Market and
35
<PAGE>
FutureTense. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than as set forth therein.
Accordingly, such estimates are inherently subject to substantial uncertainty
and neither Open Market nor PaineWebber assumes responsibility for the accuracy
of such estimates. In addition, analyses relating to the value of businesses do
not purport to be appraisals or to reflect the prices at which such businesses
may actually be sold.
Open Market selected PaineWebber to be its financial advisor in connection
with the merger because PaineWebber is a prominent investment banking and
financial advisory firm with experience in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate purposes.
Pursuant to an engagement letter between Open Market and PaineWebber dated
June 4, 1999, PaineWebber will receive a fee of $625,000, payable upon
completion of the merger, of which $500,000 was earned for rendering its
opinion. In addition, PaineWebber will be reimbursed for certain of its related
expenses. PaineWebber will not be entitled to any additional fees or
compensation in the event the merger is not approved or otherwise consummated.
Open Market also agreed, under separate agreement, to indemnify PaineWebber,
its affiliates and each of its directors, officers, agents and employees and
each person, if any, controlling PaineWebber or any of its affiliates against
certain liabilities, including liabilities under federal securities laws.
In the past, PaineWebber and its affiliates have provided investment banking
and other financial services to Open Market and have received fees for
rendering these services.
In the ordinary course of PaineWebbers business, PaineWebber may actively
trade the securities of Open Market for its own account and for the accounts of
its customers and, accordingly, may at any time hold long or short positions in
such securities.
Interests of Executive Officers and Directors of FutureTense in the Merger
You should be aware of the interests that executive officers and directors
of FutureTense have in the merger. These interests are different from and in
addition to your and their interests as stockholders. These include:
. accelerated vesting of stock options;
. employment and consulting agreements;
. indemnification and directors and officers' liability insurance; and
. an invitation to Ronald J. Matros, Paul L. Sagan and Harland K. LaVigne
to join the Open Market board of directors upon the completion of the
merger.
In discussing the fairness of the merger to the stockholders of FutureTense,
the FutureTense board took into account these interests. These interests are
summarized below:
FutureTense Stock Options and Common Stock Subject to Repurchase. Assuming
the merger is completed in September 1999, options to purchase an aggregate of
approximately 907,736 shares of FutureTense common stock granted to directors
and executive officers of FutureTense will accelerate upon the completion of
the merger. In addition, FutureTense's right to repurchase at a formula price
an aggregate of 340,000 shares of FutureTense common stock held by executive
officers and directors will terminate upon the completion of the merger. The
foregoing amounts do not include options that have been or may be issued by
FutureTense after July 1, 1999.
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<PAGE>
The option acceleration and termination of repurchase rights for the
executive officers and directors of FutureTense are set forth below as of July
1, 1999, assuming the merger occurs on September 30, 1999:
<TABLE>
<CAPTION>
Option Shares
Date of Number of Shares Number of Shares of Common Accelerated
Option of Common Stock Exercise Stock Subject to Options in Connection
Officer or Director Grant Subject to Options Price That are Vested as of 9/1/99* With Merger
- ------------------- -------- ------------------ -------- ----------------------------- -------------
<S> <C> <C> <C> <C> <C>
Paul Hallee............. 4/3/98 125,000 $ .20 39,063 85,937
4/9/99 30,000 .20 1,875 14,062
Harland K. LaVigne...... 11/11/96 62,500 .20 46,875 7,812
William Machanic........ 9/12/97 200,000 .20 100,000 100,000
Peter Masucci........... 1/18/99 100,000 .20 12,500 65,625
Ronald J. Matros........ 3/7/97 454,985 .20 255,929 199,055
10/9/98 245,015 .20 45,940 199,074
4/9/99 100,000 .20 6,250 93,750
Carol J. Mitchell....... 2/20/98 125,000 .20 39,063 85,937
6/4/99 12,500 3.00 781 5,859
Paul L. Sagan........... 10/28/98 40,000 .20 7,500 16,250
Shahpoor Shayan......... 2/20/98 50,000 .20 15,625 34,375
</TABLE>
- --------
* Options have a term of ten years from the date of grant and become
exercisable as to 6.25% of the shares covered at the end of the first
quarter following the date of grant and for each quarter thereafter for the
next fifteen quarters.
<TABLE>
<CAPTION>
Number of Shares
Number of Shares Number of Shares of for which
Beneficially Common Stock no Repurchase
Owned Subject to Longer Subject to Rights Terminate
Repurchase Repurchase in Connection
Officer or Director Rights* Rights as of 9/1/99 With Merger
- ------------------- ---------------- ------------------- ----------------
<S> <C> <C> <C>
Bagepalli Cheluva
Krishna................ 1,000,000(1) 800,000 200,000
Howard Webber........... 700,000(2) 560,000 140,000
</TABLE>
- --------
* Repurchase rights terminate at a rate of 5% per quarter through
September 1, 2000.
(1) 500,000 shares issued on each of April 17, 1995 and January 2, 1996.
(2) 500,000 shares issued on April 17, 1995 and 200,000 issued on January 2,
1996. Shares includes shares held in trust for Mr. Webber and his wife.
Employment Agreements. Certain officers and other employees of FutureTense
have entered into employment agreements with Open Market that become effective
upon the merger. These persons include Ronald J. Matros, Bagepalli Cheluva
Krishna, Carol J. Mitchell, Daniel E. Latham and Julie A. Melbin. Each of these
agreements provides for the following:
. a minimum of six months severance unless the employee's termination is
for cause or at the election of the employee;
. a grant of stock options under the Open Market 1994 Incentive Stock
Option Plan; and
. non-competition provisions that survive for two years after termination.
In addition, the employment agreements for Messrs. Matros, Krishna and
Latham and Ms. Melbin provide for participation in Open Market's 1999 Executive
Short Term Incentive Plan. Furthermore, the agreement with Mr. Matros provides
for certain minimum bonuses. Each of Messrs. Matros and Krishna and Ms.
Mitchell has also entered into Open Market's standard executive retention
agreement. This agreement assures Open Market that it will have the continued
dedication of these individuals, notwithstanding the possibility, threat or
occurrence of a change of control of Open Market. In the event of a change of
control, and Open Market's
37
<PAGE>
termination of the employment of Messrs. Matros or Krishna or Ms. Mitchell at
any time during the ensuing 12-month period (other than for cause, disability
or death) or by them for good reason (including a material reduction in
employment, compensation or benefits), they shall be eligible to receive a cash
severance payment and are also entitled to any amounts or benefits required to
be paid or provided to them or which they are eligible to receive following the
termination under any plan, program, policy, practice, contract or agreement of
Open Market. Except in certain circumstances, the outstanding options of the
individual at the time of termination shall accelerate and become immediately
exercisable. In addition, for a period of six months after termination, Open
Market shall continue to provide these individuals with certain benefits
(excluding any benefits under any savings and/or retirement plans) that are
provided to other peer executives of Open Market. However, if these persons
becomes employed with another employer during the six month period after
termination and are eligible to receive benefits, Open Market's benefits shall
be secondary to those provided by the new employer.
In addition, Howard Webber has entered into a one year consulting agreement
with Open Market, which becomes effective upon completion of the merger,
pursuant to which Mr. Webber will provide reasonable consulting services to
Open Market not to exceed ten hours per week for pay equivalent to an annual
base salary of $110,000 for the one-year period.
Indemnification and Insurance. The merger agreement provides that for six
years after the completion of the merger:
. Open Market will not alter or impair any exculpatory or indemnification
provision now existing in the FutureTense by-laws; and
. Open Market will cause FutureTense to maintain directors' and officers'
liability insurance policy on terms no less favorable than FutureTense's
existing policy.
In addition, the merger agreement provides that Open Market will indemnify
each present and former director and officer for all liabilities pertaining to
matters existing or occurring at or prior to the completion of the merger.
Treatment of FutureTense Common Stock and Preferred Stock
The conversion ratio for the conversion of FutureTense common stock into
Open Market common stock will change over time. Thus, the exact conversion
ratio will not be known until the closing of the merger. Unknown variables used
in computing the conversion ratio include the amount of deductible obligations
of FutureTense, and the number and exercise price of outstanding stock options
on the closing date of the merger. FutureTense estimates that the amount of
deductible obligations used in computing the conversion ratio may range from
$800,000 to $4,400,000 depending on the closing date of the merger. In
addition, there are currently 22,072,287 shares of FutureTense common stock
outstanding on a fully diluted basis (including options and warrants) and under
the merger agreement, FutureTense may issue options to purchase up to 365,532
additional shares of FutureTense common stock to new employees at an exercise
price equal to the fair market value of FutureTense common stock prior to the
closing. Additional options may be issued with the consent of Open Market.
Accounting Treatment of the Merger
The merger is intended to qualify as a pooling of interests for financial
reporting purposes under U.S. GAAP. Under this method of accounting, the
recorded assets and liabilities of FutureTense will be carried forward to Open
Market at their recorded amounts, the operating results of Open Market will
include the operating results of FutureTense for the entire year in which the
combination occurs and the reported operating results of the separate companies
for periods prior to the year in which the combination occurs will be combined
and restated as the operating results of Open Market.
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<PAGE>
FutureTense has agreed to use its reasonable best efforts to cause each of
its affiliates to execute a written agreement to the effect that such person
will not transfer shares of common stock or preferred stock of FutureTense
during the period beginning 30 days prior to the effective time of the merger
and ending on the date that Open Market publishes financial statements which
reflect 30 days of combined operations of Open Market and FutureTense (which
agreements relate to the ability of Open Market to account for the merger as a
pooling of interests).
Regulatory Approvals
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
including the rules and regulations promulgated thereunder, the acquisition of
shares of Open Market common stock in the merger by Greylock Equity Limited
Partnership may not be consummated until notifications have been furnished to
the Federal Trade Commission and the Antitrust Division of the Department of
Justice and specified waiting period requirements have been satisfied. Greylock
filed a premerger notification and report form with the FTC and the Antitrust
Division on August 2, 1999.
At any time before the effective time of the merger, the Antitrust Division,
the FTC or a private person or entity could seek under antitrust laws, among
other things, to enjoin the merger and any time after the effective time of the
merger, to cause Open Market to divest itself, in whole or in part, of the
surviving corporation of the merger or of certain businesses conducted by the
surviving corporation of the merger. There can be no assurance that a challenge
to the merger will not be made or that, if such a challenge is made, Open
Market will prevail. The obligations of Open Market and FutureTense to
consummate the merger are subject to the condition that any applicable waiting
period under the Hart-Scott-Rodino Act shall have expired without action by the
Antitrust Division or the FTC to prevent consummation of the merger. See "the
Merger Agreement--Conditions to Obligations to Effect the Merger."
Material United States Federal Income Tax Considerations
Generally. In the opinion of Hale and Dorr LLP, counsel to Open Market, and
in the opinion of Testa, Hurwitz & Thibeault, LLP, counsel to FutureTense, the
material United States federal income tax considerations generally applicable
to United States holders of FutureTense common stock, Series A preferred stock,
Series B preferred stock, Series C preferred stock and Series D preferred stock
who, pursuant to the merger, exchange their FutureTense common stock or
FutureTense preferred stock solely for Open Market common stock, are described
below. The discussion is based on and subject to the Internal Revenue Code,
Treasury Regulations under the Internal Revenue Code, existing administrative
interpretations and court decisions as of the date of this joint proxy
statement and prospectus, all of which are subject to change (possibly with
retroactive effect) and all of which are subject to differing interpretation.
The discussion does not address the effects of the merger under any state,
local or foreign tax laws.
The discussion below and the opinions of Hale and Dorr LLP and Testa,
Hurwitz & Thibeault, LLP do not purport to deal with all aspects of federal
income taxation that may affect particular stockholders in light of their
individual circumstances, and they do not address any tax consequences for
stockholders subject to special treatment under the federal income tax law
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign individuals or entities, stockholders who
hold their stock as part of a hedge, appreciated financial position, straddle
or conversion transaction, stockholders who do not hold their stock as capital
assets and stockholders who have acquired their stock upon the exercise of
employee stock options or otherwise as compensation). In addition, the
discussion below and such opinions do not consider the effect of any applicable
state, local or foreign laws. Each FutureTense stockholder is urged to consult
its tax advisor with respect to the specific tax consequences of the merger to
them, including the effect of United States federal, state and local, and
foreign and other tax rules, and the effect of possible changes in tax laws.
It is a condition to the obligation of Open Market to effect the merger that
Open Market receive an opinion from its counsel, Hale and Dorr LLP, and it is a
condition to the obligation of FutureTense to effect the
39
<PAGE>
merger that FutureTense receive an opinion from its counsel, Testa, Hurwitz &
Thibeault, LLP, in each case to the effect that the merger constitutes a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code for federal income tax purposes. Assuming the merger qualifies as a
reorganization there are the following tax consequences:
Tax Consequences to Open Market, OM/SA Acquisition Corporation and
FutureTense. For federal income tax purposes, no gain or loss will be
recognized by Open Market, OM/SA Acquisition Corporation or FutureTense upon
the conversion of FutureTense stock into shares of Open Market common stock
pursuant to the merger.
Tax Consequences to FutureTense Stockholders. For federal income tax
purposes, (i) no gain or loss will be recognized by the stockholders of
FutureTense upon the conversion of their shares of FutureTense stock into
shares of Open Market common stock pursuant to the merger, except with respect
to cash, if any, received in lieu of fractional shares of Open Market common
stock, (ii) the aggregate tax basis of the shares of Open Market common stock
received in exchange for shares of FutureTense stock pursuant to the merger
(including a fractional share of Open Market common stock for which cash is
received) will be the same as the aggregate tax basis of such shares of
FutureTense stock, (iii) the holding period for shares of Open Market common
stock received in exchange for shares of FutureTense stock will include the
holder's holding period for such shares of FutureTense stock, and (iv) a
stockholder of FutureTense who receives cash in lieu of a fractional share of
Open Market common stock will recognize gain or loss equal to the difference,
if any, between such stockholder's basis in the fractional share (determined
under clause (ii) above) and the amount of cash received.
The opinions described above do not apply to stockholders who exercise
appraisal rights. A holder of FutureTense stock who exercises appraisal rights
with respect to the merger and receives cash in exchange for shares of
FutureTense stock will generally recognize capital gain or loss measured by the
difference between the amount of cash received and the stockholder's basis in
those shares, provided that the payment is not treated as a dividend pursuant
to Section 302 of the Code or otherwise. A sale of shares based on an exercise
of appraisal rights generally will not be treated as a dividend if the
stockholder exercising appraisal rights owns no shares of Open Market
immediately after the merger, after giving effect to the constructive ownership
rules pursuant to the Code. The capital gain or loss will be long-term capital
gain or loss if the holder's holding period in the shares is more than one
year. Any payment in respect of an exercise of appraisal rights may be subject
to backup withholding where required by the Code.
Moreover, the opinions described above will be based on certain assumptions,
and both Hale and Dorr LLP and Testa, Hurwitz & Thibeault, LLP will receive and
rely upon representations, unverified by counsel, contained in certificates of
Open Market, FutureTense and possibly others. The inaccuracy of any of those
assumptions or representations might jeopardize the validity of the opinions
rendered. Those opinions will neither bind the Internal Revenue Service nor
preclude the Internal Revenue Service from adopting positions contrary to those
expressed above, and no assurance can be given that contrary positions will not
be asserted successfully by the Internal Revenue Service or adopted by a court
if the issues are litigated. Neither Open Market nor FutureTense intends to
obtain a ruling from the Internal Revenue Service with respect to the tax
consequences of the merger.
If the IRS were to successfully challenge the "reorganization" status of the
merger, each FutureTense stockholder would recognize taxable gain or loss with
respect to the FutureTense stock surrendered, measured by the difference
between (i) the fair market value, as of the time of the merger, of the Open
Market common stock received in the merger and (ii) the stockholder's tax basis
in the FutureTense stock surrendered therefor in the merger. In such event, a
stockholder's aggregate basis in the Open Market common stock so received would
equal its fair market value as of the time of the merger and the holding period
for such stock would begin the day after the merger.
Taxation of Escrowed Shares. Under the merger agreement, each FutureTense
stockholder (other than a stockholder validly asserting appraisal rights) will
receive outright, upon surrender of its shares of FutureTense stock, shares of
Open Market common stock equal to 90% of the whole number of shares of Open
Market
40
<PAGE>
common stock into which the shares of FutureTense stock surrendered by the
stockholder are to be converted. The remaining 10% of the whole number of
shares of Open Market common stock into which the FutureTense stock are to be
converted will be placed in escrow as security for indemnification obligations
incurred by the FutureTense stockholders pursuant to the merger agreement. Each
FutureTense stockholder will be credited with the number of shares placed in
escrow on its behalf. See "--Indemnification."
Each FutureTense stockholder will allocate its basis in its shares of
FutureTense stock among all of the shares of Open Market common stock received
by the stockholder as a result of the merger, including both shares of Open
Market common stock received outright and shares of Open Market common stock
placed in escrow on the stockholder's behalf.
No gain or loss will be recognized by a FutureTense stockholder upon the
distribution of escrowed shares of Open Market common stock to the stockholder
upon termination of the escrow arrangement.
If the indemnification representative elects to sell any of the escrowed
shares of Open Market common stock, each stockholder will recognize gain or
loss at the time of sale in an amount equal to the difference, if any, between
that stockholder's basis in the escrowed shares that are sold on his behalf
(determined under clause (ii) under the heading "--Tax Consequences to
FutureTense Stockholders," above) and the amount realized upon the sale,
notwithstanding that the escrow agent will retain the proceeds of the sale. No
further gain or loss will be recognized by a FutureTense stockholder upon the
receipt of any such sale proceeds that are distributed to the stockholder upon
termination of the escrow agreement.
If shares of escrowed Open Market common stock are distributed to Open
Market on behalf of a FutureTense stockholder in satisfaction of
indemnification claims, although the tax consequences to such stockholder are
not clear because of the absence of legislative, judicial or administrative, or
other authority directly on point, such FutureTense stockholder should be able
to take the position that gain or loss should not be recognized. It is
possible, however, that the IRS may assert that gain or loss should be
recognized. Stockholders should consult their tax advisors for advice and more
information on this point.
Each FutureTense stockholder will be subject to United States federal income
tax on all amounts earned on property held by the escrow agent and credited to
that stockholder. Any dividends paid on the escrowed Open Market common stock
will be distributed currently to the FutureTense stockholders, subject to
limited exceptions. Any other earnings with respect to property held in the
escrow will be retained by the escrow agent and will remain subject to
indemnification claims, notwithstanding that the FutureTense stockholders are
subject to United States federal income tax on these amounts.
In the event that some or all of the proceeds from any sales of escrowed
shares on behalf of a stockholder, or earnings on escrowed property, are
distributed to Open Market in satisfaction of an indemnification claim, the
amount of such proceeds will be allocated among and added to the stockholder's
tax basis in the stockholder's remaining shares of Open Market common stock. In
the event that some or all of the shares of escrowed stock are distributed to
Open Market in satisfaction of an indemnification claim, the stockholder's tax
basis in such shares of escrowed stock that have been returned to Open Market
will be allocated among and added to the stockholder's tax basis in the
stockholder's remaining shares of Open Market common stock (unless gain or loss
has already been recognized on those shares, see above, in which case the
adjustment to basis may differ).
FutureTense stockholders will be required to attach a statement to their tax
returns for the year of the merger that contains the information listed in
Treasury Regulation Section 1.368-3(b). Such statement must include the
stockholder's tax basis in the stockholder's FutureTense stock and a
description of the Open Market common stock received therefor. FutureTense
stockholders are urged to consult their tax advisors with respect to this
statement and any other tax reporting requirements.
We intend this discussion to provide only a summary of the material federal
income tax consequences of the merger. We do not intend that it be a complete
analysis or description of all
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potential federal income tax consequences of the merger. We do not address
certain categories of stockholders, and we do not address state, local or
foreign tax consequences. In addition, as noted above, we do not address tax
consequences that may vary with, or are contingent upon, individual
circumstances. We strongly urge you to consult your tax advisor to determine
your particular United States federal, state, local or foreign income or other
tax consequences resulting from the merger, in light of your individual
circumstances.
Nasdaq National Market Quotation
It is a condition to the closing of the merger that the shares of Open
Market common stock to be issued pursuant to the merger agreement be listed on
the Nasdaq National Market. Open Market filed a notification form for listing
of additional shares on August 5, 1999.
Resales of Open Market Common Stock Issued in Connection with the Merger;
Affiliate Agreements
Open Market common stock issued in connection with the merger will be freely
transferable, except that shares of Open Market common stock received by
persons who are deemed to be "affiliates," as such term is defined by Rule 144
under the Securities Act of 1933, of FutureTense at the effective time of the
merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 under the Securities Act of 1933 or as otherwise
permitted under the Securities Act of 1933. The executive officers and
directors and persons who may be affiliates of FutureTense have executed a
written affiliate agreement providing, among other things, that such person
will not offer, sell, transfer or otherwise dispose of any of the shares of
Open Market common stock obtained as a result of the merger except in
compliance with the Securities Act of 1933 and the rules and regulations of the
Securities and Exchange Commission thereunder. Each affiliate agreement also
will provide that the affiliate covered by such agreement may not take a number
of actions that would jeopardize the accounting treatment of the merger as a
pooling of interests. The executive officers and directors and persons who may
be affiliates of Open Market have executed a written agreement providing that
the affiliate covered by such agreement may not take actions that would
jeopardize the accounting treatment of the merger as a pooling of interests.
Securities and Exchange Commission guidelines regarding qualifying for the
pooling of interests method of accounting also limit sales of shares of Open
Market and FutureTense by their affiliates. The pooling of interests method of
accounting will generally not be challenged by the Securities and Exchange
Commission on the basis of sales by affiliates if they do not dispose of any of
the shares of Open Market or FutureTense during the period beginning 30 days
before the merger and ending when financial results covering at least 30 days
of post-merger operations of Open Market have been published.
Cautionary Statement Concerning Forward-Looking Statements
Open Market and FutureTense believe this document and the documents
incorporated by reference herein contain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements are subject to risks and uncertainties and are based on the beliefs
and assumptions of management of Open Market and FutureTense, based on
information currently available to each company's management. When we use words
such as "believes," "expects," "anticipates," "intends," "plans," "estimates,"
"should," "likely" or similar expressions, we are making forward-looking
statements. Forward-looking statements include the information concerning
possible or assumed future results of operations of Open Market set forth:
. under "Summary," "Selected Historical and Unaudited Pro Forma Combined
Financial Data," "Risk Factors," "The Merger--Background of the Merger,"
"Open Market's Reasons for the Merger," "FutureTense's Reasons for the
Merger," "--Opinion of Financial Advisor to Open Market," and "Unaudited
Pro Forma Condensed Combined Financial Statements"; and
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. under "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Open Market's Annual Report on
Form 10-K/A and Quarterly Reports on Form 10-Q incorporated by reference
into this document.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder values
of Open Market or FutureTense may differ materially from those expressed in the
forward-looking statements. Many of the factors that will determine these
results and values are beyond our ability to control or predict. Stockholders
are cautioned not to put undue reliance on any forward-looking statements. For
those statements, we claim the protection of the safe harbor for forward-
looking statements contained in the Private Securities Litigation Reform Act of
1995.
For a discussion of some of the factors that may cause actual results to
differ materially from those suggested by the forward-looking statements,
please read carefully the information under "Risk Factors" beginning on page 6.
In addition to the risk factors and other important factors discussed elsewhere
in the documents which are incorporated by reference into this joint proxy
statement/prospectus, you should understand that the following important
factors could affect the future results of Open Market and could cause results
to differ materially from those suggested by the forward-looking statements:
. increased competitive pressures, both domestically and internationally,
which may affect sales of Open Market's products and impede Open
Market's ability to maintain its market share and pricing goals;
. changes in United States, global or regional economic conditions which
may affect sales of the combined company's products and increase costs
associated with manufacturing and distributing such products;
. changes in United States and global financial and equity markets,
including significant interest rate fluctuations, which may increase the
cost of external financing for Open Market's operations, and currency
fluctuations, which may negatively impact Open Market's reportable
income;
. problems arising from the potential inability of computers to properly
recognize and process date-sensitive information beyond January 1, 2000
which may result in an interruption in, or a failure of, normal business
activities or operations of Open Market, its suppliers and customers;
. changes in laws or regulations, third party relations and approvals,
decisions of courts, regulators and governmental bodies which may
adversely affect Open Market's business or ability to compete; and
. other risks and uncertainties as may be detailed from time to time in
Open Market's public announcements and Securities and Exchange
Commission filings.
This list of factors that may affect future performance and the accuracy of
forward-looking statements is illustrative, but by no means exhaustive.
Accordingly, all forward-looking statements should be evaluated with the
understanding of their inherent uncertainty.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement, a copy of which is attached as Annex A to this joint proxy
statement/prospectus and is incorporated by reference into this summary. The
summary is not complete and is qualified in its entirety by reference to the
merger agreement. We urge all stockholders of Open Market and FutureTense to
read the merger agreement in its entirety for a more complete description of
the terms and conditions of the merger.
General
Following the adoption of the merger agreement by the stockholders of
FutureTense, the approval of the issuance of shares of Open Market common stock
as contemplated by the merger agreement by the stockholders of Open Market and
the satisfaction or waiver of the other conditions to the merger, a wholly-
owned subsidiary of Open Market, named "OM/SA Acquisition Corporation," will be
merged into FutureTense. FutureTense will survive the merger as a wholly-owned
subsidiary of Open Market. If all conditions to the merger are satisfied or
waived, the merger will become effective at the time of the filing by the
surviving corporation of a duly executed certificate of merger with the
Secretary of State of the State of Delaware.
Conversion of Shares
Treatment of FutureTense Preferred Stock. Holders of at least two-thirds of
each of the FutureTense series of preferred stock have agreed to convert their
preferred stock to common stock immediately prior to the merger. As a result,
immediately prior to the merger each outstanding share of FutureTense Series A
preferred stock, Series B preferred stock and Series C preferred stock will be
converted into five shares of FutureTense common stock and each outstanding
share of FutureTense Series D preferred stock will be converted into one share
of FutureTense common stock.
Treatment of FutureTense Common Stock and Determination of Conversion
Ratio. At the effective time of the merger, each issued and outstanding share
of FutureTense common stock, other than shares held in the treasury of
FutureTense, shares held by Open Market or OM/SA Acquisition Corporation or
dissenting shares, will be converted into the right to receive a number of
shares of Open Market common stock equal to the conversion ratio. The
conversion ratio will equal the number determined by dividing (a) the
difference between (1) the sum of $125,000,000 and the aggregate amount
receivable by FutureTense upon the exercise of outstanding options of
FutureTense and (2) certain deductible obligations described below by (b)
$14.7064, and then dividing the quotient by the sum of (x) the number of shares
of common stock of FutureTense issued and outstanding, (y) the number of shares
of common stock of FutureTense issuable upon exercise of outstanding options
and warrants whether vested, unvested or subject to repurchase by FutureTense
following the exercise and (z) the number of shares of common stock issuable by
FutureTense upon conversion of its preferred stock, all of which will be
determined immediately prior to the effective time of the merger.
Deductible obligations are the sum, immediately prior to the effective time
of the merger, of certain amounts paid or to be paid by FutureTense in
connection with the merger, the preparation of the Registration Statement on
Form S-4 and the transactions contemplated by the merger agreement, including
the fees and expenses of R.S. Cheheyl, all FutureTense legal and accounting
fees, the amount payable in respect of any outstanding FutureTense warrants
payable in cash at the closing and not exercisable into shares of FutureTense,
and the amount of any FutureTense indebtedness incurred after June 30, 1999 and
before December 31, 1999 (or if earlier, the closing date), as adjusted.
It is estimated that each share of FutureTense common stock outstanding
immediately prior to the effective time of the merger will be exchanged for not
less than .3590 nor more than .4011 of a share of Open Market common stock.
Based on these estimated conversion ratios, approximately 6,800,000 to
7,700,000 shares of Open Market common stock will be issued in the merger. The
actual number of shares of Open Market
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common stock issued in the merger may not fall within this estimated range
because the exact conversion ratio is dependent on a number of variables that
cannot be calculated until shortly before the closing, including the number of
shares of FutureTense common stock outstanding at the closing, the aggregate
amount receivable by FutureTense upon the exercise of outstanding options of
FutureTense and the amount of deductible obligations described above. For
purposes of calculating the estimated conversion ratios above we have taken
into account the uncertainty as to the timing of the closing of the merger and
the future results of operations of FutureTense.
One preferred stock purchase right will attach to and be issued with each
share of Open Market common stock issued in the merger. Ten percent of all
shares to be received by an FutureTense stockholder in the merger will be
placed in escrow to cover indemnification obligations.
Creation of Escrow
By approving the merger, the FutureTense stockholders will authorize the
creation of the escrow and the appointment of Jarret Collins as their
representative with respect to indemnification matters (and Barry Fidelman as a
substitute representative in the event Mr. Collins is unable to continue as
such representative).
Treatment of FutureTense Stock Options
At the effective time of the merger, each unexpired and unexercised
outstanding option to purchase shares of FutureTense common stock, whether
vested or unvested, previously granted by FutureTense under its stock option
plan will be assumed by Open Market and converted into options to purchase
shares of Open Market common stock. The number of shares of Open Market common
stock subject to the assumed FutureTense stock options will be adjusted
pursuant to the conversion ratio. Any fractional shares of Open Market common
stock resulting from such adjustment will be rounded down to the nearest share.
The exercise price per share of Open Market common stock under the FutureTense
stock options will equal the exercise price per share of the FutureTense common
stock under the original stock options divided by the conversion ratio. The
exercise prices will be rounded up to the next highest whole cent.
Treatment of FutureTense Warrants
At the effective time of the merger, all warrants to purchase shares of
FutureTense common stock or FutureTense preferred stock issued by FutureTense
will be assumed by Open Market and converted into warrants to purchase shares
of Open Market common stock. The number of shares of Open Market common stock
subject to the assumed FutureTense warrants will be adjusted pursuant to the
conversion ratio. Any fractional shares of Open Market common stock resulting
from such adjustment will be rounded down to the nearest share. The exercise
price per share of Open Market common stock under the FutureTense warrants will
equal the exercise price per share of the FutureTense common stock or
FutureTense preferred stock under the original warrants divided by the
conversion ratio. The exercise prices will be rounded up to the next highest
whole cent.
Exchange of Stock Certificates
Fractional Shares. Open Market will not issue any fractional shares of Open
Market common stock in the merger. Instead, each holder of shares of
FutureTense common stock or FutureTense preferred stock exchanged pursuant to
the merger who would otherwise have been entitled to receive a fraction of a
share of Open Market common stock will be entitled to receive cash (without
interest) in an amount equal to the product of such fractional part of Open
Market common stock multiplied by the closing price per share of the Open
Market common stock on the Nasdaq National Market on the business day
immediately preceding the closing.
Surrender of Shares of FutureTense Common Stock and FutureTense Preferred
Stock; Stock Transfer Books. Prior to the effective time of the merger, Open
Market will mail a notice and transmittal form to each
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record holder of certificates representing FutureTense common stock and
FutureTense preferred stock advising the holders of the anticipated
effectiveness of the merger and the instructions for surrendering the
certificates for Open Market common stock and for the payment in lieu of
fractional shares. Holders of certificates who properly surrender their
certificates in accordance with the instructions in the notice will receive
certificates representing the number of shares of Open Market common stock
(other than the shares placed in the escrow), cash in lieu of any fractional
shares of Open Market common stock and any dividends or distributions to which
they are entitled. The surrendered certificates will be cancelled.
No Further Registration or Transfer of FutureTense Common Stock and
FutureTense Preferred Stock. At the effective time of the merger, the stock
transfer books of FutureTense will be closed and there will be no further
transfers of shares of FutureTense common stock or FutureTense preferred stock
on the records of FutureTense. After the effective time of the merger, the
holders of FutureTense stock certificates will cease to have any rights with
respect to such shares of FutureTense common stock and FutureTense preferred
stock except as otherwise provided for in the merger agreement or by applicable
law.
Dividends and Distributions. No dividends or other distributions declared or
made on or after the closing date of the merger with respect to shares of Open
Market common stock will be paid to the holder of any unsurrendered FutureTense
certificate with respect to the shares of Open Market common stock that the
holder thereof is entitled to receive, and no cash payment in lieu of
fractional shares will be paid to any such holder until the holder surrenders
such FutureTense certificate as provided above and provides such customary
representations and certifications as are requested in the transmittal form
sent to each holder. Upon such surrender, Open Market will pay to the person in
whose name the FutureTense certificates representing such shares of Open Market
common stock will be issued, without interest, any dividends or distributions
with respect to the shares of Open Market common stock which have a record date
on or after the closing date of the merger and have become payable between the
effective time of the merger and the time of such surrender.
Lost Certificates. If any FutureTense certificates are lost, stolen or
destroyed, a FutureTense stockholder must provide an appropriate affidavit of
that fact. Open Market may require the owner of such lost, stolen or destroyed
FutureTense certificates to deliver a bond as indemnity against any claim that
may be made against Open Market with respect to the FutureTense certificates
alleged to have been lost, stolen or destroyed.
Holders of FutureTense common stock or FutureTense preferred stock should
not send in their certificates until they receive a transmittal form from Open
Market.
Representations and Warranties
The merger agreement contains representations and warranties of Open Market,
FutureTense and OM/SA Acquisition Corporation. These relate to:
. their organization, existence, good standing, corporate power and
similar corporate matters;
. their capitalization;
. their authorization, execution, delivery and performance and the
enforceability of the merger agreement and related matters;
. the absence of conflicts, violations and defaults under their corporate
charters and by-laws and other agreements and documents;
. accounting and tax matters;
. brokers and finders; and
. the accuracy of information provided to the other party.
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FutureTense has also represented and warranted as to:
. required governmental and third-party consents;
. its subsidiaries;
. its financial statements;
. the absence of certain changes in its business since December 31, 1998;
. the absence of undisclosed liabilities;
. litigation;
. the absence of restrictions on its business activities;
. taxes and tax returns;
. its employee benefit plans;
. its material contracts, properties and leases;
. its licenses and permits;
. insurance;
. compliance with laws;
. intellectual property;
. its employees and consultants;
. environmental, health and safety matters;
. accounts receivable;
. powers of attorney;
. its customers;
. its suppliers;
. acquisitions;
. business relationships with affiliates;
. its books and records;
. the actions by its board of directors; and
. government contracts.
Open Market has also represented and warranted as to the accuracy and
completeness of documents and reports filed by Open Market with the SEC.
Certain Covenants
Conduct of Business Prior to the Merger. FutureTense has agreed that it will
carry on its business in the ordinary course in substantially the same manner
as previously conducted, except as contemplated by the merger agreement.
Specifically, FutureTense has agreed not to, without the prior written consent
of Open Market:
. with certain exceptions, issue or sell any shares of capital stock or
other securities, except pursuant to the conversion or exercise of
convertible securities, options or warrants;
. effect a stock split or declare or make any dividends or other
distribution on its shares of capital stock;
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. with certain exceptions, create, incur or assume indebtedness other than
existing agreements, guarantee the obligations of any other person or
entity or make any loans or investments in any other person or entity;
. enter into, adopt or amend any employee benefit plan or employment or
severance arrangement or increase the compensation or fringe benefits
of, or materially modify the employment terms of, its directors,
officers or employees generally, or pay any benefit not required by any
existing employee benefit plan;
. acquire, sell, lease, encumber or otherwise dispose of any assets or
property other than in the ordinary course of business;
. amend its charter or bylaws;
. change its accounting methods in any material respect;
. discharge or satisfy any security interest or pay any obligation or
liability other than in the ordinary course of business;
. mortgage or pledge any of its property or assets or subject any assets
to a security interest;
. sell, assign, transfer or license any intellectual property other than
in the ordinary course of business;
. enter into, amend, terminate, take or omit to take any action that would
constitute a violation or default under, or waive any rights under, any
material contract or agreement;
. make or commit to any capital expenditure in excess of $100,000 per
expenditure or $750,000 in the aggregate;
. take or fail to take any action with the knowledge that the action or
failure to take action would result in the conditions of the merger set
forth in the merger agreement not being satisfied;
. take any action that would jeopardize the treatment of the merger as a
pooling of interests transaction;
. make any material tax election; and
. hire any new employees for a salary in excess of $100,000 per annum.
Open Market and FutureTense have each agreed to use its commercially
reasonable efforts to take all actions and to do all things necessary, proper
or advisable to consummate the transactions contemplated by the merger
agreement.
FutureTense is Restricted from Trying to Sell to Another Party. FutureTense
has agreed that it will not, directly or indirectly, (1) encourage, solicit,
initiate, engage or participate in discussions or negotiations with any person
or entity (other than Open Market) concerning any merger, consolidation, sale
of material assets, tender offer, recapitalization, accumulation of shares of
FutureTense stock, proxy solicitation or other business combination involving
FutureTense or (2) provide any non-public information concerning the business,
properties or assets of FutureTense to any person or entity (other than Open
Market). FutureTense has further agreed to cause each of its officers,
directors, employees, representatives and agents not to do any of the things
described above. FutureTense has agreed that it will immediately notify Open
Market in detail about inquiries, discussions or negotiations of the nature
described above.
Director and Officer Insurance and Indemnification. After the effective
time, Open Market will indemnify and hold harmless each present and former
director and officer of FutureTense against any costs or expenses pertaining to
matters existing or occurring at or prior to the effective time of the merger
to the fullest extent permitted under Delaware law. The merger agreement
provides that for a period of six years after the effective time of the merger,
Open Market will cause the surviving corporation to maintain in effect a
directors' and officers' liability insurance policy covering those persons who
are currently covered by FutureTense's directors' and officers' liability
insurance policies with respect to actions taken in their capacities as
directors and officers of FutureTense; provided, that Open Market will not be
required to expend in excess of 125% of the annual premium currently paid by
FutureTense for such coverage.
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Open Market has agreed that, to the extent allowed by applicable law, all
rights to indemnification existing on the date of the merger agreement in favor
of the present officers and directors of FutureTense prior to the merger as
provided in FutureTenses certificate of incorporation or bylaws shall continue
in full force and effect for a period of six years following the merger.
Governmental and Third-Party Approvals. FutureTense and Open Market have
agreed to use their respective best efforts to obtain all approvals and
authorizations of all third parties and governmental entities which are
necessary to be obtained by them to consummate the merger.
FutureTense is Required to Obtain Funding Through the Closing. FutureTense
has agreed to obtain funding to the extent necessary to fund its operations in
accordance with its existing business plan and to otherwise carry out its
business through January 7, 2000. FutureTense is currently negotiating a loan
agreement with Silicon Valley Bank for a loan in an amount up to $2,000,000.
FutureTense will also enter into an agreement with Open Market pursuant to
which Open Market will make loans to FutureTense of up to $1,000,000 in
aggregate principal amount, in increments of not less than $100,000, subject to
certain conditions, including:
. FutureTense shall have borrowed all funds available for borrowing under
its line of credit with Silicon Valley Bank (including the $2,000,000
loan being negotiated between Silicon Valley Bank and FutureTense);
. there are no defaults under the merger agreement; and
. there are no defaults under the loan agreement between Open Market and
FutureTense.
Interest will accrue on all outstanding balances at the prime rate announced
by The First National Bank of Boston from time to time plus 2% per year. The
total amount of principal and accrued interest is due and payable in full the
earlier of:
. February 28, 2000;
. 45 days after the termination of the merger agreement; or
. upon any debt or equity financing of FutureTense other than the
$2,000,000 loan with Silicon Valley Bank.
Pooling. Open Market and FutureTense shall use their best efforts to allow
Open Market to account for the merger as a "pooling of interests" and shall use
their best efforts to have delivered to Open Market:
. a letter from PricewaterhouseCoopers LLP that FutureTense is "poolable"
for accounting purposes under Accounting Principles Board Opinion No.
16; and
. a letter from Arthur Andersen LLP that Open Market is "poolable" for
accounting purposes and as to the appropriateness of accounting for the
merger as a pooling of interests under Accounting Principles Board
Opinion No. 16.
Reseller Agreement. FutureTense and Open Market have agreed to enter into
good faith negotiations to enter into a non-exclusive reseller agreement on
industry standard terms with no up-front, prepaid amounts due or minimum
requirements, pursuant to which Open Market will be able to resell
FutureTense's IPS product prior to the completion of the merger and undertake
related joint marketing and joint development activities.
Related Matters After the Merger
At the time of the merger, OM/SA Acquisition Corporation will be merged into
FutureTense and FutureTense will become the surviving corporation in the merger
and a wholly-owned subsidiary of Open
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Market. Each share of OM/SA Acquisition Corporation common stock issued and
outstanding immediately prior to the merger will be converted into and
exchanged for one validly issued, fully paid and nonassessable share of common
stock of the surviving corporation. The certificate of incorporation of OM/SA
Acquisition Corporation, as in effect immediately prior to the time of the
merger, will become the certificate of incorporation of the surviving
corporation, except that the name shall be changed to the name of FutureTense.
The bylaws of OM/SA Acquisition Corporation will become the bylaws of the
surviving corporation, except that the name shall be changed to the name of
FutureTense.
Indemnification of Open Market by Stockholders
The merger agreement provides that the FutureTense stockholders who receive
Open Market common stock in the merger will indemnify Open Market for any and
all damages, subject to the limitations described below, Open Market may suffer
as a result of any of the following:
. a misrepresentation or breach of any representation, warranty or
covenant contained in the merger agreement;
. any claim made by a FutureTense stockholder or former FutureTense
stockholder based upon ownership or other stockholder rights; or
. any liability arising out of any material tax return that FutureTense
has not filed.
The representations, warranties and obligations contained in the merger
agreement continue in effect for one year following the closing.
To secure the indemnification obligations of the FutureTense stockholders
and optionholders, ten percent of the Open Market common stock that would
otherwise be payable to the FutureTense stockholders at the closing will be
held in escrow. Pursuant to the merger agreement, Jarret Collins has been
designated as the representative of the FutureTense stockholders with respect
to indemnification matters.
The total liability of the FutureTense stockholders for their
indemnification obligations shall not exceed the fair market value of amounts
held in escrow, and the FutureTense stockholders shall not be liable until the
aggregate claim for damages exceeds $500,000, at which time the FutureTense
stockholders shall be liable for all damages in excess of $500,000. The
foregoing limitations shall not apply to the breach of representations and
warranties by Open Market or by FutureTense regarding organization and
corporate existence, capitalization or authorization of the merger.
No FutureTense stockholder shall have a right of contribution against
FutureTense with respect to any breach by FutureTense of any representation,
warranty, covenant or agreement.
Conditions to Obligations to Effect Merger
The respective obligations of Open Market and FutureTense to effect the
merger are subject to the satisfaction or waiver of the following conditions:
(1) the authorization of the issuance of shares of Open Market common stock in
connection with the merger must have been approved by the stockholders of Open
Market and (2) all applicable waiting periods, and any extensions of these
periods, under the Hart Scott Rodino Act shall have expired or otherwise been
terminated.
In addition, the obligations of Open Market and OM/SA Acquisition
Corporation to effect the merger are subject to the satisfaction or waiver of
the following conditions:
. the holders of no more than 3% of the outstanding voting stock of
FutureTense vote against the approval of the merger agreement and
dissent;
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. FutureTense must have obtained all waivers, permits, consents, approvals
or other authorizations required by Open Market and effected certain
registrations, filings and notices required to effect the merger;
. the representations and warranties of FutureTense in the merger
agreement must be true and correct as of the date of the merger
agreement and at the effective time except to the extent that the
inaccuracy of any representation or warranty is the result of events or
circumstances occurring after July 14, 1999 and any such inaccuracies
would not have a material adverse effect on the ability of the parties
to consummate the merger;
. FutureTense shall have performed or complied with all obligations
required to be performed or complied with under the merger agreement at
or prior to the effective time of the merger;
. no action, suit or proceeding shall be pending or threatened where an
unfavorable judgment, order, decree, stipulation or injunction would
prevent or cause the recision of the merger or have a material adverse
effect on FutureTense;
. Open Market shall have received a certificate executed on behalf of
FutureTense making representations as required by the merger agreement;
. Open Market shall have received an opinion from counsel to FutureTense
in a form satisfactory to Open Market;
. Open Market, the indemnification representative and the escrow agent
must have entered into the escrow agreement;
. Open Market must have received a letter from PricewaterhouseCoopers LLP
containing statements and information of the type ordinarily included in
accountants' "comfort letters";
. the stockholders of FutureTense shall have approved and adopted the
merger agreement;
. Open Market shall have received an opinion from its counsel to the
effect the merger is a reorganization for federal income tax purposes
under Section 368(a) of the Internal Revenue Code;
. FutureTense shall have received monies to the extent necessary to enable
it to fund its operations according to its existing business plan and to
otherwise carry out its business in the ordinary course of business
through January 7, 2000; and
. FutureTense shall have terminated its 401(k) plan or shall have amended
its 401(k) plan to exclude all employees other than FutureTense
employees.
In addition, the obligation of FutureTense to effect the merger is subject
to the satisfaction of the following conditions:
. the representations and warranties of Open Market and OM/SA Acquisition
Corporation in the merger agreement must be true and correct as of the
date of the merger agreement and at the effective time except to the
extent that the inaccuracy of any representation or warranty is the
result of events or circumstances occurring after July 14, 1999 and any
such inaccuracies would not have a material adverse effect on the
ability of the parties to consummate the merger;
. Open Market must have performed in all material respects all obligations
required to be performed by it under the merger agreement at or prior to
the effective time of the merger;
. no action, suit or proceeding shall be pending or threatened where an
unfavorable judgment, order, decree, stipulation or injunction would
prevent or cause the recision of the merger or have a material adverse
effect on Open Market;
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. FutureTense shall have received a certificate executed on behalf of Open
Market making representations as required by the merger agreement;
. FutureTense must have received an opinion from counsel to Open Market in
a form satisfactory to FutureTense;
. Open Market, the indemnification representative and the escrow agent
must have entered into the escrow agreement;
. the shares of Open Market common stock to be issued in the merger will
have been authorized for listing on the Nasdaq National Market; and
. FutureTense shall have received an opinion from its counsel to the
effect the merger is a reorganization for federal income tax purposes
under Section 368(a) of the Internal Revenue Code.
Termination; Fees and Expenses
The merger agreement may be terminated in the following ways at any time
prior to the time of the merger:
(1) Open Market and FutureTense may terminate the merger agreement by
mutual written consent;
(2) Open Market or FutureTense may terminate the merger agreement if the
other party is in breach of any material representation, warranty or
covenant contained in the merger agreement and such breach is not remedied
within 10 days of delivery of written notice;
(3) Open Market or FutureTense may terminate the merger agreement if the
requisite vote of the stockholders of Open Market is not obtained at the
Open Market special meeting (including any adjournment or postponement
thereof);
(4) Open Market may terminate the merger agreement by giving written notice
to FutureTense if the closing has not occurred on or before January 7, 2000
by reason of the failure of any condition precedent to Open Market' closing
of the merger unless the failure results primarily from a breach by Open
Market or the OM/SA Acquisition Corporation of any representation, warranty
or covenant contained in the merger agreement; or
(5) FutureTense may terminate the merger agreement if the closing has not
have occurred on or before January 7, 2000 by reason of the failure of any
condition precedent to its consummation of the merger unless the failure
results primarily from a breach by FutureTense of any representation,
warranty or covenant contained in the merger agreement.
If either Open Market or FutureTense terminates the merger agreement
pursuant to the reasons above, all obligations of the parties under the merger
agreement shall terminate and there will be no liability, except for any
liability of a party for breaches of the merger agreement, on the part of Open
Market, FutureTense, OM/SA Acquisition Corporation or their respective
officers, directors, stockholders or affiliates.
In addition, the merger agreement may be terminated in the event that after
the execution of the merger agreement and before January 7, 2000:
(a) (i) Open Market enters into an agreement or letter of intent with a
third-party to sell Open Market to that third-party (through a merger
or otherwise) and as a result:
(A) the board of directors of Open Market withdraws or withholds its
recommendation to stockholders to vote in favor of the issuance of
shares of Open Market common stock in connection with the merger;
and
(B) the vote of the stockholders of Open Market is not obtained; or
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(ii) a tender offer is made for the purchase of at least 80% of the
outstanding securities of Open Market by a person or group that
recommends to the Open Market stockholders to vote against the issuance
of shares of Open Market common stock in connection with the merger or
otherwise conditions such offer on the merger not being consummated and
such tender offer is successful; or
(iii) over 30% of the outstanding securities of Open Market are
purchased by a third-party, the third-party votes against the issuance
of shares of Open Market common stock in connection with the merger at
Open Market's meeting of stockholders called for that purpose and the
vote of the stockholders of Open Market is not obtained; and
(b) certain conditions to closing of Open Market have been satisfied and
FutureTense is not otherwise in breach of the merger agreement then; or
in the event that FutureTense terminates the merger agreement which it shall
have the right to do under any of the circumstances described in clauses
(a)(i), (ii) and (iii) above, then Open Market will pay FutureTense cash in the
amount of $5,000,000 upon the closing of the sale, tender offer or other
transaction by Open Market described in clauses (a)(i), (ii) or (iii) above.
Except as described below, whether or not the merger is consummated, all
fees, costs and expenses incurred in connection with the merger agreement and
the transactions contemplated thereby shall be paid by the party incurring the
expenses. Open Market shall pay all expenses incurred in relation to the
printing of this proxy statement/prospectus.
FutureTense does not have a right to terminate the merger agreement because
of a decline in the share price of Open Market common stock.
Amendment and Waiver
Generally, the boards of directors of Open Market and FutureTense may amend
the merger agreement at any time prior to the effective time. However, after
the stockholders of FutureTense approve the merger, any amendment will be
restricted by the Delaware corporation statute. Amendments must be in writing
and signed by all parties.
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OTHER AGREEMENTS
Voting Agreements
In connection with the execution of the merger agreement, Open Market
entered into voting agreements with certain officers, directors, founders and
5% holders of FutureTense owning approximately 91% of the combined voting
power of the outstanding capital stock of FutureTense. Pursuant to the voting
agreements, each stockholder has agreed to vote all shares of FutureTense
common stock and FutureTense preferred stock in favor of adoption of the
merger agreement and the merger and has agreed to grant Open Market an
irrevocable proxy to vote his or her shares in favor of adoption of the merger
agreement and the merger. The voting agreements will terminate upon the
earliest to occur of (1) the effective time of the merger or (2) any
termination of the merger agreement in accordance with the terms thereof.
In connection with the execution of the merger agreement, FutureTense
entered into voting agreements with the executive officers and directors of
Open Market owning approximately 16% of the outstanding common stock of Open
Market as of July 1, 1999. Pursuant to the voting agreements, each executive
officer and director has agreed to vote all of his or her shares of Open
Market common stock in favor of approval of the issuance of Open Market common
stock in connection with the merger and has granted FutureTense an irrevocable
proxy to vote his or her shares in favor of approval of the issuance of Open
Market common stock in connection with the merger. The voting agreements will
terminate upon the earliest to occur of (1) the effective time of the merger
or (2) any termination of the merger agreement in accordance with the terms
thereof.
Escrow Agreement
Open Market will deposit in escrow with the escrow agent a certificate
representing the shares of Open Market common stock for the purpose of
securing the indemnification obligations of the FutureTense stockholders
pursuant to the merger agreement. The escrow shares will be issued in the name
of the escrow agent or its nominee.
During the term of the escrow agreement, the escrow shares will be voted by
the escrow agent on behalf of the FutureTense stockholders in accordance with
instructions received by the escrow agent from the FutureTense stockholders.
In the absence of these instructions, the escrow agent need not vote these
shares.
Under the escrow agreement, the indemnification representative may sell
Open Market common stock held in the escrow under certain circumstances, but
the proceeds of the sale must be maintained in the escrow until it expires.
Jarrett Collins, currently a director of FutureTense, is the initial
indemnification representative.
The escrow will terminate one year after the closing if Open Market makes
no claims for indemnification.
Promptly following the termination of the escrow, the escrow agent will (1)
in the case of shares, deliver to Open Market's stock transfer agent the
number of shares remaining in escrow and (2) in the case of cash, deliver to
the FutureTense stockholders any cash remaining in escrow, after satisfying
all obligations to deliver any cash or shares to Open Market pursuant to the
merger agreement. The transfer agent will then deliver the shares to the
FutureTense stockholders entitled to receive them.
The escrow agent will distribute any cash dividends or property (other than
securities) distributed with respect to the shares to the FutureTense
stockholders.
Open Market and FutureTense shall each be liable for certain fees and
expenses of the escrow agent.
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DESCRIPTION OF OPEN MARKET
Open Market develops, markets, licenses and supports enterprise-class,
application software products that allow its customers to engage in business-
to-business and business-to-consumer Internet commerce, information commerce
and commercial publishing. Open Market's software includes a wide spectrum of
functionality required to conduct business on the Internet effectively,
allowing companies to attract customers to their Web sites, to engage the
customers in acting upon an offer, to complete the transaction and to service
these customers once a transaction has been completed.
Open Market's software products are used by a variety of companies across a
broad spectrum of markets, including telecommunications, financial services,
business-to-business, business-to-consumer (retail) and commercial publishing.
These businesses take advantage of Open Market's solutions either directly by
deploying the software within their own enterprises, or indirectly by procuring
services from commerce service providers, or CSPs, running Open Market
software. These CSPs offer commerce services to small and mid-sized companies
that wish to outsource the cost and complexity associated with implementing and
maintaining this software within their own organizations.
Open Market has a differentiated set of products and services that are built
upon an innovative product architecture, a fully integrated approach to
security and patented technology. Open Market's products are based upon its
distinctive SecureLink(TM) architecture which addresses the unique requirements
of doing business over the Web. SecureLink provides a selling company the
freedom to establish its electronic presence using virtually any system
platform, any Web server software and any authorizing software or data
repository. Similarly, SecureLink imposes few constraints on buyers, allowing
them to make purchases from any Web-enabled client. SecureLink also functions
over the established Web communications infrastructure including firewalls and
proxy servers.
Since June 30, 1998, Open Market has offered a suite of software products,
which include Transact(TM), LiveCommerce(TM) and ShopSite(TM).
Open Market's Transact performs comprehensive order management for Internet
commerce, including capturing of orders (item, price, tax and shipping costs),
processing orders (authenticating buyers, determining form of payment,
processing payment and addressing fulfillment) and servicing orders online
(order and shipment status, transaction statements and customer service). The
fourth version of Transact was made generally available on March 31, 1998 and
represents a significant re-architecture of the product. Transact is sold to
two types of customers: (1) enterprise customers which use the product for
their own Web-based business activities and (2) CSPs which use the product to
provide Internet commerce transaction capabilities to their business customers.
Open Market's LiveCommerce allows manufacturers, distributors and retailers
to create and manage large catalogs on the Web. Open Market introduced
LiveCommerce in September 1997. In combination with Transact, LiveCommerce
represents a comprehensive Internet commerce solution for both large retailers
and industrial manufacturers in industries such as scientific equipment,
computers, office supplies, replacement parts and electronic components. Open
Market first shipped LiveCommerce on October 31, 1997.
Open Market's ShopSite provides small to medium-sized businesses with an
easy to use store building tool. ShopSite was developed by Icentral
Incorporated which Open Market acquired in April 1998. ShopSite, in conjunction
with Transact, provides small to medium-sized businesses with a cost-effective
way to conduct their business on-line.
Open Market believes that offering a comprehensive suite of professional
services is a critical component of the ultimate success of its customers. To
this end, Open Market has invested in service program development and worldwide
delivery capabilities. Open Market offers a full suite of services to its
customers, including maintenance and technical support services, professional
services and education services. Open Market supports its products from service
centers in Burlington, Massachusetts and in Amsterdam, the Netherlands.
Open Market was incorporated in Delaware in December 1993. Open Market's
executive offices are located at One Wayside Road, Burlington, Massachusetts
01803. Its telephone number is (781) 359-3000, and its Internet web site is
located at http://www.openmarket.com. "Open Market," "LiveCommerce,"
"Transact," "ShopSite" and "SecureLink" are all trademarks or registered
trademarks of Open Market.
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DESCRIPTION OF FUTURETENSE
Business
FutureTense is a leading developer of content management software used as a
platform upon which to build e-publishing and e-business applications. Our
flagship product, the Internet Publishing System, also referred to as IPS,
enables businesses to easily and economically contribute, publish, and share
information throughout an enterprise and with users of the Internet. We have
focused our marketing efforts towards on-line publishers, financial service
organizations, Fortune 1000 corporations for both Internet and Intranet use,
and large Internet portals.
The IPS product was first shipped in July 1998 and version 2.0 was released
in January 1999. It is a web-based, client-server, multi-user, system that
automates HTML page production, streamlines the Web publishing process, and
provides the ability to deliver any combination of static and dynamic pages.
The IPS product open architecture incorporates application server technology,
operates on the Windows NT or Sun Solaris platform and manages data stored in
standard ODBC compliant databases, such as Oracle, Sybase and Informix. We also
offer a Remote Ad Management System, or RAM, which captures and manages digital
advertisements sent by advertisers to newspapers via modem, fax, or the
Internet. The Remote Ad Management System routes the ads to the appropriate
systems of the newspaper and return updates to the advertisers. Our clients
include Chase Manhattan Bank, Lucent, Netscape Netcenter, Space.com, The
Washington Post and The New York Times.
FutureTense believes its advanced technology enables clients to build,
deliver and manage enterprise-class content management and delivery e-business
systems in less time, at lower cost and with more functionality than existing
alternatives. FutureTense believes that it has developed a unique architecture
for meeting the technical demands of applications designed for e-publishing. By
employing an open application server architecture and focusing on content
management, our solution provides an efficient platform for clients to build
and deploy highly scalable applications quickly and cost-effectively.
FutureTense believes that this architecture also provides a strong foundation
on which we can develop future products.
A key technological strength is the IPS product's ability to offer high
performance page delivery and scalability while using industry hardware and
software standards. FutureTense has invested significant resources in
developing its product architecture to comply with widely accepted commercial
software industry standards for building large scale Internet applications.
Internet Publishing System currently uses the Netscape Application Server as
the foundation for its infrastructure. FutureTense has announced its intention
to offer the IPS product on the BEA Systems WebLogic application server in
1999. FutureTense also intends to support additional application servers in the
future to allow customers the ability to choose from a variety of underlying
packages. The IPS product can also be used in conjunction with other e-
publishing and design tools and can be customized to meet specific user or
industry needs.
FutureTense currently markets its products through a direct sales force and
indirectly through resellers. FutureTense has also begun to expand our indirect
sales through relationships with systems integrators and original equipment
manufacturers. As of June 30, 1999, our field operations organization consisted
of 35 sales executives, sales engineers and support engineers.
As of June 30, 1999, FutureTense had a total of 87 employees. Of that total,
30 were in engineering, 45 in sales and marketing, and 12 in finance and
administration. From time to time FutureTense has also employed independent
contractors to support our professional services, product development, sales,
marketing and business development organizations.
FutureTense was incorporated in Delaware in April 1995. FutureTense's
executive officers are located at 43 Nagog Park, Acton, Massachusetts 01720.
Its telephone number is (978) 635-3600, and its Internet web site is located at
http://www.futuretense.com. "FutureTense" and "Internet Publishing System" are
all trademarks of FutureTense.
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Management's Discussions and Analysis of Financial Condition and Results of
Operations
Overview
FutureTense has experienced substantial losses since its inception, and as
of June 30, 1999, it had an accumulated deficit of $17.8 million. These net
losses and accumulated deficit resulted from FutureTense's lack of substantial
revenue and the significant costs incurred in the development of its products
and in the establishment of its sales and marketing organization. FutureTense
expects to increase its expenditures in all areas in order to execute its
business plan, particularly in sales and marketing and customer support. The
planned increases in sales and marketing will primarily result from the hiring
of additional sales force personnel and expansion of marketing programs to
develop a worldwide integration partner program. The planned increase in
customer support will be a combination of additional support personnel and the
establishment of a professional services organization to support our network of
integration partners.
On October 20, 1997, FutureTense acquired substantially all of the operating
assets and liabilities of Mission Critical Technologies, Inc., or MCT, in
exchange for 128,748 shares of FutureTense's Series B preferred stock valued at
$936,642 and a non-interest bearing note in the amount of $438,882. Assumed
liabilities exceeded the fair value of the acquired tangible assets by
$633,909. MCT was engaged in the design, development and distribution of
software primarily to the publishing industry. The acquisition has been
accounted for under the purchase method and accordingly, the purchase price has
been allocated based on the estimated fair value of assets purchased and
liabilities assumed upon acquisition. A portion of the purchase price was
allocated to purchased research and development projects that were identified
as having no alternative future value and had not yet reached technological
feasibility. Purchased research and development that had not yet reached
technological feasibility and that had no alternative future use was valued
using a risk adjusted cash flow model. This analysis resulted in an allocation
of $428,555 to acquired in-process research and development expense that was
charged to FutureTense's operations at the acquisition date. Approximately
$233,000 was allocated to purchased software and the excess of cost over the
fair value of net assets acquired has been allocated to goodwill, $1,347,857,
which is being amortized over three years on a straight-line basis. Software
acquired in the acquisition of MCT is being amortized on the straight-line
method over the estimated useful life of three years. The operating results of
MCT are included in FutureTense's results from the date of acquisition.
Although FutureTense has experienced revenue growth in recent periods, there
can be no assurance that such growth rates are sustainable, and therefore such
growth rates should not be considered indicative of future operating results.
There can also be no assurance that FutureTense will be able to continue to
increase its revenue or attain profitability or, if increases in revenue and
profitability are achieved, that they can be sustained. FutureTense believes
that period-to-period comparisons of its historical operating results are not
meaningful and should not be relied upon as an indication of future
performance.
Results of Operations
Comparison of Results for the Six Months Ended June 30, 1999 and 1998
Revenue
Total revenue increased to $3.0 million for the six month period ended June
30, 1999 from $1.1 million for the six month period ended June 30, 1998.
Product License and Sales Revenue. Product license and sales revenue
increased to $1.4 million for the six month period ended June 30, 1999 from
$585,000 for the six month period ended June 30, 1998. During the first six
months of 1999, FutureTense continued to emphasize sales of its IPS product.
Revenue for that product increased by over 1800% from the six month period
ended June 30, 1998 to the six month period ended June 30, 1999, and
constituted 78% of total product license and sales revenue for the six month
period ended June 30, 1999. During this same period, FutureTense continued to
de-emphasize sales of its RAM product and associated hardware.
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Services Revenue. Services revenue increased to $1.7 million for the six
month period ended June 30, 1999 from $492,000 for the six month period ended
June 30, 1998. This increase was primarily attributable to implementation and
other professional services revenue for IPS sales and to a lesser degree
revenue from software maintenance agreements for IPS customers. Revenue from
installation services and software maintenance contracts for RAM sales
increased moderately.
Cost of Revenue
Cost of Product License and Sales Revenue. Cost of product license and sales
revenue increased to $298,000, or 21.3% of product license and sales revenue,
for the six month period ended June 30, 1999 from $147,000, or 25.1% of product
license and sales revenue, for the six month period ended June 30, 1998. Cost
of product license and sales revenue included $31,000 for the six month period
ended June 30, 1999 for inventory write-offs related to the RAM product.
FutureTense anticipates that the cost of product license and sales revenue,
primarily royalty obligations to third parties whose products are incorporated
into FutureTense's products, will increase in absolute dollars as license
revenue increases.
Cost of Services Revenue. Cost of services revenue increased to $1.0
million, or 58.8% of services revenue, for the six month period ended June 30,
1999 from $368,000, or 74.8% of services revenue, for the six month period
ended June 30, 1998. The increase in gross margin from 25.2% to 41.2% was the
result of the increase in service revenue combined with the utilization of the
existing customer support infrastructure acquired with MCT across a larger
customer base. The number of customer service employees increased to 16 as of
June 30, 1999 from nine as of June 30, 1998.
Operating Expenses
Research and Development. Research and development expenses consist
primarily of compensation costs for developers and outside consultants involved
in product development efforts. Research and development expenses increased to
$1.9 million, or 63.3% of total revenue, for the six month period ended June
30, 1999 from $1.6 million, or 145.5% of total revenue, for the six month
period ended June 30, 1998. The increase primarily resulted from costs
associated with an increase in the number of research and development employees
to 30 as of June 30, 1999 from 17 as of June 30, 1998, partially offset by a
reduction in the use of contract developers. FutureTense anticipates that
research and development expenses will continue to increase in absolute dollars
but at a lower rate than revenue growth.
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation costs for sales and marketing personnel, including sales
commissions, travel expenses, trade shows, and other costs related to product
promotion and marketing programs. Sales and marketing expenses increased to
$2.6 million, or 86.7% of total revenue, for the six month period ended June
30, 1999 from $1.3 million, or 118.2% of total revenue, for the six month
period ended June 30, 1998. The increase was primarily due to the establishment
of a direct sales organization and increases to marketing staff during 1998 in
conjunction with the introduction and marketing of the IPS product. Total sales
and marketing personnel increased to 29 as of June 30, 1999 from 12 as of June
30, 1998. Sales commissions increased as a result of the increased revenue and
larger sales force. In addition, the increase in total sales and marketing
expense was attributable to costs associated with an increase in advertising
and marketing programs. Sales and marketing expenses are anticipated to
continue to increase in absolute dollars as FutureTense continues to develop
its direct sales organization and expand into international markets.
General and Administrative. General and administrative expenses consist
primarily of compensation costs for finance, administration, executive
management and facilities. General and administrative expenses increased to
$1.4 million, or 46.7% of total revenue, for the six month period ended June
30, 1999 from $715,000, or 65.0% of total revenue, for the six month period
ended June 30, 1998. The increase primarily
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resulted from costs associated with an increase in the number of general and
administrative employees to 12 as of June 30, 1999 from nine as of June 30,
1998.
Other Income (Expense). Interest income increased to $66,000, or 2.2% of
total revenue, for the six month period ended June 30, 1999 from $53,000, or
4.8% of total revenue for the six month period ended June 30, 1998. Interest
expense decreased to $22,000, or 0.7% of total revenue, for the six month
period ended June 30, 1999 from $53,000, or 4.8% of total revenue, for the six
month period ended June 30, 1998. The decrease was the result of FutureTense's
repayment of debt with proceeds from its capital financing in the first six
months of 1998.
Comparison of Results for the Years Ended December 31, 1998 and 1997
Revenue
Total revenue, consisting of product license and sales revenue and services
revenue, increased to $2.4 million for the year ended December 31, 1998 from
$187,000 for the year ended December 31, 1997.
Product License and Sales Revenue. Product license and sales revenue
increased to $1.3 million for the year ended December 31, 1998 from $83,000 for
the year ended December 31, 1997. FutureTense's IPS product was released for
sale in June 1998 and rapidly grew to constitute 33% of FutureTense's product
license and sales revenue for the year ended December 31, 1998. License and
hardware revenue for FutureTense's RAM product, acquired in October 1997,
constituted the remaining 67%.
Services Revenue. Services revenue increased to $1.1 million for the year
ended December 31, 1998 from $104,000 for the year ended December 31, 1997.
This increase was primarily attributable to software maintenance contracts for
the installed RAM product base and to a lesser extent implementation services
for the new sales of both IPS and RAM products.
Cost of Revenue
Cost of Product License and Sales Revenue. Cost of product license and sales
revenue increased to $447,000, or 34.4% of product license and sales revenue,
for the year ended December 31, 1998 from $154,000, or 185.5% of product
license and sales revenue, for the year ended December 31, 1997. Gross profit
was reduced by $135,000 for the year ended December 31, 1998 due to an
inventory write-off related to the RAM product. Cost of goods sold for hardware
sales was $174,000, or 78.0% of hardware revenue, for the year ended December
31, 1998. Cost of product license and sales revenue for the year ended December
31, 1997 includes a $87,000 write-off of inventory.
Cost of Services Revenue. Cost of services revenue increased to $833,000, or
75.7% of services revenue, for the year ended December 31, 1998 from $56,000,
or 53.8% of services revenue, for the year ended December 31, 1997. The
increase resulted primarily from the cost of the customer support organization
established with the acquisition of MCT in October 1997.
Operating Expenses
Research and Development. Research and development expenses increased to
$3.2 million, or 133.3% of total revenue, for the year ended December 31, 1998
from $1.6 million, or 855.6% of total revenue, for the year ended December 31,
1997. The increase primarily resulted from costs associated with an increase in
the number of research and development employees to 22 as of December 31, 1998
from 14 as of December 31, 1997. FutureTense also increased its use of outside
consultants to supplement engineering staff or gain specific expertise for
development efforts. In addition, FutureTense wrote-off $429,000 for in-process
research and development related to the acquisition of MCT in October 1997.
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Sales and Marketing. Sales and marketing expenses increased to $2.8 million,
or 116.7% of total revenue, for the year ended December 31, 1998 from $1.5
million, or 802.1% of total revenue, for the year ended December 31, 1997. The
increase was primarily due to costs associated with the establishment of a
direct sales organization during 1998 in connection with the introduction of
FutureTense's IPS product.
General and Administrative. General and administrative expenses consist
primarily of compensation costs for finance, administration and executive
management, facilities, legal, audit and depreciation. General and
administrative expenses increased to $1.6 million, or 66.7% of total revenue,
for the year ended December 31, 1998 from $951,000, or 508.6% of total revenue,
for the year ended December 31, 1997. The increase primarily resulted from
costs associated with an increase in the number of general and administrative
employees to nine as of December 31, 1998 from five as of December 31, 1997 and
expansion of facility space in early 1998.
Other Income (Expense). Interest income decreased to $56,000, or 2.3% of
total revenue, for the year ended December 31, 1998 from $84,000, or 44.9% of
total revenue, for the year ended December 31, 1997 as a result of lower
average cash balances during 1998. Interest expense increased to $95,000 or
4.0% of total revenue, for the year ended December 31, 1998 from $35,000, or
18.7% of total revenue, for the year ended December 31, 1997. The increase in
interest expense was the result of FutureTense's increased use of debt
financing for equipment purchases in 1998 and the use of $1.5 million of debt
financing during the fourth quarter of 1998.
Comparison of Results for the Years Ended December 31, 1997 and 1996
Revenue
Total revenue increased to $187,000 for the year ended December 31, 1997
from $16,000 for the year ended December 31, 1996. The increase was due to
revenue generated from the RAM product acquired from MCT in October 1997.
Revenue for the year ended December 31, 1996 was derived from a component of an
early version of IPS.
Cost of Revenue
Total cost of revenue increased to $210,000, or 112.3% of total revenue, for
the year ended December 31, 1997 from $3,000, or 18.8% of total revenue, for
the year ended December 31, 1996. The increase resulted primarily from costs
related to supporting the MCT customer base acquired in October 1997 and an
inventory write-off of $87,000.
Operating Expenses
Research and Development. Research and development expenses increased to
$1.6 million for the year ended December 31, 1997 from $721,000 for the year
ended December 31, 1996. The increase primarily resulted from an increase in
the number of research and development employees to 14 as of December 31, 1997
from nine as of December 31, 1996. FutureTense also wrote-off $429,000 for in-
process research and development related to the acquisition of MCT in October
1997.
Sales and Marketing. Sales and marketing expenses increased to $1.5 million
for the year ended December 31, 1997 from $1.2 million for the year ended
December 31, 1996. The increase was primarily attributable to costs associated
with programs to promote the companys new focus on electronic publishing and
preparing for the release of the IPS product in the first half of 1998.
General and Administrative. General and administrative expenses increased to
$951,000 for the year ended December 31, 1997 from $764,000 for the year ended
December 31, 1997, due primarily to an increase in headcount.
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Other Income (Expense). Interest income decreased to $84,000 for the year
ended December 31, 1997 from $91,000 for the year ended December 31, 1996.
Interest expense increased to $35,000 for the year ended December 31, 1997 from
$7,000 for the year ended December 31, 1996. The decrease in interest income
was the result of FutureTense's declining average cash balances after capital
financing was received in 1996. The increase in interest expense was a result
of an increase in debt obligations.
Liquidity and Capital Resources
Since its inception, FutureTense has funded operations primarily through net
cash proceeds from private placements of preferred stock totaling $19.9 million
through June 30, 1999. As of June 30, 1999, FutureTense had cash and cash
equivalents totaling $1.8 million.
Cash used for operating activities for the six month period ended June 30,
1999 was $4.1 million, primarily due to a net loss of $4.1 million and an
increase in accounts receivable, prepaid expenses and other current assets
partially offset by increases in accounts payable and accrued expenses and
deferred revenue and customer deposits. As of June 30, 1999, accounts
receivable included $604,000 from one significant customer. Cash used for
operating activities for the year ended December 31, 1998 was $5.5 million,
primarily due to a net loss of $6.4 million and an increase in accounts
receivable, partially offset by increases in accrued expenses and deferred
revenue.
Cash used for investing purposes for the six month period ended June 30,
1999 was $528,000 and for the year ended December 31, 1998 was $398,000.
Investing activities for both periods primarily consisted of purchases of
computers, networking equipment and software for internal use.
Cash provided by financing activities for the six month period ended June
30, 1999 was $4.7 million primarily the result of the issuance of preferred
stock for net proceeds totaling $4.5 million. FutureTense also drew $262,000 on
an available equipment line of credit to finance investing activities. Cash
provided by financing activities for the year ended December 31, 1998 was $7.4
million, primarily due to the issuance of preferred stock for net proceeds
totaling $8.5 million. This was partially offset by net payments on notes
payable totaling $1.2 million.
FutureTense's primary financial commitments consisted of notes payable under
the equipment line of credit of $635,000 as of June 30, 1999 and $460,000 as of
December 31, 1998.
As of December 31, 1998, FutureTense had net operating loss carry forwards
of approximately $12.5 million and research and development tax credit carry
forwards of approximately $156,000 available for federal purposes to reduce
future taxable income expiring on various dates beginning in 2010. Under the
provisions of the Internal Revenue Code, certain substantial changes in
FutureTenses ownership may result in a limitation of the amount of net
operating loss carry forwards and research and development tax credit carry
forwards which can be used in future years.
During the six month period ended June 30, 1999, FutureTense recorded
deferred compensation of $696,100 in connection with stock option grants. This
amount represents the difference between the exercise price of the stock option
grants and the estimated fair market value for accounting purposes of the
common stock on the date of grant. Compensation related to options which vest
over time was recorded as a component of stockholders' deficit and is being
amortized over the vesting periods of the related options. Upon the closing of
the merger, FutureTense will record a charge of approximately $275,000 relating
to option acceleration.
Since its inception, FutureTense has significantly increased its operating
expenses. FutureTense anticipates that it will continue to experience
significant growth in its operating expenses for the foreseeable future and
that its operating expenses and capital expenditures will constitute a material
use of FutureTense's cash resources. In the merger agreement, FutureTense has
agreed to obtain funding to the extent necessary to fund
61
<PAGE>
its operations in accordance with its existing business plan and to otherwise
carry out its business through January 7, 2000. FutureTense is currently
negotiating a loan agreement with Silicon Valley Bank for a loan in an amount
up to $2,000,000. FutureTense will also enter into an agreement with Open
Market pursuant to which Open Market will, subject to certain conditions, make
loans to FutureTense of up to $1,000,000 in aggregate principal amount. For
more information, see "The Merger Agreement--Certain Covenants--FutureTense is
Required to Obtain Funding Through the Closing." If these borrowings and cash
generated from operations are insufficient to satisfy FutureTense's liquidity
requirements, FutureTense will seek to sell debt securities or obtain
additional credit facilities.
Quantitative and Qualitative Disclosures About Market Risk
FutureTense is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. However, our exposure to currency
exchange rate fluctuations has been and is expected to continue to be modest
due to the fact that all sales outside of the United States have been
transacted in U.S. dollars. Also, international sales to date have been a very
small portion of total business to date. This situation could change as
FutureTense looks to increase its market presence in international markets.
FutureTense also owns financial instruments that are sensitive to market
risks as part of its investment portfolio. The investment portfolio is used to
preserve FutureTense's capital until it is required to fund operations,
including FutureTense's marketing and product development activities. None of
these market-risk sensitive instruments are held for trading purposes. The
investment portfolio contains instruments that are subject to the risk of a
decline in interest rates. FutureTense does not enter into derivatives or any
other financial instruments for trading or speculative purposes.
Year 2000 Readiness Disclosure
General
Many installed computer systems and software products are coded to accept
only two digit entries in the date code field. Beginning in the year 2000,
these code fields will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software products used by many companies may need to be upgraded to comply with
year 2000 requirements. Significant uncertainty exists in the software industry
concerning the potential impact of the year 2000 phenomenon.
FutureTense considers year 2000 compliance as the ability to:
. correctly handle date information after December 31, 1999;
. function according to the product documentation provided without
material changes in operations resulting from the advent of a new
century; and
. recognize the year 2000 as a leap year.
Systems
FutureTense's internal systems include both its information technology and
non-information technology systems. FutureTense has initiated an assessment of
its material internal systems, and expects to complete the testing of all
internal systems during 1999. To the extent that it is able to test the
technology in its systems that is provided by third-party vendors, FutureTense
is seeking assurances from these vendors that their technology is year 2000
compliant. FutureTense is not currently aware of any material operational
issues or costs associated with preparing its systems for the year 2000.
Notwithstanding these efforts, FutureTense may experience material
unanticipated problems (operations and otherwise) as a result of the year 2000
problem. FutureTense may also experience material unexpected costs caused by
undetected errors or defects in the technology used in its systems. The
foregoing could result in a material adverse effect on FutureTense's business,
financial condition and results of operations.
62
<PAGE>
Products
FutureTense tested its IPS product and believes that it does not produce
errors in processing date data in connection with the year change from December
31, 1999 to January 1, 2000, when used with accurate date data and in
accordance with FutureTense documentation, provided that all other products
used with the IPS product properly exchange date data with the IPS product. The
IPS product can be customized to support inference rules that convert two-digit
date formats into full four-digit formats. The IPS product recognizes the year
2000 as a leap year, and it correctly process functions relating to February
29, 2000.
FutureTense also tested its RAM product, to verify that it does not produce
errors in processing date data in connection with the year change from December
31, 1999 to January 1, 2000, when used with accurate date data in accordance
with FutureTense documentation, provided that all other products used with the
RAM product properly exchange date data with the RAM product. The RAM product
supports inference rules that convert two-digit date formats into full four-
digit formats. The RAM product recognizes the year 2000 as a leap year, and it
correctly process functions relating to February 29, 2000.
Users may experience year 2000 errors if the underlying operating system of
the host machine and/or any other software, firmware, hardware or data used
with or in the host machine or with FutureTense's products is not year 2000
compliant. FutureTense has not tested its products on all platforms or all
versions of operating systems that it currently supports and FutureTense's
testing did not cover user-customizable features or third-party add-on
features. FutureTense may need to incur additional unanticipated costs in order
to modify its products to make them year 2000 compliant. These costs could be
material, and thus could result in a material adverse effect on its business,
financial condition and results of operations.
FutureTense has tested software and other materials obtained from third
parties that are incorporated into or sold with its products by using industry
standard testing methods to ensure its products were year 2000 compliant.
Despite testing done by FutureTense, its products may contain undetected errors
or defects associated with the year 2000. In many of its client contracts
FutureTense provides assurances and warranties regarding the year 2000
compliance of its products. Known or unknown errors or defects in FutureTense's
products could result in delay or loss of revenues, cancellation of client
contracts, diversion of development resources, damage to its reputation,
litigation against FutureTense and/or increased service and warranty costs, all
or any of which could result in a material adverse effect on FutureTense's
business, financial condition and results of operations.
Contingency plans
FutureTense does not currently have any information concerning the year 2000
compliance status of its clients. As is the case with other similarly situated
software companies, if FutureTense's current or future clients fail to achieve
year 2000 compliance or if they divert technology expenditures to address year
2000 compliance problems, its business, financial condition and results of
operations could be materially and adversely affected. In addition, the
purchasing patterns of FutureTense's clients or potential clients may be
affected by year 2000 issues because they may be required to expend significant
resources on year 2000 compliance, rather than investing in new software
solutions or services such as those offered by it. The foregoing could have a
material adverse effect on FutureTense's business, financial condition and
results of operations.
FutureTense has not yet developed a contingency plan to address situations
that may result if it is unable to achieve year 2000 compliance. The cost of
developing and implementing such a plan may itself be material. Finally,
FutureTense is also subject to external forces that might generally affect
industry and commerce, such as utility or transportation company year 2000
compliance failures and related service interruptions. All of these factors
could result in a material adverse effect on FutureTense's business, financial
condition and results of operations.
63
<PAGE>
Management
Directors and Executive Officers
Set forth below is each person who will become a director or executive
officer of Open Market following the merger:
<TABLE>
<CAPTION>
Name Age Position at FutureTense
- ---- --- -----------------------
<S> <C> <C>
Bagepalli Cheluva
Krishna................. 39 Chief Technology Officer, Secretary and Director
Harland K. LaVigne....... 58 Director
Ronald J. Matros......... 45 President, Chief Executive Officer and Director
Carol J. Mitchell........ 53 Vice President, Sales
Paul L. Sagan............ 40 Director
</TABLE>
Bagepalli Cheluva Krishna, a founder of FutureTense, has been employed by
FutureTense since April 1995, and is currently serving as Chief Technology
Officer. From 1987 to 1995, Mr. Krishna served as a member of the Advanced
Development Engineering Group at Digital Equipment Corporation.
Harland K. LaVigne has been a member of the FutureTense board of directors
since August 1996. Since 1995, Mr. LaVigne has been Chief Executive Officer and
President of Starburst Software Corp. From 1993 to 1994, Mr. LaVigne was Chief
Executive Officer of Sofnet, Inc.
Ronald J. Matros has served as President and Chief Executive Officer of
FutureTense since March 1997. Mr. Matros will be President and Chief Operating
Officer of Open Market following the closing of the merger. Mr. Matros was
employed by WSI Corporation, a wholly-owned subsidiary of The Analytical
Sciences Corporation, from January 1992 to February 1997. From January 1992 to
December 1996, Mr. Matros was Vice President of Sales and Marketing, and from
December 1996 to February 1997, he was Executive Vice President and Chief
Operating Officer of WSI Corporation.
Carol J. Mitchell has served as Vice President, Sales of FutureTense since
February 1998. From April 1995 to December 1997, Ms. Mitchell was Vice
President of Sales at Inso Corporation. From September 1987 to April 1995, Ms.
Mitchell was a Sales Unit Manager at Digital Equipment Corporation.
Paul L. Sagan has been a member of the FutureTense board of directors since
October 1998. Since October 1998, Mr. Sagan has been Chief Operating Officer of
Akamai Technologies, Inc. and beginning April 1999, he also assumed the
position of President. From July 1997 to July 1998, Mr. Sagan was a senior
advisor to World Economic Forum. From September 1991 to December 1996, Mr.
Sagan was employed by Time Warner, Inc., most recently as President and Editor
of Time Inc. New Media.
64
<PAGE>
Executive Compensation
The following Summary Compensation Table sets forth the total compensation
paid or accrued for the year ended December 31, 1998 for FutureTense's chief
executive officer and the other executive officers who were employed by
FutureTense at December 31, 1998 and who will be executive officers of Open
Market after the merger (collectively, the "named executive officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-term
Compensation Compensation Awards
--------------- --------------------
Name and Principal Position Other Annual Number of Securities
in 1998 Salary Bonus Compensation Underlying Options
- --------------------------- -------- ------ ------------ --------------------
<S> <C> <C> <C> <C>
Ronald J. Matros............ $172,400 3,000 2,400(1) 800,000
President, Chief Executive
Officer and Director
Carol J. Mitchell........... $115,350 27,000 2,400(1) 137,500
Vice President, Sales
Bagepalli Cheluva Krishna... $126,567 6,076 2,400(1) --
Chief Technology Officer,
Secretary and Director
</TABLE>
- --------
(1) Consists of payments made to cover employer contributions to FutureTense's
flexible spending plan.
Option Grants During 1998
The following table sets forth certain information regarding stock options
granted in 1998 to the named executive officers.
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Price
Appreciation of
Individual Grants(1) Stock Price of
----------------------------------------------- Stock Price
Appreciation
for Option
Securities % of Total Exercise Term(2)
Underlying Options Granted or Base ---------------
to Employees in
Options Fiscal Year Price Expiration
Name Granted(1) 1998 ($/share) Date 5% ($) 10% ($)
- ---- ---------- --------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ronald J. Matros........ 245,015 0.19% $0.20 10/09/08 $30,818 $78,098
Carol J. Mitchell....... 125,000 0.10% $0.20 03/09/08 $15,722 $39,844
Bagepalli Cheluva
Krishna................ -- -- -- -- -- --
</TABLE>
- --------
(1) Stock options were granted under the FutureTense 1996 Stock Incentive Plan
at an exercise price equal to the fair market value of the FutureTense
common stock on the date of grant. Options have a term of ten years from
the date of grant and become exercisable as to 6.25% of the shares covered
at the end of the first quarter following the date of grant and for each
quarter thereafter for the next fifteen quarters.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming specified compounded rates of appreciation (5% and 10%) on
FutureTense common stock over the term of the options. These numbers are
calculated based on rules promulgated by the SEC and do not reflect
FutureTense's estimate of future stock price growth. Actual gains, if any,
on stock option exercises and common stock holdings are dependent on the
timing of such exercise and the future performance of FutureTense's common
stock. There can be no assurance that the rates of appreciation assumed in
this table can be achieved or that the amounts reflected will be received
by the individuals.
65
<PAGE>
Aggregated Fiscal Year-End Option Values
The following table sets forth information regarding exercisable and
unexercisable stock options held as of December 31, 1998 by each of the named
executive officers of FutureTense. There was no public trading market for the
FutureTense common stock as of December 31, 1998. The FutureTense board of
directors determined that the fair market value of the FutureTense common stock
in December 1998 was $.20, which is equal to the exercise price of all options
held by each named executive officer of FutureTense. Accordingly, the
unexercised stock options had no value as of December 31, 1998. None of the
named executive officers of FutureTense exercised options in 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Options at Fiscal Year-
End
-------------------------
Name Exercisable Unexercisable
- ---- ----------- -------------
<S> <C> <C>
Ronald J. Matros...................................... 214,369 485,631
Carol J. Mitchell..................................... 23,438 101,562
Bagepalli Cheluva Krishna............................. -- --
</TABLE>
Certain Transactions
Issuance of Promissory Notes and Sales of Stock
In January 1996, FutureTense issued a promissory note in the aggregate
principal amount of $100,000 to Greylock Equity Limited Partnership. Mr.
Kaiser, one of our directors, is the general partner of the general partner of
Greylock Equity Limited Partnership. This note was cancelled in connection with
the issuance of the Series A preferred stock.
In February 1996, FutureTense issued an aggregate of 380,651 shares of
Series A preferred stock at a purchase price of $3.15 per share. Of that
amount, we issued 317,209 shares to Greylock Equity Limited Partnership.
In July 1996, FutureTense issued an aggregate of 754,178 shares of Series B
preferred stock at a purchase price of $7.275 per share. Of that amount, we
issued 171,822 shares to Greylock Equity Limited Partnership.
In February 1998, FutureTense issued an aggregate of 711,842 shares of
Series C preferred stock at a purchase price of $7.29 per share. Of that
amount, we issued 212,919 shares to Greylock Equity Limited Partnership.
In December 1998, FutureTense issued an aggregate of 5,436,837 shares of
Series D preferred stock at a purchase price of $1.4806 per share. Of that
amount, we issued 1,013,103 shares to Greylock Equity Limited Partnership. We
also issued 67,540 shares to Mr. Sagan, a director of FutureTense.
In connection with the preferred financings, we entered into a right of
first refusal and co-sale agreement which contained certain rights and
restrictions, all of which will terminate upon the closing of the merger. In
addition, we entered into an investor rights agreement which granted
registration rights to certain stockholders, including Greylock Equity Limited
Partnership.
Compensation Plans
In April 1999, FutureTense and Mr. Matros entered into the 1999 Chief
Executive Officer Compensation Plan Agreement. The compensation plan provides a
bonus of $3,000 per quarter and an additional $3,000 in 1999 in connection with
established quarterly and annual expense targets. No bonus will be paid if
expenses are greater than the expense targets. In addition, a bonus of $3,000,
$1,500 or $750 will be paid in connection with the achievement of 100%, 90% or
75%, respectively, of an established revenue goal. Any portion of the bonus
based
66
<PAGE>
on revenue goals not paid in any quarter may be paid in a subsequent quarter if
the year-to-date revenue goal is achieved. An additional bonus of $3,000 may be
paid if the annual revenue goal is achieved and an additional bonus of $3,000
may also be paid if the expense target is achieved. As of July 31, 1999, Mr.
Matros has been paid an aggregate of $6,750 in connection with this
compensation plan.
In addition, in April 1999, FutureTense and Ms. Mitchell entered into the
1999 Vice President of Sales Compensation Plan Agreement. This compensation
plan provides a quarterly bonus of up to $15,000 in connection with established
booking goals and $5,000 in connection with established revenue goals. No bonus
is paid for achievement of less than 75% of either goal. For achievement of
greater than 75% of each goal, the bonus paid is the product of the percentage
of each goal achieved and the maximum bonus for each goal. In addition, any
portion of the bonus not paid in any quarter may be paid in a subsequent
quarter if the year-to-date goals are achieved. In addition, if 100% of the
booking goal is achieved in each quarter, the vice president of sales will be
granted an option to purchase 12,500 shares of FutureTense common stock. As of
July 31, 1999, Ms. Mitchell has been paid an aggregate of $38,870 in connection
with this compensation plan and has been issued options to purchase 12,500
shares of FutureTense common stock.
Issuance of Options
In October 1998, FutureTense issued options to purchase 40,000 shares of
FutureTense common stock to Mr. Sagan at an exercise price of $.20 per share.
These shares vest pro rata over 16 quarters beginning on December 31, 1998.
Assuming the completion of the merger in September 1999, approximately 16,250
shares will become exercisable upon the closing of the merger.
FutureTense issued options to purchase 454,985 shares of FutureTense common
stock in March 1997, 245,015 shares of FutureTense common stock in October 1998
and 100,000 shares of FutureTense common stock in April 1999, to Mr. Matros at
an exercise price of $.20 per share. These shares vest pro rata over 16
quarters beginning on the first quarter end following the date of grant.
Assuming the completion of the merger in September 1999, approximately 491,879
shares will become exercisable upon the closing of the merger.
In November 1996, FutureTense issued options to purchase 62,500 shares of
FutureTense common stock to Mr. LaVigne at an exercise price of $.20 per share.
These shares vest pro rata over 16 quarters beginning on December 31, 1996.
Assuming the completion of the merger in September 1999, approximately 7,812
shares will become exercisable upon the closing of the merger.
In addition, FutureTense issued to Ms. Mitchell options to purchase 125,000
shares of FutureTense common stock in February 1998 at an exercise price of
$.20 per share and options to purchase 12,500 shares of FutureTense common
stock in June 1999 at an exercise price of $3.00 per share. Assuming the
completion of the merger in September 1999, approximately 91,796 shares will
become exercisable upon the closing of the merger.
67
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
assume a business combination between Open Market and FutureTense accounted for
as a pooling of interests and are based on the respective historical
consolidated financial statements and the notes thereto of Open Market and
FutureTense. Historical financial statements of Open Market were audited by
Arthur Andersen LLP and are incorporated by reference. The historical financial
statements of FutureTense for the years ended December 31, 1996, 1997 and 1998
were audited by PricewaterhouseCoopers LLP, and are included herein. The pro
forma combined condensed balance sheet combines Open Market's June 30, 1999
unaudited consolidated balance sheet with FutureTense's June 30, 1999 unaudited
balance sheet. The pro forma statements of operations combine Open Market's
historical operating results for the years ended December 31, 1996, 1997 and
1998 and the six months ended June 30, 1998 and 1999 with the corresponding
FutureTense operating results.
Open Market expects to incur merger-related pre-tax charges covering the
costs of the merger principally in the quarter in which the merger is
consummated. Such pre-tax charges, which are currently estimated to be in the
range of $4.0 million, will primarily consist of the direct costs of the
merger, including fees to financial advisors, legal counsel and independent
auditors and printing and other fees and expenses relating to holding a meeting
of stockholders and preparing this joint proxy statement/prospectus. However,
additional unanticipated expenses may be incurred in connection with this
transaction. Additionally, upon the consummation of the merger, FutureTense
will record a compensation charge of approximately $275,000 related to the
acceleration of certain options previously granted at a price below fair market
value for accounting purposes. The unaudited pro forma combined balance sheet
reflects these estimated transaction costs and the compensation charge, but the
effects of these costs are not reflected in the unaudited pro forma combined
statement of operations.
The unaudited pro forma combined condensed financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the operating results or financial position that would have been achieved if
the merger had been consummated as of the beginning of the periods presented,
nor are they necessarily indicative of future operating results or financial
position of Open Market. No material pro forma adjustments are required to
conform the financial reporting policies of Open Market and FutureTense for the
periods presented. However, on a prospective basis Open Market will review the
accounting practices of FutureTense to ensure consistency with those of Open
Market. The pro forma combined condensed financial information does not give
effect to any costs savings which may result from the integration of Open
Market and FutureTense operations, nor are there any tax benefits that may
result from the operating losses of FutureTense. The tax provision is based on
the effective tax rates historically recorded by Open Market.
The pro forma combined condensed financial statements are based on, and
should be read in conjunction with, the historical financial statements and the
related notes thereto of Open Market and FutureTense incorporated by reference
or presented in this joint proxy statement/prospectus. See "Where You can Find
More Information" and "Incorporation of Certain Documents by Reference."
68
<PAGE>
Pro Forma Combined Condensed Balance Sheet
As of June 30, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
-----------------------
Open
Market FutureTense Adjustments Combined
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents.... $ 15,961 $ 1,836 -- $ 17,797
Marketable securities........ 14,694 -- -- 14,694
Accounts receivable, net..... 25,429 2,224 -- 27,653
Inventory.................... -- 64 -- 64
Prepaid expenses and other
current assets.............. 3,384 319 -- 3,703
--------- -------- ------- ---------
Total current assets........ 59,468 4,443 -- 63,911
Property and equipment, net... 13,706 907 -- 14,613
Long-term marketable
securities................... 353 -- -- 353
Intangible assets, net........ 10,186 764 -- 10,950
Other assets.................. 1,372 -- -- 1,372
--------- -------- ------- ---------
Total assets.................. $ 85,085 $ 6,114 -- $ 91,199
========= ======== ======= =========
Liabilities and Stockholder's
Equity
Current liabilities:
Line of credit............... $ 10,350 $ -- -- $ 10,350
Note payable................. -- -- -- --
Accounts payable............. 2,397 622 -- 3,019
Accrued expenses............. 11,592 1,385 4,000 (2) 16,977
Deferred revenue............. 5,215 1,172 -- 6,387
Current maturities of long-
term obligations............ 78 559 -- 637
--------- -------- ------- ---------
Total current liabilities... 29,632 3,738 4,000 37,370
Long-term obligations, net of
current maturities........... 2,720 76 -- 2,796
Redeemable convertible
preferred stock.............. 19,925 (19,925)(1) --
Stockholders' equity:
Preferred stock.............. -- -- -- --
Common stock................. 36 1 6 (1) 43
Additional paid-in capital... 188,979 814 19,919 (1) 209,712
Deferred compensation........ -- (682) 275 (2) (407)
Accumulated deficit.......... (136,282) (17,758) (4,275)(2) (158,315)
--------- -------- ------- ---------
Total stockholders' equity
(deficit).................. 52,733 (17,625) 15,925 51,033
--------- -------- ------- ---------
Total liabilities and
stockholders' equity......... $ 85,085 $ 6,114 -- $ 91,199
========= ======== ======= =========
</TABLE>
- --------
(1) Reflects the conversion of FutureTense preferred and common stock based on
the conversion ratio described in the merger agreement. The conversion
ratio equals the number determined by dividing (a) the difference between
(i) the sum of $125,000,000 and the aggregate amount receivable by
FutureTense upon the exercise of outstanding options of FutureTense and
(ii) certain deductible obligations by (b) $14.7064, and then dividing the
quotient by the sum of (x) the number of shares of common stock of
FutureTense issued and outstanding, (y) the number of shares of common
stock of FutureTense issuable upon the exercise of outstanding options and
warrants and (z) the number of shares of common stock issuable by
FutureTense upon conversion of its preferred stock in connection with the
merger.
(2) Reflects expenses of $4.0 million in connection with the merger including
advisors fees, legal and accounting services and other integration costs.
Additionally, upon the consummation of the merger, FutureTense will record
a compensation charge of approximately $275,000 related to the acceleration
of certain options previously granted at a price below fair market value
for accounting purposes. However, the effects of these costs and the
compensation charge are not reflected in the unaudited pro forma statement
of operations.
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<PAGE>
Unaudited Pro Forma Combined Condensed Statements of Operations
For the Year Ended December 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Open Market FutureTense Combined
----------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Product revenues.......................... $ 17,200 $ 16 $ 17,216
Service revenues.......................... 5,301 -- 5,301
-------- ------- --------
Total revenues.......................... 22,501 16 22,517
-------- ------- --------
Cost of Revenues;
Product revenues.......................... 768 3 771
Service revenues.......................... 4,725 -- 4,725
-------- ------- --------
Total cost of revenues.................. 5,493 3 5,496
-------- ------- --------
Gross profit............................ 17,008 13 17,021
-------- ------- --------
Operating Expenses:
Selling and marketing..................... 23,810 1,196 25,006
Research and development.................. 16,393 721 17,114
General and administrative................ 5,925 764 6,689
-------- ------- --------
Total operating expenses................ 46,128 2,681 48,809
-------- ------- --------
Loss from operations (29,120) (2,668) (31,788)
Interest income............................. 3,042 91 3,133
Interest expense............................ (79) (7) (86)
Other (expense)/income...................... 7 -- 7
-------- ------- --------
Loss before provision for income taxes.... (26,150) (2,584) (28,734)
Provision for income taxes 360 -- 360
-------- ------- --------
Net loss.................................. $(26,510) $(2,584) $(29,094)
======== ======= ========
Accretion of preferred stock................ (900) (66) (966)
-------- ------- --------
Net loss applicable to common stockholders.. $(27,410) $(2,650) $(30,060)
======== ======= ========
Net loss per share-basic and diluted........ $ (1.31) $ (1.42)
======== ========
Weighted average common equivalent shares
outstanding-basic and diluted.............. 20,923 21,201
======== ========
Net loss per share--proforma................ $ (1.06)
========
Weighted average common equivalent share
outstanding--proforma...................... 27,448
========
</TABLE>
70
<PAGE>
Unaudited Pro Forma Combined Condensed Statements of Operations
For the Year Ended December 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Open Market FutureTense Combined
----------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Product revenues.......................... $ 48,168 $ 83 $ 48,251
Service revenues.......................... 13,092 104 13,196
--------- ------- --------
Total revenues.......................... 61,260 187 61,447
--------- ------- --------
Cost of Revenues;
Product revenues.......................... 2,477 154 2,631
Service revenues.......................... 9,166 56 9,222
--------- ------- --------
Total cost of revenues.................. 11,643 210 11,853
--------- ------- --------
Gross profit............................ 49,617 (23) 49,594
--------- ------- --------
Operating Expenses:
Selling and marketing..................... 36,554 1,525 38,079
Research and development.................. 26,732 1,575 28,307
General and administrative................ 11,335 951 12,286
In-process research and development....... 34,250 429 34,679
--------- ------- --------
Total operating expenses................ 108,871 4,480 113,351
--------- ------- --------
Loss from operations.................... (59,254) (4,503) (63,757)
Interest income............................. 2,827 84 2,911
Interest expense............................ (777) (35) (812)
Other (expense)/income...................... (218) -- (218)
--------- ------- --------
Loss before provision for income taxes.... (57,422) (4,454) (61,876)
Provision for income taxes.................. 584 -- 584
--------- ------- --------
Net loss.................................. $(58,006) $(4,454) $(62,460)
========= ======= ========
Net loss per share--basic and diluted....... $ (1.87) $ (1.98)
========= ========
Weighted average common equivalent shares
outstanding-basic and diluted.............. 30,994 31,600
========= ========
Net loss per share--proforma................ $ (1.87)
========
Weighted average common equivalent share
outstanding--proforma...................... 33,352
========
</TABLE>
71
<PAGE>
Unaudited Pro Forma Combined Condensed Statements of Operations
For the Year Ended December 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro
Open Forma
Market FutureTense Combined
-------- ----------- --------
<S> <C> <C> <C>
Revenues:
Product revenues............................ $ 42,245 $ 1,338 $ 43,583
Service revenues............................ 19,900 1,063 20,963
-------- ------- --------
Total revenues............................ 62,145 2,401 64,546
-------- ------- --------
Cost of Revenues:
Product revenues............................ 2,767 447 3,214
Service revenues............................ 14,532 833 15,365
-------- ------- --------
Total cost of revenues.................... 17,299 1,280 18,579
-------- ------- --------
Gross profit.............................. 44,846 1,121 45,967
-------- ------- --------
Operating Expenses:
Selling and marketing....................... 32,013 2,758 34,771
Research and development.................... 23,275 3,178 26,453
General and administrative.................. 11,954 1,551 13,505
In-process research and development......... 5,700 -- 5,700
Restructuring charge........................ 2,042 -- 2,042
-------- ------- --------
Total operating expenses.................. 74,984 7,487 82,471
-------- ------- --------
Loss from operations...................... (30,138) (6,366) (36,504)
Interest income............................... 1,373 56 1,429
Interest expense.............................. (1,097) (94) (1,191)
Other (expense)/income........................ (285) (39) (324)
-------- ------- --------
Loss before provision for income taxes...... (30,147) (6,443) (36,590)
Provision for income taxes.................... 325 -- 325
-------- ------- --------
Net loss.................................... $(30,472) $(6,443) $(36,915)
======== ======= ========
Accretion of preferred stock.................. -- (54) (54)
-------- ------- --------
Net loss applicable to common stockholders.... $(30,472) $(6,497) $(36,969)
======== ======= ========
Net loss per share--basic and diluted......... $ (0.91) $ (1.08)
======== ========
Weighted average common equivalent shares
outstanding--basic and diluted............... 33,483 34,367
======== ========
Net loss per share--proforma.................. $ (0.99)
========
Weighted average common equivalent share
outstanding--proforma........................ 37,356
========
</TABLE>
72
<PAGE>
Pro Forma Combined Condensed Statements of Operations
For the Six Months Ended June 30, 1998
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Open Pro Forma
Market FutureTense Combined
-------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Product revenues............................. $ 23,430 $ 585 $ 24,015
Service revenues............................. 8,298 492 8,790
-------- -------- --------
Total revenues.............................. 31,728 1,077 32,805
-------- -------- --------
Cost of Revenues:
Product revenues............................. 1,342 147 1,489
Service revenues............................. 6,409 368 6,777
-------- -------- --------
Total cost of revenues...................... 7,751 515 8,266
-------- -------- --------
Gross Profit................................ 23,977 562 24,539
-------- -------- --------
Operating Expenses:
Selling and marketing........................ 15,883 1,251 17,134
Research and development..................... 13,344 1,561 14,905
General and administrative................... 5,950 715 6,665
In-process research and development.......... 5,700 -- 5,700
-------- -------- --------
Total operating expenses.................... 40,877 3,527 44,404
-------- -------- --------
Loss from operations........................ (16,900) (2,965) (19,865)
Interest income............................... 609 53 662
Interest expense.............................. (536) (53) (589)
Other (expense)/income........................ (72) (28) (100)
-------- -------- --------
Loss before provision for income taxes....... (16,899) (2,993) (19,892)
Provision for income taxes.................... 65 -- 65
-------- -------- --------
Net loss..................................... $(16,964) $ (2,993) $(19,957)
======== ======== ========
Accretion of preferred stock................. -- (24) (24)
-------- -------- --------
Net loss applicable to common stockholders.... $(16,964) $ (3,017) $(19,981)
======== ======== ========
Net loss per share--basic and diluted......... $ (0.53) $ (0.60)
======== ========
Weighted average common equivalent shares
outstanding--basic and diluted............... 32,255 33,070
======== ========
Net loss per share--pro forma................. $ (0.56)
========
Weighted average common equivalent shares
outstanding--pro forma........................ 35,899
========
</TABLE>
73
<PAGE>
Pro Forma Combined Condensed Statements of Operations
For the Six Months Ended June 30, 1999
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Pro
Open Forma
Market FutureTense Combined
------- ----------- --------
<S> <C> <C> <C>
Revenues:
Product revenues............................... $22,865 $ 1,355 $24,220
Service revenues............................... 11,281 1,657 12,938
------- ------- -------
Total revenues................................ 34,146 3,012 37,158
------- ------- -------
Cost of Revenues:
Product revenues............................... 1,479 298 1,777
Service revenues............................... 8,301 1,046 9,347
------- ------- -------
Total cost of revenues........................ 9,780 1,344 11,124
------- ------- -------
Gross profit.................................. 24,366 1,668 26,034
------- ------- -------
Operating Expenses:
Selling and marketing.......................... 15,306 2,551 17,857
Research and development....................... 9,508 1,867 11,375
General and administrative..................... 4,667 1,402 6,069
------- ------- -------
Total operating expenses...................... 29,481 5,820 35,301
------- ------- -------
Loss from operations.......................... (5,115) (4,152) (9,267)
Interest income................................. 557 66 623
Interest expense................................ (310) (22) (332)
Other (expense)/income.......................... (152) (1) (153)
------- ------- -------
Loss before provision for income taxes........ (5,020) (4,109) (9,129)
Provision for income taxes...................... 145 -- 145
------- ------- -------
Net loss...................................... $(5,165) $(4,109) $(9,274)
======= ======= =======
Accretion of preferred stock.................. -- (6) (6)
------- ------- -------
Net loss applicable to common stockholders...... $(5,165) $(4,115) $(9,280)
======= ======= =======
Net loss per share-basic and diluted............ $ (0.14) $ (0.25)
======= =======
Weighted average common equivalent shares
outstanding--basic and diluted................. 35,637 36,727
======= =======
Net loss per share--pro forma................... $ (0.22)
=======
Weighted average common equivalent shares
outstanding--pro forma.......................... 41,495
=======
</TABLE>
74
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. Merger Agreement
On July 14, 1999, Open Market and FutureTense jointly announced the signing
of the merger agreement. Under its terms, Open Market will issue up to $125.0
million worth of its common stock for outstanding shares of FutureTense common
stock and preferred stock, and shares of FutureTense common stock issuable upon
the exercise of outstanding stock options and warrants. The proposed issuance
of shares of common stock of Open Market in connection with the merger is
subject to the approval of the stockholders of Open Market, is intended to be a
tax-free stock-for-stock transaction and is intended to be accounted for as a
pooling of interests.
The terms of the merger agreement allow the number of shares of Open Market
common stock to be issued to be based upon the market value, as defined, of
shares of Open Market common stock as of the time of the merger as more fully
described in the merger agreement. The number of shares to be issued, subject
to certain adjustments, is expected to be between 6,800,000 and 7,700,000. The
per share values in the pro forma combined condensed statements of operations
assumes approximately 7,200,000 shares of common stock are issued by Open
Market.
2. Transaction Costs
The pro forma balance sheet adjustment to accrued expenses represents
certain direct merger-related charges, for which no tax benefit is available,
that are expected to be incurred by Open Market. These costs are estimated to
be approximately $4.0 million and include those direct costs of the merger
including fees to financial advisors, legal counsel and independent auditors,
and printing and other fees and expenses relating to holding a meeting of
stockholders and preparing this joint proxy statement/prospectus.
3. Net Loss per Share
The unaudited basic net loss per share is based upon the weighted average
number of Open Market and FutureTense common shares outstanding for each period
using a conversion ratio of .37802 Open Market share for each share of
FutureTense common stock. The unaudited diluted net loss per share is the same
as the unaudited basic net loss per share for each period presented, as the
effects of the potential common stock are anti-dilutive. The unaudited pro
forma basic and diluted net loss per share is based upon the weighted average
number of Open Market and FutureTense common shares outstanding plus the
weighted average number of FutureTense preferred shares on an as-converted
basis for each period using a conversion ratio of .37802 shares of Open Market
common stock for each share of FutureTense common stock and preferred stock on
an as-converted basis. Basic and diluted net loss per share would have been
$(0.53), $(1.37), $(1.97), $(1.07), $(0.60) and $(0.25) and pro forma basic and
diluted net loss per share would have been $(0.53), $(1.31), $(1.86), $(0.98),
$(0.55) and $(0.22) assuming a minimum of 6,800,000 shares of Open Market
common stock were exchanged for FutureTense common stock and preferred stock on
an as-converted basis for the years ended December 31, 1996, 1997, and 1998 and
the six months ended June 30, 1998 and 1999, respectively. The conversion ratio
will equal the number determined by dividing (a) the difference between (i) the
sum of $125,000,000 and the aggregate amount receivable by FutureTense upon the
exercise of outstanding options of FutureTense and (ii) certain deductible
obligations by (b) $14.7064, and then dividing the quotient by the sum of (x)
the number of shares of common stock of FutureTense issued and outstanding, (y)
the number of shares of common stock of FutureTense issuable upon the exercise
of outstanding options and warrants and (z) the number of shares of common
stock issuable by FutureTense upon conversion of its preferred stock in
connection with the merger.
4. Conformity Adjustments and Intercompany Transactions
There are no material intercompany transactions included in the unaudited
pro forma combined condensed financial statements. There were no material
adjustments required to conform the accounting policies of Open Market and
FutureTense.
75
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND
MANAGEMENT OF OPEN MARKET
The following table sets forth information as to the number of shares of
Open Market common stock beneficially owned as of July 1, 1999 by (i) each
person that beneficially owns more than 5% of the outstanding shares of Open
Market common stock, (ii) each director of Open Market, (iii) the Chief
Executive Officer and the four other most highly compensated executive officers
of Open Market and (iv) all Open Market executive officers and directors as a
group. Except as indicated by the notes to the following table, the holders
listed below will have sole voting power and investment power over the shares
beneficially held by them.
<TABLE>
<CAPTION>
Beneficial Ownership(1)
As of July 1, 1999
---------------------------
Name of Beneficial Owner Shares Percent
- ------------------------ -------------- ------------
<S> <C> <C>
Directors and Named Executive Officers:
Gulrez Arshad (2)(3)............................. 684,600 1.90%
Thomas H. Bruggere (3)........................... 17,578 *
Jeffrey Bussgang (3)............................. 31,520 *
Gary B. Eichhorn (3)(4).......................... 1,300,657 3.50
Shikhar Ghosh (5)................................ 3,600,500 9.98
William S. Kaiser (3)............................ 187,838 *
Gregory Pope (3)................................. 61,918 *
Eugene F. Quinn (3).............................. 9,600 *
Betty J. Savage.................................. -- --
Peter Y. Woon (3)................................ 48,750 *
All directors and executive officers as a group
(12 individuals)(6).............................. 6,081,973 16.75
</TABLE>
- --------
* Beneficial ownership does not exceed 1% of the outstanding shares of Open
Market common stock.
(1) Includes shares subject to options which will be exercisable within 60 days
following July 1, 1999. All percentages assume that the options of the
particular person or group in question, and no others, have been exercised.
(2) Includes 122,200 shares of Open Market common stock held in two revocable
trusts of which Mr. Arshad's children are beneficiaries. Also includes
61,100 shares of Open Market common stock held in an irrevocable trust of
which Mr. Arshad's child is a beneficiary as to which Mr. Arshad disclaims
beneficial ownership.
(3) Includes shares of Open Market common stock which the following officers
and directors have the right to acquire by exercise of options within 60
days following July 1, 1999: Arshad, 9,100; Bruggere, 12,000; Bussgang,
19,891; Eichhorn, 1,133,907; Kaiser, 9,100; Pope, 42,737; Quinn, 9,100; and
Woon, 48,750.
(4) Includes 91,750 shares of Open Market common stock held by Mr. Eichhorn's
spouse.
(5) Includes 182,700 shares of Open Market held in a trust for the benefit of
Mr. Ghosh's minor children as to which Mr. Ghosh disclaims beneficial
ownership.
(6) The amount stated includes an aggregate of 1,341,773 shares of Open Market
common stock which may be acquired upon the exercise of options within 60
days following July 1, 1999.
76
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
AND MANAGEMENT OF FUTURETENSE
The following table sets forth certain information as to the number of
shares of FutureTense common stock that will be beneficially owned as of July
1, 1999 by (i) each person that beneficially owns more than 5% of the
outstanding shares of FutureTense common stock, (ii) each director of
FutureTense, (iii) the Chief Executive Officer and the other named executive
officers of FutureTense and (iv) all FutureTense executive officers and
directors as a group. Except as indicated by the notes to the following table,
the holders listed below will have sole voting power and investment power over
the shares beneficially owned by them.
<TABLE>
<CAPTION>
Beneficial Ownership(1)
As of July 1, 1999
--------------------------
Name of Beneficial Owner Shares Percent
- ------------------------ ------------- ------------
<S> <C> <C>
5% Beneficial Holders
Greylock Equity Limited Partnership................. 5,287,695 27.60%
One Federal Street
Boston, MA 02110
The Fidelity Entities (2)........................... 2,047,237 10.71
100 Summer Street
Boston, MA 02110
BankBoston Ventures Inc............................. 2,026,206 10.60
175 Federal Street
Boston, MA 02110
Atlas Venture Fund II, L.P.......................... 1,873,292 9.80
222 Berkeley Street
Boston, MA 02116
Pacific Technology Venture U.S.A., L.P.............. 1,248,863 6.53
c/o IDG Ventures
655 Montgomery Street
San Francisco, CA 94111
Directors and Named Executive Officers
Jarrett Collins.................................... -- *
William S. Kaiser (3).............................. 5,287,695 27.60
Harland K. Lavigne (4)............................. 54,687 *
Paul L. Sagan (4).................................. 91,290 *
Ronald J. Matros (4)............................... 799,998 4.02
Bagepalli Cheluva Krishna.......................... 1,000,000 5.23
Daniel Latham...................................... 1,000,000 5.23
Julie Melbin....................................... 1,000,000 5.23
Carol J. Mitchell (4).............................. 131,640 *
Howard Webber (5).................................. 700,000 3.66
All executive officers and directors as a group (12
individuals) (6)................................... 8,534,372 41.31
</TABLE>
- --------
* Beneficial ownership does not exceed 1% of the outstanding FutureTense
common stock.
(1) Includes shares subject to options which will be exercisable within 60 days
following July 1, 1999 and shares which become exercisable upon the
completion of the merger assuming that the merger is completed in September
1999. All percentages assume that the options of the particular person or
group in question, and no others, have been exercised.
(2) Includes 1,023,621 held by Fidelity Ventures, Ltd. and 1,023,616 shares
held by Fidelity Investors Limited Partnership.
77
<PAGE>
(3) Includes 5,287,695 held by Greylock Equity Limited Partnership. Mr. Kaiser
is a general partner of Greylock Equity GP Limited Partnership, the general
partner of Greylock Equity Limited Partnership. Mr. Kaiser may be deemed to
share voting and investment power with respect to all shares held by
Greylock Equity Limited Partnership. Mr. Kaiser disclaims beneficial
ownership of all such shares except with respect to his pecuniary interest.
(4) Includes shares of FutureTense common stock which the following officers
and directors have the right to acquire by exercise of options within 60
days following July 1, 1999 and shares which become exercisable upon
completion of the merger assuming that the merger is completed in September
1999: Sagan, 23,750; Matros, 799,998; Mitchell, 131,640; LaVigne, 54,687.
(5) Includes 250,000 shares held in trust for Mr. Webber and 250,000 shares
held in trust for Mr. Webber's wife. Mr. Webber disclaims beneficial
ownership of all such shares held in trust for his wife.
(6) The amount stated includes an aggregate of 1,351,962 of FutureTense common
stock which may be acquired upon the exercise of options within 60 days
following July 1, 1999 and shares which become exercisable upon the
completion of the merger assuming that the merger is completed in September
1999.
78
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT OF OPEN MARKET FOLLOWING THE MERGER
The following table sets forth certain pro forma information as to the
number of shares of Open Market common stock that will be beneficially owned by
(i) each person that beneficially owns more than 5% of the outstanding shares
of Open Market common, stock (ii) each director of Open Market, (iii) the Chief
Executive Officer and the four other most highly compensated executive officers
of Open Market and (iv) Open Market executive officers and directors as a group
assuming the merger had been consummated on July 1, 1999. Except as indicated
by the notes to the following table, the holders listed below will have sole
voting power and investment power over the shares beneficially held by them.
<TABLE>
<CAPTION>
Pro Forma
Beneficial Ownership(1)
As of July 1, 1999
---------------------------
Name of Beneficial Owner Shares Percent(2)
- ------------------------ ------------- -------------
<S> <C> <C>
Directors and Named Executive Officers:
Gulrez Arshad (3)(4).............................. 684,600 1.56%
Thomas H. Bruggere (3)............................ 17,578 *
Gary B. Eichhorn (3)(5)........................... 1,300,657 2.9
Shikhar Ghosh (6)................................. 3,600,500 8.22
William S. Kaiser (3)(7).......................... 2,308,732 5.27
Harland K. LaVigne (8)............................ 21,935 *
Ronald J. Matros (8).............................. 320,879 *
Gregory Pope (3).................................. 61,918 *
Eugene F. Quinn (3)............................... 9,600 *
Paul L. Sagan (8)................................. 36,616 *
Betty J. Savage .................................. -- --
Peter Y. Woon (3)................................. 48,750 *
All directors and executive officers as a group (17
individuals) (8)(9)............................... 9,036,198 20.56
</TABLE>
- --------
*Beneficial ownership does not exceed 1% of the outstanding shares of Open
Market common stock.
(1) Includes shares subject to options which will be exercisable within 60 days
following July 1, 1999. All percentages assume that the options of the
particular person or group in question, and no others, have been exercised.
(2) Assumes the issuance of 7,700,000 shares of Open Market common stock in the
merger, which is the estimated maximum number of shares issuable under the
conversion formula described in the merger agreement.
(3) Includes shares of Open Market common stock which the following officers
and directors have the right to acquire by exercise of options within 60
days following July 1, 1999: Arshad, 9,100; Bruggere, 12,000; Eichhorn,
1,133,907; Kaiser, 9,100; Pope, 42,737; Quinn, 9,100; and Woon, 48,750.
(4) Includes 122,200 shares of Open Market common stock held in two revocable
trusts of whichMr. Arshad's children are beneficiaries. Also includes
61,100 shares of Open Market common stock held in an irrevocable trust of
which Mr. Arshad's child is a beneficiary as to which Mr. Arshad disclaims
beneficial ownership.
(5) Includes 91,750 shares of Open Market common stock held by Mr. Eichhorn's
spouse.
(6) Includes 182,700 shares of Open Market held in a trust for the benefit of
Mr. Ghosh's minor children as to which Mr. Ghosh disclaims beneficial
ownership.
(7) Consists of 187,838 shares owned by Mr. Kaiser and 2,120,894 shares owned
by Greylock Equity Limited Partnership. Mr. Kaiser is a General Partner of
Greylock Limited Partnership, which is a General Partner of Greylock Equity
Limited Partnership, and may be considered a beneficial owner of the shares
beneficially owned by Greylock Equity Limited Partnership although Mr.
Kaiser disclaims beneficial ownership of such shares.
(8) Assumes a conversion rate of .4011 shares of Open Market common stock for
each share of FutureTense common stock.
(9) The amount stated includes an aggregate of 1,746,914 shares of Open Market
common stock which may be acquired upon the exercise of options within 60
days following July 1, 1999.
79
<PAGE>
DESCRIPTION OF OPEN MARKET CAPITAL STOCK
The following is a summary of certain matters with respect to the capital
stock of Open Market. Because it is only a summary, it does not contain all
information that may be important to you. Therefore, you should read the more
detailed provisions of Open Market's Restated Certificate of Incorporation, as
amended (the "Open Market Certificate of Incorporation") and Bylaws, as amended
(the "Open Market Bylaws") and, the rights agreement (as defined below)
carefully.
General
As of the date of this joint proxy statement/prospectus, Open Market's
authorized capital stock consists of 100,000,000 shares of Open Market Common
Stock, par value $.001 per share and 2,000,000 shares of preferred stock, par
value $.10 per share, of which 40,000 shares have been designated as Open
Market Series A Junior participating preferred stock. No other classes of
capital stock are authorized under the Open Market Restated Certificate of
Incorporation. The issued and outstanding shares of Open Market common stock
are duly authorized, validly issued, fully paid and nonassessable.
Open Market Common Stock
Holders of Open Market common stock have no preemptive, redemption or
conversion rights. The holders of Open Market common stock are entitled to
receive dividends when and as declared by the Open Market board out of funds
legally available therefor. Upon Open Market's liquidation, dissolution or
winding up, the holders of Open Market common stock may share ratably in Open
Market's net assets after payment of liquidating distributions to holders of
Open Market preferred stock, if any. Each holder of Open Market common stock is
entitled to one vote per share of Open Market common stock held of record by
such holder. Each outstanding share of Open Market common stock is accompanied
by a right to purchase one one-thousandth of a share of Series A junior
participating preferred stock. The Open Market Board has reserved 40,000 shares
of Series A junior participating preferred stock for issuance. There are
currently no shares of Series A junior participating preferred stock
outstanding. See "--Description of Preferred Stock Purchase Rights."
The registrar and transfer agent for the Open Market Common Stock is
EquiServe.
Description of Series A Junior Participating Preferred Stock
On January 26, 1998, the Open Market board declared a dividend of one
preferred stock purchase right for each outstanding share of Open Market common
stock to stockholders of record at the close of business on February 12, 1998.
The description and terms of the Open Market rights are set forth in a rights
agreement dated as of January 26, 1998, as amended, between Open Market and
BankBoston, N.A. The purchase rights have some anti-takeover effects that are
intended to discourage coercive or unfair takeover tactics and to encourage any
potential acquiror to negotiate a price fair to all Open Market stockholders.
The purchase rights may cause substantial dilution to an acquiring party that
attempts to acquire Open Market on terms not approved by the Open Market board,
but the purchase rights will not interfere with any negotiated merger or other
business combination.
In the event that any person or group acquires beneficial ownership of 18%
or more of the outstanding shares of Open Market common stock, each holder of a
purchase right, other than a purchase right beneficially owned by the acquiring
person, will thereafter have the right to receive upon exercise that number of
shares of Open Market common stock which equals the exercise price of the right
divided by one-half of the current market price of Open Market common stock at
the date of the occurrence of the event. In addition, if at any time following
such acquisition of 18% or more of the outstanding shares of Open Market common
stock, Open Market is acquired in a merger or other business combination or
transaction or 50% or more of its consolidated assets or earning power are
sold, other than resulting from a qualifying offer, each holder of a purchase
right will receive, upon exercise of that purchase right at the prevailing
exercise price of the purchase
80
<PAGE>
right, that number of shares of common stock of the acquiring company which, at
the time of such transaction equals the exercise price of the right divided by
one-half of the current market price of Open Market common stock at the date of
the occurrence of the event.
Open Market Preferred Stock
The Open Market Board has the power, without further vote of stockholders,
to authorize the issuance of up to 2,000,000 shares of Open Market preferred
stock and to fix and determine the terms, limitations and relative rights and
preferences of any shares of Open Market preferred stock. This power includes
the authority to establish voting, dividend, redemption, conversion,
liquidation and other rights of any such shares. Other than as set forth
herein, there are no shares of Open Market preferred stock currently
outstanding.
81
<PAGE>
APPRAISAL RIGHTS
Rights of Dissenting Stockholders of FutureTense
Who is Entitled to Appraisal Rights with Respect to the Merger. If the
merger is consummated, a holder of record of FutureTense stock on the date of
making a demand for appraisal, as described below, who (1) continues to hold
those shares through the time of the merger; (2) strictly complies with the
procedures set forth under Section 262 of the Delaware corporation statute; and
(3) has not voted in favor of the merger will be entitled to have those shares
appraised by the Delaware General Court of Chancery under Section 262 and to
receive payment for the "fair value" of these shares in lieu of the
consideration provided for in the merger agreement. This joint proxy
statement/prospectus is being sent to all holders of record of FutureTense
stock on the record date for the FutureTense special meeting and constitutes
notice of the appraisal rights available to those holders under Section 262.
The statutory right of appraisal granted by Section 262 requires strict
compliance with the procedures set forth in Section 262. Failure to follow any
of such procedures may result in a termination or waiver of dissenters' rights
under Section 262. The following is a summary of the principal provisions of
Section 262. The following summary is not a complete statement of Section 262
of the Delaware corporation statute, and is qualified in its entirety by
reference to Section 262 which is incorporated herein by reference, together
with any amendments to the laws that may be adopted after the date of this
joint proxy statement/prospectus. A copy of Section 262 is attached as Annex C
to this joint proxy statement/prospectus.
A holder of FutureTense stock electing to exercise appraisal rights under
Section 262 must deliver a written demand for appraisal of such stockholder's
shares of FutureTense prior to the vote on the merger. The written demand must
identify the stockholder of record and state the stockholder's intention to
demand appraisal of his or her shares. All demands should be delivered to
FutureTense, Attention: Bagepalli Cheluva Krishna, Secretary, 43 Nagog Park,
Acton, Massachusetts 01720, telephone: (978) 635-3600.
Only a holder of shares of FutureTense stock on the date of making a written
demand for appraisal who continuously holds those shares through the time of
the merger is entitled to seek appraisal. Demand for appraisal must be executed
by or for the holder of record, fully and correctly, as that holder's name
appears on the holder's stock certificates representing shares of FutureTense
stock. If FutureTense stock is owned of record in a fiduciary capacity, such as
by a trustee, guardian or custodian, the demand should be made in that
capacity, and if FutureTense stock is owned of record or more than one person,
as in a joint tenancy or tenancy in common, the demand should be made by or for
all owners of record. An authorized agent, including one or more joint owners,
may execute the demand for appraisal for a holder of record; that agent,
however, must identify the record owner or owners and expressly disclose in the
demand that the agent is acting as agent for the record owner or owners of the
shares.
A record holder such as a broker who holds shares of FutureTense stock as a
nominee for beneficial owners, some of whom desire to demand appraisal, must
exercise appraisal rights on behalf of those beneficial owners with respect to
the shares of FutureTense stock, held for those beneficial owners. In that
case, the written demand for appraisal should set forth the number of shares of
FutureTense stock covered by it. Unless a demand for appraisal specifies a
number of shares, the demand will be presumed to cover all shares of
FutureTense stock held in the name of the record owner.
Beneficial owners who are not record owners and who intend to exercise
appraisal rights should instruct the record owner to comply with the statutory
requirements with respect to the exercise of appraisal rights before the date
of the FutureTense special meeting.
Within 10 days after the time of the merger, the surviving corporation is
required to send notice of the effectiveness of the merger to each stockholder
who prior to the time of the merger complies with the requirements of Section
262.
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Within 120 days after the time of the merger, the surviving corporation or
any stockholder who has complied with the requirements of Section 262 may file
a petition in the Delaware Court of Chancery demanding a determination of the
fair value of the shares of FutureTense stock held by all stockholders seeking
appraisal. A dissenting stockholder must serve a copy of the petition on the
surviving corporation. If no petition is filed by either the surviving
corporation or any dissenting stockholder within the 120-day period, the rights
of all dissenting stockholders to appraisal will cease. Stockholders seeking to
exercise appraisal rights should not assume that the surviving corporation will
file a petition with respect to the appraisal of the fair value of their shares
or that the surviving corporation will initiate any negotiations with respect
to the fair value of those shares. The surviving corporation is under no
obligation to and has no present intention to take any action in this regard.
Accordingly, stockholders who wish to seek appraisal of their shares should
initiate all necessary action with respect to the perfection of their appraisal
rights within the time periods and in the manner prescribed in Section 262.
Failure to file the petition on a timely basis will cause the stockholder's
right to an appraisal to cease.
Within 120 days after the time of the merger, any stockholder who has
complied with subsections (a) and (d) of Section 262 is entitled, upon written
request, to receive from the surviving corporation a statement setting forth
the aggregate number of shares of FutureTense stock not voted in favor of the
merger with respect to which demands for appraisal have been received by
FutureTense and the number of holders of those shares. The statement must be
mailed within 10 days after the written request has been received by
FutureTense or within 10 days after expiration of the time for delivery of
demands for appraisal under subsection (d) of Section 262, whichever is later.
If a petition for an appraisal is filed in a timely manner, at the hearing
on the petition, the Delaware Court of Chancery will determine which
stockholders are entitled to appraisal rights and will appraise the shares of
FutureTense stock owned by those stockholders, determining the fair value of
those shares, exclusive of any element of value arising from the accomplishment
or expectation of the merger, together with a fair rate of interest, to be
paid, if any, upon the amount determined to be the fair value.
Stockholders considering seeking appraisal should consider that the fair
value of their shares determined under Section 262 could be more than, the same
as, or less than, the value of the consideration provided for in the merger
agreement without the exercise of appraisal rights. The cost of the appraisal
proceeding may be determined by the Court of Chancery and assessed against the
parties as the Court deems equitable in the circumstances. Upon application of
a dissenting stockholder, the Court may order that all or a portion of the
expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding (including, without limitation, reasonable attorney's fees
and the fees and expenses of experts) to be charged pro rata against the value
of all shares of FutureTense stock entitled to appraisal. In the absence of
such a determination or assessment, each party bears its own expenses.
Any stockholder who has demanded appraisal in compliance with Section 262
will not, after the time of the merger, be entitled to vote such stock for any
purpose or receive payment of dividends or other distributions, if any, on the
FutureTense stock, except for dividends or distributions, if any, payable to
stockholders of record at a date prior to the merger.
A stockholder may withdraw a demand for appraisal and accept the FutureTense
common stock at any time within 60 days after the time of the merger, or
thereafter may withdraw such a demand with the written approval of the
surviving corporation. If an appraisal proceeding is properly instituted, such
proceeding may not be dismissed as to any stockholder without the approval of
the Delaware Court of Chancery, and any such approval may be conditioned on the
Court of Chancery's deeming the terms to be just. If, after the merger, a
holder of FutureTense stock who had demanded appraisal for the holder's shares
fails to perfect or loses his right to appraisal, those shares will be treated
under the merger agreement as if they had been converted as of the time of the
merger into FutureTense common stock.
In view of the complexity of these provisions of the Delaware corporate law,
any FutureTense stockholder who is considering exercising appraisal rights
should consult a legal advisor.
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COMPARISON OF STOCKHOLDER RIGHTS
General
Both Open Market and FutureTense are corporations organized under the laws
of Delaware and are therefore subject to the Delaware corporation statute.
However, there are differences in the charters and by-laws of Open Market and
FutureTense.
Capitalization
Open Market. Open Market is authorized to issue 100,000,000 shares of common
stock and 2,000,000 shares of preferred stock, of which 40,000 shares have been
designated Series A junior participating preferred stock. On August 4, 1999,
36,190,758 shares of Open Market common stock were issued and outstanding and
no shares of preferred stock were issued and outstanding. Open Market's board
has the authority, without stockholder approval, to issue shares of authorized
preferred stock from time to time in one or more series and to fix the rights
and preferences, including voting rights, of each series of preferred stock,
which rights and preferences may be superior to that of Open Market common
stock.
FutureTense. FutureTense is authorized to issue 25,000,000 shares of common
stock, 380,651 shares of Series A preferred stock, 754,178 shares of Series B
preferred stock, 711,979 shares of Series C preferred stock and 5,436,837
shares of Series D preferred stock. On July 1, 1999, 4,442,468 shares of common
stock, all of the authorized shares of Series A preferred stock, all of the
authorized shares of Series B preferred stock, 711,842 shares of Series C
preferred stock and all of the authorized shares of Series D preferred stock
were outstanding.
Voting Rights
Open Market. Each holder of Open Market common stock is entitled to one vote
for each share and may not cumulate votes for the election of directors. Each
holder of Open Market Series A preferred stock is entitled to 1,000 votes for
each share on all matters voted on by the holders of Open Market common stock.
Except as otherwise provided in the Open Market charter or by-laws, the holders
of Open Market Series A preferred stock and Open Market common stock vote
together as a single class on all matters voted on by the Open Market
stockholders. Open Market's charter further provides that if at any time Open
Market has failed to pay dividends on any Series A preferred stock in an amount
equal to six quarterly dividends, the holders of Series A preferred stock,
voting as a separate series, will be entitled to elect two members of the board
of directors and the authorized number of directors will automatically be
increased by two.
FutureTense. Each holder of FutureTense common stock is entitled one vote
for each share and may not cumulate votes for the election of directors. Each
holder of FutureTense Series A preferred stock, Series B preferred stock,
Series C preferred stock and Series D preferred stock is entitled to the number
of votes equal to the number of shares of FutureTense common stock into which
each share of FutureTense Series A preferred stock, Series B preferred stock,
Series C preferred stock, or Series D preferred stock, as the case may be, is
convertible. Further, the holders of Series A preferred stock, as a separate
class, elect one director.
Number and Classification of Directors
Open Market. Open Market's by-laws provide that the number of directors may
not be less than three. Open Market's by-laws and charter provide that its
board of directors will be comprised of three classes each with the same number
of directors, except that if the total number of directors is not evenly
devisable by three, the first extra director will be a member of Class I and
the second extra director will be a member of Class II. Each class is elected
for three years and a different class of directors stands for election each
year.
FutureTense. FutureTense's by-laws provide that the number of directors may
not be less than one. FutureTense's by-laws further provide for a single class
of directors who are elected at the annual meeting of
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stockholders and hold office until the next annual meeting of stockholders or
until their successors are elected and qualified.
Removal of Directors
Open Market. Open Market's by-laws and charter provide that the stockholders
may remove a director only for cause by the affirmative vote of the holders of
at least 66% of the shares of the capital stock of Open Market outstanding and
entitled to vote.
FutureTense. FutureTense's by-laws provide that the stockholders may remove
a director from office by the affirmative vote of a majority of the shares of
capital stock of FutureTense outstanding and entitled to vote.
Filling Vacancies on the Board of Directors
Open Market. Open Market's by-laws and charter provide that the directors
will fill a vacancy on the board, including a vacancy caused by an enlargement
of the board, by a vote of the majority of the directors then in office, even
if they constitute less than a quorum or by a sole remaining director. A
director elected to fill a vacancy will be elected to hold office until the
next election of the class for which the director was elected and until a
successor is elected and qualified.
FutureTense. FutureTense's charter provides that a vacancy in any
directorship elected by holders of Series A preferred stock may be filled only
by a vote or written consent of the holders of Series A preferred stock.
FutureTense's by-laws provide that the directors will fill a vacancy on the
board, including a vacancy caused by an enlargement of the board, by a vote of
the majority of the directors then in office, even if less than a quorum.
FutureTense's by-laws further provide that the stockholders may fill a vacancy
on the board, including a vacancy caused by an enlargement of the board, at any
meeting.
Charter Amendments
Open Market. Open Market's charter provides that any amendment to Open
Market's charter relating to the board of directors, stockholder action and
special meetings of stockholders requires the affirmative vote of at least 75%
of the shares of capital stock of Open Market outstanding and entitled to vote.
FutureTense. FutureTense's charter provides that in order to:
. amend the charter in a way that adversely affects the preferences,
special rights, or other powers of the Series A preferred stock, the
Series B preferred stock, the Series C preferred stock or the Series D
preferred stock, as the case may be, FutureTense must obtain the
approval of the holders of a majority of the Series A preferred stock,
the Series B preferred stock, the Series C preferred stock or the Series
D preferred stock, as the case may be, voting as separate classes;
. increase or decrease the authorized number of shares of Series C
preferred stock or Series D preferred stock, as the case may be,
FutureTense must obtain the approval of the holders of a majority of the
outstanding shares of Series C preferred stock or Series D preferred
stock, as the case may be, voting as separate classes;
. authorize or issue shares of any class of stock having any preference or
priority as to the dividends or assets superior to or on parity with the
Series A preferred stock, the Series B preferred stock, the Series C
preferred stock or the Series D preferred stock, as the case may be,
FutureTense must obtain the approval of the holders of a majority of the
Series A preferred stock, the Series B preferred stock, the Series C
preferred stock or the Series D preferred stock, as the case may be,
voting as separate classes;
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. effect a material change in FutureTense's business, FutureTense must
obtain the approval of a majority of the outstanding shares of the
Series C preferred stock and a majority of the outstanding shares of the
Series D preferred stock, voting as separate classes.
Amendments to By-Laws
Open Market. Open Market's by-laws provide that the stockholders may amend
the by-laws at any regular or special meeting, by the affirmative vote of the
holders of a majority of the shares of capital stock of Open Market outstanding
and entitled to vote, except for amendments relating to special meetings of
stockholders, nomination of directors, notice of business at annual meetings,
stockholder action without a meeting, organization of stockholder meetings, the
board of directors and amendment of the charter and by-laws, each of which
requires the affirmative vote of 75% of the shares of Open Market capital stock
outstanding and entitled to vote.
FutureTense. FutureTense's by-laws provide that the stockholders may amend
the by-laws at any meeting called for that purpose at which a quorum is
present. In addition, FutureTense's by-laws provide that the provisions
relating to indemnification may not be replaced or amended in a manner that
would adversely affect the right or protection of any person in respect of any
act or omission occurring prior to the amendment or repeal. FutureTense's by-
laws also provide that the board of directors may amend the by-laws to the
extent provided in FutureTense's charter. FutureTense's charter provides that
the board of directors may amend the FutureTense by-laws, but the by-laws may
not be amended in a manner that would change the preferences, special rights or
other powers of the Series A preferred stock, Series B preferred stock, Series
C preferred stock or Series D preferred stock, without the approval of a
majority of the then outstanding shares of the effected series.
Action by Written Consent
Open Market. Open Market's by-laws provide that any action by the
stockholders may only be taken at an annual or special meeting and may not be
taken by written consent.
FutureTense. FutureTense's by-laws provide that unless otherwise restricted
by the charter, any action required or permitted to be taken by stockholders
may be taken by written consent. FutureTense's charter contains no provisions
restricting stockholder action by written consent. To approve an action by
written consent, holders of the same number of shares as would be required to
vote in favor of the action at a meeting, must give written consent.
Notice of Stockholder Actions
Open Market. Open Market's by-laws provide that to nominate directors or
bring business before an annual meeting, stockholders must give written notice
to the secretary of Open Market at least 60 days, but not more than 90 days,
before the meeting. However, if stockholders are given less than 70 days'
notice of the meeting, then stockholders must give notice no later than ten
days after the day the notice of the meeting was mailed or public disclosure of
the meeting was made, whichever occurs first.
FutureTense. Neither FutureTense's charter nor its by-laws require advance
notice of stockholder nominations of directors or any other business to be
brought by stockholders before a meeting of stockholders.
Right to Call Special Meeting of Stockholders
Open Market. Open Market's by-laws provide that the chairman of the board of
directors, the chief executive officer or the board of directors may call a
special meeting of stockholders at any time.
FutureTense. FutureTense's by-laws provide that the chairman of the board of
directors, the president or the board of directors may call a special meeting
of stockholders at any time. Further, the president or the
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secretary must call a special meeting of stockholders if the holders of at
least a majority of the capital stock outstanding and entitled to vote request
that a meeting be held.
Limitation of Personal Liability of Directors
The Delaware General Corporation Law, or the DGCL, provides that a
corporation's charter may include a provision limiting the personal liability
of a director to the corporation or its stockholders for monetary damage for
breach of fiduciary duty as a director. However, no such provision can
eliminate or limit the liability of a director for:
. any breach of the director's duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
. willful or negligent violation of the laws governing the payment of
dividends or the purchase or redemption of stock; or
. any transaction from which the director devised an improper personal
benefit.
Open Market. The Open Market charter provides that except to the extent that
the DGCL prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director shall be personally liable to Open
Market or its stockholders for monetary damages for any breach of fiduciary
duty as director, notwithstanding any provision of law imposing such liability.
FutureTense. The FutureTense charter provides that no director shall be
personally liable to FutureTense or to its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability:
. for breach of the directors duty of loyalty to FutureTense or its
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law;
. under Section 174 of the DGCL; or
. for any transactions from which the directors derived an improper
personal benefit.
Dividends
Open Market. Open Market's charter provides that Open Market's board may
declare and pay dividends upon shares of Open Market common stock, but only out
of funds available for the payment of dividends as provided by law, and subject
to any preferential rights of any outstanding preferred stock. Open Market's
charter also provides that in preference to holders of Open Market common stock
and any other junior stock, holders of Open Market Series A preferred stock
will be entitled to receive, when, as and if declared by the board of
directors, quarterly dividends in an amount equal to the greater of:
. $100 or
. 1,000 times the aggregate per share amount of all non-cash dividends
declared on the common stock since the immediately preceding quarterly
dividend payment date. Open Market must declare a dividend on the Series
A preferred stock immediately after it declares a dividend on the Open
Market common stock and must pay the Series A preferred stock dividend
before the common stock dividend is paid.
FutureTense. FutureTense's charter provides that FutureTense's board may
declare and pay dividends upon shares of FutureTense common stock, but only out
of funds available for the payment of dividends as provided by law, and subject
to any preferential rights of any outstanding preferred stock. The FutureTense
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charter also provides that FutureTense cannot declare or pay any dividend
without the consent of the holders of a majority of the shares of each of the
Series A preferred stock, Series B preferred stock, Series C preferred stock
and Series D preferred stock, consenting as separate classes. FutureTense's
charter also provides that:
. the holders of Series A preferred stock are entitled to receive
dividends of $.315 per share per annum;
. the holders of Series B preferred stock are entitled to receive
dividends of $.7275 per share per annum;
. the holders of Series C preferred stock are entitled to receive
dividends of $.729 per share per annum; and
. the holders of Series D preferred stock are entitled to receive
dividends of $.14806 per share per annum.
Each of these dividends is payable when and as declared by the board.
Further, no transfer of cash or property without consideration may be made:
. to the Series A preferred stock, Series B preferred stock, Series C
preferred stock or Series D preferred stock unless each of the other
series of preferred stock receives a pro rata distribution per share, or
. on shares of common stock until the holders of the then outstanding
shares of Series A preferred stock, Series B preferred stock, Series C
preferred stock and Series D preferred stock have received a
distribution at the same rate as the dividends they are entitled to
receive.
Conversion and Redemption
Open Market. Holders of Open Market common stock have no right to convert
their shares into any other shares of capital stock of Open Market or any other
securities.
FutureTense. Holders of FutureTense common stock have no right to convert
their shares into any other shares of capital stock of FutureTense or any other
securities.
Holders of Series A preferred stock have the right to convert their shares
into a number of shares of common stock determined by dividing $3.15 by the
then current conversion price as calculated based on the provisions of the
charter, which is currently $0.63 per share. Shares of Series A preferred stock
automatically convert into common stock:
. upon the request of 66 2/3% of the then outstanding Series A preferred
stock, and
. upon the closing of a public offering of shares of common stock at a
price of at least $1.26 per share resulting in gross proceeds to
FutureTense of at least $10,000,000.
Holders of Series B preferred stock have the right to convert their shares
into a number of shares of common stock determined by dividing $7.275 by the
then current conversion price as calculated based on the provisions of the
charter, which is currently $1.455. Shares of Series B preferred stock
automatically convert into common stock:
. upon the request of 66 2/3% of the then outstanding Series B preferred
stock, and
. upon the closing of a public offering of shares of common stock at a
price of at least $2.91 per share resulting in gross proceeds to
FutureTense of at least $10,000,000.
Holders of Series C preferred stock have the right to convert their shares
into a number of shares of common stock determined by dividing $7.29 by the
then current conversion price as calculated based on the
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provisions of the charter, which is currently $1.458. Shares of Series C
preferred stock automatically convert into common stock:
. upon the request of 66 2/3% of the then outstanding Series C preferred
stock, and
. upon the closing of a public offering of shares of common stock at a
price of at least $2.92 per share resulting in gross proceeds to
FutureTense of at least $15,000,000.
Holders of Series D preferred stock have the right to convert their shares
into a number of shares of common stock determined by dividing $1.4806 by the
then current conversion price as calculated based on the provisions of the
charter, which is currently $1.4806. Shares of Series D preferred stock
automatically convert into common stock:
. upon the request of 66 2/3% of the then outstanding Series D preferred
stock, and
. upon the closing of a public offering of shares of common stock at a
price of at least $2.96 per share resulting in gross proceeds to
FutureTense of at least $15,000,000.
FutureTense will redeem the Series A preferred stock, Series B preferred
stock, Series C preferred stock and Series D preferred stock on the following
dates and in the following amounts:
. February 10, 2002--33% of shares held;
. February 10, 2003--50% of shares held; and
. February 10, 2004--all shares held.
On these redemption dates, FutureTense will redeem the Series A preferred stock
for $3.15 per share, the Series B preferred stock for $7.275 per share, the
Series C preferred sock for $7.29 per share and the Series D preferred stock
for $1.4806 per share, in each case, together with any dividends declared but
unpaid.
Liquidation
Open Market. Open Market's charter provides that upon the dissolution or
liquidation of Open Market, holders of Open Market common stock will be
entitled to receive all assets of Open Market available for distribution to
Open Market's stockholders, subject to any preferential rights of any then
outstanding preferred stock. Open Market's charter further provides that upon
any liquidation, dissolution or winding up of Open Market, no distribution
shall be made:
. to the holders of shares of stock ranking junior to the Series A
preferred stock until the holders of Series A preferred stock have
received $100 per share, plus the amount of accrued and unpaid dividends
provided that holders of Series A preferred stock will be entitled to
receive an aggregate amount per share equal to 1,000 shares times the
aggregate amount distributed to holders of Open Market common stock, or
. to the holders of stock ranking equal to the Series A preferred stock,
except distributions made ratably on the Series A preferred stock and
all such equal ranking stock in proportion to the total amounts to which
the holders of all such shares are entitled upon the liquidation,
dissolution or winding up.
FutureTense. FutureTense's charter provides that upon the dissolution or
liquidation of FutureTense, holders of FutureTense common stock will be
entitled to receive all assets of FutureTense available for distribution to
FutureTense's stockholders, subject to any preferential rights of any then
outstanding preferred stock.
Rights Agreement
Open Market. On January 26, 1998, the Open Market board declared a dividend
of one preferred stock purchase right for each outstanding share of Open Market
common stock to stockholders of record at the close of business on February 12,
1998. The purchase rights have some anti-takeover effects that are intended to
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discourage coercive or unfair takeover tactics and to encourage any potential
acquiror to negotiate a price fair to all Open Market stockholders. The
purchase rights may cause substantial dilution to an acquiring party that
attempts to acquire Open Market on terms not approved by the Open Market board,
but the purchase rights will not interfere with any negotiated merger or other
business combination.
In the event that any person or group acquires beneficial ownership of 18%
or more of the outstanding shares of Open Market common stock, each holder of a
purchase right, other than a purchase right beneficially owned by the acquiring
person, will thereafter have the right to receive upon exercise that number of
shares of Open Market common stock which equals the exercise price of the right
divided by one-half of the current market price of Open Market common stock at
the date of the occurrence of the event. In addition, if at any time following
such acquisition of 18% or more of the outstanding shares of Open Market common
stock, Open Market is acquired in a merger or other business combination or
transaction or 50% or more of its consolidated assets or earning power are
sold, other than resulting from a qualifying offer, each holder of a purchase
right will receive, upon exercise of that purchase right at the prevailing
exercise price of the purchase right, that number of shares of common stock of
the acquiring company which, at the time of such transaction equals the
exercise price of the right divided by one-half of the current market price of
Open Market common stock at the date of the occurrence of the event.
FutureTense. FutureTense has not adopted a rights agreement.
Rights in an Acquisition Event
Open Market. Open Market's charter provides that if Open Market enters into
any consolidation, merger, combination or other transaction in which the shares
of Open Market common stock are changed for or changed into other stock or
securities, cash and/or any other property, then each share of Series A
preferred stock will, at the same time, be similarly exchanged or changed into
an amount per share equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property, as the case may be, into which or
for which each share of common stock is changed or exchanged.
FutureTense. The holders of FutureTense common and preferred stock have no
comparable rights.
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in proxy material for Open Market's 2000
Annual Meeting of Stockholders would have to have been submitted to the
Secretary of Open Market in writing and received at the executive offices of
Open Market by December 10, 1999. Such proposals must also have met the other
requirements of the rules of the SEC relating to stockholder proposals and must
have satisfied the notice procedures for stockholder proposals set forth in the
Open Market Bylaws.
The Open Market Bylaws require that for business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely written notice thereof, containing the information required by the Open
Market Bylaws, to the Secretary of Open Market. To be timely, a stockholders
notice containing the information required by the Open Market Bylaws must be
delivered or mailed to and received at the principal executive offices of Open
Market not less than sixty days nor more than ninety days prior to the meeting;
provided, however, that in the event that less than seventy days notice or
prior public disclosure of the date of the annual meeting is given or made to
stockholders, notice by a stockholder, to be timely, must be received not later
than the close of business on the tenth day following the date on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made, whichever occurs first.
LEGAL MATTERS
The validity of the shares of Open Market common stock to be issued in
connection with the merger will be passed upon for Open Market by Hale and Dorr
LLP.
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EXPERTS
The consolidated audited financial statements of Open Market as of December
31, 1997 and 1998 and for each of the three years in the period ended December
31, 1998 incorporated by reference in this joint proxy statement/prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The financial statements of FutureTense as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998, included in
this joint proxy statement/prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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WHERE YOU CAN FIND MORE INFORMATION
Open Market files annual, quarterly and special reports, joint proxy
statement/prospectus and other information with the SEC. You may read and copy
any reports, statements or other information we file at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the
SEC at "http://www.sec.gov."
Open Market filed with the SEC a registration statement on Form S-4 under
the Securities Act of 1933, as amended to register with the SEC the Open Market
common stock issuable pursuant to the merger agreement. This joint proxy
statement/prospectus does not contain all the information you can find in the
registration statement or the exhibits and schedules to the registration
statement. For further information with respect to Open Market, FutureTense and
the Open Market common stock, please refer to the registration statement,
including the exhibits and schedules. You may inspect and copy the registration
statement, including the exhibits and schedules, as described above. Statements
contained in this joint proxy statement/prospectus about the contents of any
contract or other document are not necessarily complete, and we refer you, in
each case, to the copy of such contract or other document filed as an exhibit
to the registration statement.
The SEC allows us to "incorporate by reference" information into this joint
proxy statement/prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
Joint proxy statement/prospectus, except for any information superseded by
information in this Joint proxy statement/prospectus. This Joint proxy
statement/prospectus incorporates by reference the documents set forth below
that we have previously filed with the SEC. These documents contain important
information about our companies and their finances.
<TABLE>
<CAPTION>
Open Market SEC Filings
(File No. 001-05647) Period
- ----------------------- ------
<S> <C>
Annual Report on
Form 10-K/A Year ended December 31, 1998
Quarterly Reports on
Form 10-Q Quarters ended March 31, 1999 and June 30, 1999
Current Reports on
Form 8-K Reports dated February 17, 1999 and July 19, 1999
Definitive Proxy Statement
on Schedule 14A Annual Meeting of Stockholders held on May 12, 1999
Registration Statements on
Form 8-A Filed on May 3, 1996 and January 30, 1998
</TABLE>
We are also incorporating by reference additional documents that we may file
with the SEC between the date of this joint proxy statement/prospectus and the
date of the special meeting of our stockholders.
Open Market has supplied all information contained or incorporated by
reference in this joint proxy statement/prospectus relating to Open Market, and
FutureTense has supplied all information contained in this joint proxy
statement/prospectus relating to FutureTense.
Documents incorporated by reference are available from Open Market without
charge, excluding all exhibits unless Open Market has specifically incorporated
by reference an exhibit in this joint proxy statement/prospectus. Stockholders
may obtain documents incorporated by reference in this joint proxy
statement/prospectus by requesting them in writing or by telephone from the
Secretary of Open Market at the following address:
Open Market
Attention: Eric J. Pyenson, Secretary
One Wayside Road.
Burlington, MA 01803
Telephone: (781) 359-3000
If you would like to request documents from Open Market, please do so by
, 1999 to receive them before the special meeting.
92
<PAGE>
You should rely only on the information contained or incorporated by
reference in this joint proxy statement/prospectus to vote on the merger. We
have not authorized anyone to provide you with information that is different
from what is contained in this joint proxy statement/prospectus. This joint
proxy statement/prospectus is dated , 1999. You should not assume
that the information contained in this joint proxy statement/prospectus is
accurate as of any date other than , 1999, and neither the mailing of
the joint proxy statement/prospectus to stockholders nor the issuance of Open
Market common stock in the merger shall create any implication to the contrary.
93
<PAGE>
FUTURETENSE, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants......................................... F-2
Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999
(unaudited).............................................................. F-3
Statements of Operations for the years ended December 31, 1996, 1997 and
1998 and for the six-months ended June 30, 1998 and 1999 (unaudited)..... F-4
Statements of Cash Flows for the years ended December 31, 1996, 1997 and
1998 and for the six-months ended June 30, 1998 and 1999 (unaudited)..... F-5
Statement of Changes in Stockholders' Deficit............................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
FutureTense, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' deficit and cash flows present fairly,
in all material respects, the financial position of FutureTense, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
March 10, 1999
Boston, Massachusetts
F-2
<PAGE>
FUTURETENSE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------- June 30,
1997 1998 1999
----------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............ $ 271,195 $ 1,838,959 $ 1,835,991
Accounts receivable, net of allowance
for doubtful accounts of $10,200 and
$20,000 at December 31, 1997 and
1998, respectively, and $127,200 at
June 30, 1999 (unaudited)........... 199,091 658,769 2,224,055
Inventory............................ 54,444 66,676 64,062
Prepaid expenses and other current
assets.............................. 187,708 91,682 319,173
----------- ------------ ------------
Total current assets................ 712,438 2,656,086 4,443,281
Fixed assets, net.................... 450,625 561,764 906,370
Intangible and other assets, net..... 1,552,636 1,025,774 764,338
----------- ------------ ------------
Total assets........................ $ 2,715,699 $ 4,243,624 $ 6,113,989
=========== ============ ============
Liabilities, Redeemable Convertible
Preferred Stock and
Stockholders' Deficit
Current liabilities:
Notes payable........................ $ 1,388,882 $ -- $ --
Current portion of long-term debt.... 292,018 311,843 558,417
Current portion of capital lease ob-
ligation............................ 40,923 10,710 --
Accounts payable..................... 527,249 503,808 621,998
Accrued expenses..................... 191,353 474,109 1,384,916
Customer deposits.................... 182,367 124,610 1,019
Deferred revenue..................... 475,082 803,050 1,171,271
----------- ------------ ------------
Total current liabilities........... 3,097,874 2,228,130 3,737,621
Long-term debt....................... -- 148,359 76,389
Capital lease obligation............. 10,709 -- --
----------- ------------ ------------
Total liabilities................... 3,108,583 2,376,489 3,814,010
Commitments (Note 12)................
Redeemable convertible preferred
stock (Note 8)...................... 6,685,695 15,424,797 19,924,805
Stockholders' deficit:
Common stock, $0.0002 par value;
25,000,000 shares authorized;
4,454,650 and 4,434,030 shares
issued and outstanding at December
31, 1997 and 1998, respectively, and
4,442,468 shares issued and
outstanding at June 30, 1999
(unaudited)......................... 891 887 889
Additional paid-in capital........... 115,909 115,913 813,699
Accumulated deficit.................. (7,145,879) (13,642,962) (17,757,668)
Deferred compensation................ (49,500) (31,500) (681,746)
----------- ------------ ------------
Total stockholders' deficit......... (7,078,579) (13,557,662) (17,624,826)
----------- ------------ ------------
Total liabilities, redeemable
convertible preferred stock and
stockholders' deficit.............. $ 2,715,699 $ 4,243,624 $ 6,113,989
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
FUTURETENSE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended June
Year ended December 31, 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Product license and
sales................. $ 16,146 $ 83,472 $ 1,338,326 $ 585,189 $ 1,354,694
Services............... -- 103,519 1,063,350 491,750 1,657,177
----------- ----------- ----------- ----------- -----------
Total revenue......... 16,146 186,991 2,401,676 1,076,939 3,011,871
----------- ----------- ----------- ----------- -----------
Cost of revenue:
Product license and
sales................. 3,172 154,476 447,026 147,093 298,312
Services............... -- 55,753 832,911 367,856 1,045,565
----------- ----------- ----------- ----------- -----------
Total cost of
revenue.............. 3,172 210,229 1,279,937 514,949 1,343,877
----------- ----------- ----------- ----------- -----------
Gross profit (loss)..... 12,974 (23,238) 1,121,739 561,990 1,667,994
Costs and expenses:
Research and
development........... 721,156 1,575,460 3,178,603 1,560,681 1,866,422
Purchased in-process
research and
development........... -- 428,555 -- -- --
Sales and marketing.... 1,196,175 1,524,628 2,757,873 1,251,147 2,550,899
General and
administrative........ 763,605 951,232 1,551,023 714,854 1,402,137
----------- ----------- ----------- ----------- -----------
Total costs and
expenses............. 2,680,936 4,479,875 7,487,499 3,526,682 5,819,458
----------- ----------- ----------- ----------- -----------
Loss from
operations.......... (2,667,962) (4,503,113) (6,365,760) (2,964,692) (4,151,464)
Other income (expense):
Interest income........ 91,141 84,208 56,454 52,870 65,736
Interest expense....... (6,997) (35,025) (94,890) (53,181) (21,794)
Other.................. -- -- (39,161) (27,694) (1,206)
----------- ----------- ----------- ----------- -----------
Net loss.............. $(2,583,818) $(4,453,930) $(6,443,357) $(2,992,697) $(4,108,728)
----------- ----------- ----------- ----------- -----------
Accretion of preferred
stock to redemption
value.................. (66,111) -- (53,726) (24,123) (5,971)
----------- ----------- ----------- ----------- -----------
Net loss attributable
to common
shareholders......... $(2,649,929) $(4,453,930) $(6,497,083) $(3,016,820) $(4,114,699)
=========== =========== =========== =========== ===========
Basic and diluted net
loss per share......... $ (3.24) $ (2.50) $ (2.50) $ (1.26) $ (1.28)
=========== =========== =========== =========== ===========
Shares used in computing
basic and diluted net
loss per share
attributable to common
shareholders........... 818,011 1,781,645 2,599,108 2,396,757 3,203,132
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
FUTURETENSE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended June
Year ended December 31, 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(2,583,818) $(4,453,930) $(6,443,357) $(2,992,697) $(4,108,728)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Purchased in-process
research and
development......... -- 428,555 -- -- --
Depreciation and
amortization........ 33,405 160,412 774,774 364,100 446,420
Noncash
compensation........ 27,500 19,000 18,000 9,000 45,854
Loss on disposition
of fixed assets..... -- -- 38,807 31,295 --
Change in assets and
liabilities, net of
acquisition:
Accounts receivable.. -- (81,353) (459,678) (66,227) (1,565,286)
Inventory............ (68,272) 14,370 (12,232) (551) 2,614
Prepaid expenses and
other assets........ (36,559) (18,680) 95,926 86,135 (229,533)
Accounts payable and
accrued expenses.... 128,042 (98,497) 259,315 (106,869) 1,028,997
Deferred revenue and
customer deposits... -- 169,828 270,211 (96,338) 244,630
----------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities......... (2,499,702) (3,860,295) (5,458,234) (2,772,152) (4,135,032)
Cash flows from
investing activities:
Purchases of fixed
assets............... (214,131) (133,686) (397,758) (225,536) (527,548)
Cash acquired in
acquisition of
business............. -- 51,383 -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities......... (214,131) (82,303) (397,758) (225,536) (527,548)
Cash flows from
financing activities:
Proceeds from notes
payable.............. 100,000 1,010,000 1,490,000 190,000 --
Payments on notes
payable.............. -- (60,000) (2,689,882) (1,390,000) (87,121)
Payments on capital
lease obligation..... -- (6,452) (40,922) (19,998) (10,710)
Proceeds on long-term
debt................. 168,239 161,628 307,704 235,480 261,725
Payments on long-term
debt................. -- (37,849) (139,520) (117,775) --
Proceeds from sale of
preferred stock, net
of issuance costs.... 5,582,400 -- 8,496,376 4,976,205 4,494,030
Proceeds from issuance
of common stock...... -- -- -- -- 1,688
Repurchase of common
stock................ -- (70) -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing
activities......... 5,850,639 1,067,257 7,423,756 3,873,912 4,659,612
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents........... 3,136,806 (2,875,341) 1,567,764 876,224 (2,968)
Cash and cash
equivalents at
beginning of year..... 9,730 3,146,536 271,195 271,195 1,838,959
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
year.................. $ 3,146,536 $ 271,195 $ 1,838,959 $ 1,147,419 $ 1,835,991
=========== =========== =========== =========== ===========
Supplemental disclosure
of cash flow
information:
Cash paid for
interest............. $ 6,455 $ 25,474 $ 99,800 $ 21,794 $ 53,136
=========== =========== =========== =========== ===========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of Mission Critical Technologies, Inc. (Note 3).
Conversion of a non-interest bearing note into shares of Series C redeemable
convertible preferred stock (Note 6).
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
FUTURETENSE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common stock Additional
-------------------- paid-in Accumulated Deferred
Shares Par value capital deficit compensation Total
--------- --------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 2,400,000 $ 480 $ 20,390 $ (42,020) $ -- $ (21,150)
Issuance of common stock
to certain employees
and consultants........ 2,754,650 551 109,449 (110,000) --
Accretion of preferred
stock to redemption
value.................. (66,111) (66,111)
Amortization of deferred
compensation........... 27,500 27,500
Net loss................ (2,583,818) (2,583,818)
--------- ------ -------- ------------ --------- ------------
Balance at December 31,
1996................... 5,154,650 1,031 129,839 (2,691,949) (82,500) (2,643,579)
Repurchase and
cancellation of
common stock........... (700,000) (140) 70 (70)
Decrease in deferred
compensation from the
cancellation of
unvested common
shares................. (14,000) 14,000 --
Amortization of deferred
compensation........... 19,000 19,000
Net loss................ (4,453,930) (4,453,930)
--------- ------ -------- ------------ --------- ------------
Balance at December 31,
1997................... 4,454,650 891 115,909 (7,145,879) (49,500) (7,078,579)
Cancellation of unvested
common stock........... (20,620) (4) 4 --
Accretion of preferred
stock to redemption
value.................. (53,726) (53,726)
Amortization of deferred
compensation........... 18,000 18,000
Net loss................ (6,443,357) (6,443,357)
--------- ------ -------- ------------ --------- ------------
Balance at December 31,
1998................... 4,434,030 887 115,913 (13,642,962) (31,500) (13,557,662)
Accretion of preferred
stock to redemption
value.................. (5,978) (5,978)
Deferred compensation
related to issuance of
common stock options... 696,100 (696,100)
Amortization of deferred
compensation .......... 45,854 45,854
Exercise of options..... 8,438 2 1,686 1,688
Net loss................ (4,108,728) (4,108,728)
--------- ------ -------- ------------ --------- ------------
Balance at June 30, 1999
(unaudited)............ 4,442,468 $ 889 $813,699 $(17,757,668) $(681,746) $(17,624,826)
========= ====== ======== ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
FUTURETENSE, INC.
NOTES TO FINANCIAL STATEMENTS
Information as of June 30, 1999, and for the six months ended June 30, 1998 and
1999, is unaudited
1. Nature of the Business
FutureTense, Inc. (the "Company") was incorporated in Delaware on April 5,
1995. The Company was formed to design, develop, manufacture and market
Internet publishing technology. During the period from inception (April 5,
1995) through December 31, 1997, the Company was considered to be a
development stage enterprise, as defined by Statement of Financial
Accounting Standards ("SFAS") No. 7, because revenue to date was not
significant. The Company is no longer considered to be a development stage
enterprise.
The Company is subject to risks and uncertainties common to growing
technology based companies, including rapid technological developments,
reliance on continued development and acceptance of the Internet, intense
competition and limited operating history.
The accompanying financial statements have been prepared on a basis that
contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The Company had an
accumulated deficit of $13,642,962 at December 31, 1998. The Company will
require additional financing to continue its planned operations beyond
1999. Management believes the Company has the ability to raise such
financing.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The
Company invests excess cash primarily in money market funds of major
financial institutions. These investments are subject to minimal credit and
market risks.
At December 31, 1997 and 1998, the Company's cash equivalents are
classified as available-for-sale and include $123,591 and $25,000 in money
market funds and a certificate of deposit, respectively. These securities
are stated at cost plus accrued interest, which approximates fair value.
Revenue Recognition
The Company recognizes revenue from product licenses and sales upon
shipment to customers provided the arrangement does not require significant
production, modification or customization, no uncertainties remain, the
fees are fixed and determinable and collection of the related receivable is
probable. If the arrangement to deliver software or a software system,
either alone or together with other products or services, requires
significant production, modification or customization of software, the
entire arrangement is recognized using the percentage-of-completion method
of accounting. In applying this method, the Company measures each project's
percentage of completion by the ratio of labor hours incurred to date to
estimated total labor hours to complete the project, provided that
collection of the related receivable is probable. This method is used
because management considers expended labor hours to be the best available
measure of progress on these projects. Adjustments to contract cost
estimates are made in the periods in which the facts requiring such
revisions become known. When the estimate indicates a loss, such loss is
provided for in its entirety. Payments received in excess of revenue
recognized are recorded as deferred revenue.
Service revenue includes installation and implementation of systems,
training, consulting and support agreements. Revenue from installation and
implementation of systems, training and consulting is recognized as
services are rendered. Revenue under support agreements is recognized
ratably over the term of the support agreement.
F-7
<PAGE>
FUTURETENSE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999, and for the six months ended June 30, 1998 and
1999, is unaudited
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments that include
cash equivalents, accounts receivable, accounts payable, accrued expenses
and notes payable, approximate their fair values at December 31, 1997 and
1998.
Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. To minimize risk, ongoing credit evaluations of customers'
financial condition are performed, although collateral generally is not
required. At December 31, 1997, three customers accounted for 22%, 13% and
11% of gross accounts receivable. At December 31, 1998, three customers
accounted for 17%, 17% and 12% of gross accounts receivable. For the year
ended December 31, 1996, three customers accounted for 33%, 31% and 11% of
total revenue. For the year ended December 31, 1997, three customers
accounted for 30%, 24%, and 22% of total revenue. For the year ended
December 31, 1998, no customer accounted for greater than 10% of total
revenue.
Fixed Assets
Fixed assets are recorded at cost and depreciated over their estimated
useful lives, generally three to seven years, using the straight-line
method. Other fixed assets held under capital leases are amortized over the
shorter of the lease term or the estimated useful life of the related
asset. Repairs and maintenance costs are expensed as incurred.
Inventories
Inventories consist of raw materials and are stated at the lower of cost or
market, with cost being determined using the first-in, first-out method.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets
acquired and is being amortized on a straight-line basis over its estimated
useful life of three years. Accumulated amortization at December 31, 1997
and 1998 totaled $52,500 and $501,782, respectively.
Research and Development and Software Development Costs
Costs incurred in the research and development of the Company's products
are expensed as incurred. Costs associated with the development of computer
software are expensed prior to establishing technological feasibility, as
defined by SFAS No. 86, and capitalized thereafter until commercial release
of the software products. Software development costs eligible for
capitalization have not been significant to date.
Accounting for Stock-Based Compensation
The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to
F-8
<PAGE>
FUTURETENSE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999, and for the six months ended June 30, 1998 and
1999, is unaudited
Employees", and related interpretations. Accordingly, no compensation
expense is recorded for options issued to employees in fixed amounts and
with fixed exercise prices at least equal to the fair market value of the
Company's common stock at the date of grant. The Company has adopted the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," for
disclosure purposes only (Note 10). All stock-based awards to non-employees
are accounted for at their fair value in accordance with SFAS No. 123 and
related interpretations.
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising costs
were approximately $697,000, $696,000 and $776,000 in the years ended
December 31, 1996, 1997 and 1998, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Unaudited Interim Financial Statements
Financial information as of June 30, 1999 and for the six months ended June
30, 1998 and 1999 is unaudited. Management believes the Company's unaudited
financial statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations in such periods.
Net Loss Per Share
Net loss per share is computed in accordance with SFAS No. 128, "Earnings
Per Share." Basic net loss per share is computed by dividing net loss
attributable to common stockholders by the weighted average number of
shares of common stock outstanding. Diluted net loss per share does not
differ from basic net loss per share since potential common shares from
conversion of preferred stock, stock options and warrants, are anti-
dilutive for all periods presented.
F-9
<PAGE>
FUTURETENSE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999, and for the six months ended June 30, 1998 and
1999, is unaudited
During the years ended December 31, 1996, 1997 and 1998 and the six months
ended June 30, 1998 and 1999, certain securities were not included in the
computation of diluted earnings per share because they would have an anti-
dilutive effect due to the net loss for the periods. Such securities
include:
<TABLE>
<CAPTION>
Six months ended June
Year ended December 31, 30,
------------------------------ ---------------------
1996 1997 1998 1998 1999
--------- --------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Shares of restricted
stock.................. 3,786,085 2,235,060 1,400,000 1,600,000 1,000,000
Shares of common stock
issuable upon exercise
of options............. 442,295 1,310,970 2,330,250 1,821,235 2,925,250
Shares of common stock
issuable upon
conversion of preferred
stock.................. 5,030,405 5,674,145 11,630,879 9,233,355 14,670,192
Shares of common stock
issuable upon
conversion of
warrants............... -- -- 3,426 -- 3,426
--------- --------- ---------- ---------- ----------
Total shares excluded
from the diluted loss
per share calculation.. 9,258,785 9,220,175 15,364,555 12,654,590 18,598,868
========= ========= ========== ========== ==========
</TABLE>
Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income",
effective January 1, 1998. This statement requires a full set of general
purpose financial statements to be expanded to include the reporting of
"comprehensive income." Comprehensive income is comprised of two
components, net income and other comprehensive income. During the years
ended December 31, 1996, 1997 and 1998, the Company had no items qualifying
as other comprehensive income; accordingly, the adoption of SFAS No. 130
had no impact on the Company's financial statements.
Segment Reporting
In June 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." This statement
changes the way public business enterprises report segment information,
including financial and descriptive information about their selected
segment information in interim and annual financial statements. Under SFAS
No. 131, operating segments are defined as revenue-producing components of
the enterprise which are generally used internally for evaluating segment
performance. The implementation of SFAS No. 131 had no effect on the
Company's financial position or results of operations. The Company operates
in one segment, the Internet publishing technology segment.
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000. The Company does not expect SFAS No. 133 to have a material effect on
its financial position or results of operations.
F-10
<PAGE>
FUTURETENSE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999, and for the six months ended June 30, 1998 and
1999, is unaudited
3. Acquisition
On October 20, 1997, the Company acquired substantially all of the
operating assets and liabilities of Mission Critical Technologies ("MCT")
in exchange for 128,748 shares of the Company's Series B redeemable
convertible preferred stock valued at $936,642 and a non-interest bearing
note in the amount of $438,882. Assumed liabilities exceeded the fair value
of the acquired tangible assets by $633,909. MCT was engaged in the design,
development and distribution of software primarily to the publishing
industry. The acquisition has been accounted for under the purchase method
and accordingly, the purchase price has been allocated based on the
estimated fair value of assets purchased and liabilities assumed upon
acquisition. A portion of the purchase price was allocated to purchased
research and development projects that were identified as having no
alternative future value and had not yet reached technological feasibility.
Purchased research and development that had not yet reached technological
feasibility and that had no alternative future use was valued using a risk
adjusted cash flow model. This analysis resulted in an allocation of
$428,555 to acquired inprocess research and development expense that was
charged to the Company's operations at the acquisition date. Approximately
$233,000 was allocated to purchased software and the excess of cost over
the fair value of net assets acquired has been allocated to goodwill,
$1,347,857, which is being amortized over three years on a straight-line
basis. Software acquired in the acquisition of MCT is being amortized using
the straight-line method over the estimated useful life of three years. The
operating results of MCT are included in the Company's results from the
date of acquisition.
4. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
Estimated December 31,
useful life --------------------
(years) 1997 1998
------------- --------- ---------
<S> <C> <C> <C>
Computer equipment....................... 3 $ 464,192 $ 697,120
Software................................. 3 -- 20,000
Office equipment......................... 5 92,732 79,798
Furniture and fixtures................... 7 25,918 58,045
Leasehold improvements................... Life of lease -- 49,656
--------- ---------
582,842 904,619
Less--accumulated depreciation........... (132,217) (342,855)
--------- ---------
$ 450,625 $ 561,764
========= =========
</TABLE>
Depreciation and amortization expense for 1996, 1997 and 1998 was $33,405,
$98,812 and $247,812, respectively. Property and equipment under capital
leases at December 31, 1997 and 1998 totaled approximately $58,000.
Amortization related to these assets is included in depreciation and
amortization expense.
F-11
<PAGE>
FUTURETENSE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999, and for the six months ended June 30, 1998 and
1999, is unaudited
5. Intangible and Other Assets
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Goodwill............................................. $1,347,857 $1,347,857
Purchased software................................... 233,021 233,021
Other assets......................................... 33,358 33,458
---------- ----------
1,614,236 1,614,336
Less--accumulated amortization....................... (61,600) (588,562)
---------- ----------
$1,552,636 $1,025,774
========== ==========
</TABLE>
Amortization expense for 1996, 1997 and 1998 was $0, $61,600 and $526,962,
respectively.
6. Notes Payable
In December 1997, the Company entered into a loan agreement with a bank
that provided for financing of up to $1,200,000 which matured in April
1998. As of December 31, 1997, the Company had borrowed $1,010,000 which
bore interest at the lender's prime rate plus 1.5% (10% at December 31,
1997). In January 1998, the Company borrowed the remaining $190,000
available under the loan agreement. In April 1998, the Company paid in full
the entire principal balance of $1,200,000.
In October 1997, the Company issued a non-interest bearing note in the
amount of $438,882 as part of the acquisition of MCT (Note 3). Under the
terms of the note agreement, the Company was to pay monthly principal
installments of $20,000 until the note matured on December 31, 1997. Upon
maturity, the holders of the note had an option to either (i) accept full
payment in cash or (ii) accept payment in Series C redeemable convertible
preferred stock (Note 8) at a price of $7.29 per share. During 1998, the
Company negotiated the extension of the maturity date of the note on an
interest free basis to June 1998, made principal payments of approximately
$190,000 and in June 1998 converted the remaining balance of the note of
$189,000 into 25,926 shares of the Company's Series C redeemable
convertible preferred stock at a price of $7.29 per share.
In September 1998, the Company entered into a loan agreement with a bank
which provided for financing of up to $1,500,000 which bore interest at the
lender's prime rate plus 1.5%. The Company borrowed $1,300,000 and on
December 31, 1998 paid in full the entire principal balance of $1,300,000.
In connection with the loan agreement, the Company issued a warrant to
purchase 3,426 shares of the Company's Series D preferred stock, which was
exercisable after December 31, 1998. The warrant has a term of five years
and an exercise price of $1.46 per share. The fair value of these warrants,
using the Black-Scholes option pricing model, was approximately $2,100.
7. Long-term Debt
In April 1996, the Company entered into an agreement with a bank under
which it could borrow up to $250,000 for equipment purchases. The agreement
expired on April 19, 1997 at which time all amounts borrowed converted into
a three-year term loan. Outstanding borrowings are collateralized by the
Company's assets and bear interest at the lender's prime rate plus 1.5%
(9.25% at December 31, 1998). The principal amount outstanding was $212,121
and $121,212 at December 31, 1997 and 1998, respectively.
F-12
<PAGE>
FUTURETENSE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999, and for the six months ended June 30, 1998 and
1999, is unaudited
In May 1997, the Company entered into another agreement with the bank under
which it could borrow up to $250,000 for equipment purchases. The agreement
expired on May 14, 1998 at which time all amounts borrowed converted into a
three-year term loan. Outstanding borrowings are collateralized by the
Company's assets and bear interest at the lender's prime rate plus 1.5%
(9.25% at December 31, 1998). The principal amount outstanding is $79,897
and $201,389 at December 31, 1997 and 1998, respectively.
In September 1998, the Company entered into another agreement with the bank
under which it can borrow up to $400,000 for equipment purchases. The
agreement expires in June 1999 at which time all amounts borrowed will
convert into a three-year term loan. Outstanding borrowings are
collateralized by the Company's assets and bear interest at the lender's
prime rate plus 1.25% (9% at December 31, 1998). Monthly payments consist
of interest only until June 1999, at which time, monthly payments will
consist of principal and interest. The principal amount outstanding at
December 31, 1998 is $137,601.
Under the terms of these agreements, the Company is required to comply with
certain restrictive covenants, including the maintenance of certain
financial ratios and limitations on indebtedness, liens, mergers and
payments of dividends. The Company obtained a waiver from the bank that
waived the covenant requirements at December 31, 1997 and 1998. However,
because the Company was not expected to be able to meet the required
liquidity levels throughout 1998, the borrowings under the above agreements
were classified as a current liability in the accompanying balance sheet at
December 31, 1997. The Company expects to meet the required liquidity
levels throughout 1999.
Future principal payments under these agreements are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999................................ $311,843
2000................................ 113,636
2001................................ 34,723
--------
$460,202
========
</TABLE>
F-13
<PAGE>
FUTURETENSE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999, and for the six months ended June 30, 1998 and
1999, is unaudited
8.Redeemable Convertible Preferred Stock
A summary of redeemable convertible preferred stock activity for the years
ended December 31, 1996, 1997, and 1998 and the six months ended June 30,
1999 (unaudited) is as follows:
<TABLE>
<CAPTION>
Series A Series B Series C Series D
redeemable redeemable redeemable redeemable
convertible convertible convertible convertible
preferred stock preferred stock preferred stock preferred stock
------------------ ------------------ ------------------ --------------------
Shares Amount Shares Amount Shares Amount Shares Amount Total
------- ---------- ------- ---------- ------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... -- $ -- -- $ -- -- $ -- -- $ -- $ --
Issuance of Series A re-
deemable convertible
preferred stock,
issuance costs of
$39,726................ 348,733 1,098,508 1,098,508
Conversion of a promis-
sory note into Series A
redeemable
convertible preferred
stock.................. 31,918 100,542 100,542
Issuance of Series D re-
deemable convertible
preferred stock
issuance costs of
$26,385................ 625,430 4,550,003 4,550,003
------- ---------- ------- ---------- ------- ---------- --------- ---------- -----------
Balance at December 31,
1996................... 380,651 1,199,050 625,430 4,550,003 -- -- -- -- 5,749,053
Issuance of Series B re-
deemable convertible
preferred stock........ 128,748 936,642 936,642
------- ---------- ------- ---------- ------- ---------- --------- ---------- -----------
Balance at December 31,
1997................... 380,651 1,199,050 754,178 5,486,645 -- -- -- -- 6,685,695
Issuance of Series C re-
deemable convertible
preferred stock,
issuance costs of
$24,123................ 685,916 5,000,328 5,000,328
Conversion of note pay-
able................... 25,926 189,000 189,000
Insurance of Series D
redeemable convertible
preferred stock, issu-
ance costs of $29,603.. 2,397,524 3,549,774 3,549,774
------- ---------- ------- ---------- ------- ---------- --------- ---------- -----------
Balance at December 31,
1998................... 380,651 1,199,050 754,178 5,486,645 711,842 5,189,328 2,397,524 3,549,774 15,424,797
Issuance of Series D re-
deemable convertible
preferred stock, issu-
ance costs of $5,971... 3,039,313 4,500,008 4,500,008
------- ---------- ------- ---------- ------- ---------- --------- ---------- -----------
Balance at June 30, 1999
(unaudited)............ 380,651 $1,199,050 754,178 $5,486,645 711,842 $5,189,328 5,436,837 $8,049,782 $19,924,805
======= ========== ======= ========== ======= ========== ========= ========== ===========
</TABLE>
Voting Rights
The preferred stockholders are entitled to one vote for each share of
common stock into which the preferred stock is convertible.
Dividends
Series A, Series B, Series C and Series D preferred stockholders are
entitled to receive noncumulative dividends at the rate of $0.32, $0.73,
$0.73 and $.15, respectively, per share per annum when and if declared by
the Board of Directors. No dividends have been declared by the Board of
Directors on Series A, B, C or D preferred stock through December 31, 1998.
F-14
<PAGE>
FUTURETENSE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999, and for the six months ended June 30, 1998 and
1999, is unaudited
Conversion
Each share of Series A, Series B and Series C preferred stock is
convertible at any time and at the option of the stockholder into common
stock based on a formula which currently would result in a 1-for-5
exchange. Each share of Series D preferred stock is convertible at any time
and at the option of the stockholder into common stock based on a formula
which currently would result in a 1-for-1 exchange. Series A, Series B,
Series C and Series D preferred stock automatically converts into common
stock upon the closing of an initial public offering in which net proceeds
equal or exceed $15,000,000 and in which the price per common share to the
public is at least $2.96 per share. As of December 31, 1998, the Company
has 14,670,877 shares of common stock reserved for conversion of the
preferred stock.
Redemption
The Company is required to redeem the Series A, Series B, Series C and
Series D preferred stock at a price equal to $3.15, $7.28, $7.29 and $1.48
per share, respectively, plus any declared but unpaid dividends, in three
equal annual payments of $6,641,602 beginning on February 10, 2002.
Liquidation
In the event of any liquidation, dissolution or winding up of the affairs
of the Company, the holders of the then outstanding shares of Series A,
Series B, Series C and Series D preferred stock are entitled to receive,
prior to and in preference to holders of the common stock, a payment of
$3.15, $7.28, $7.29 and $1.48 per share, respectively, plus any dividends
declared but unpaid.
Right of First Refusal
The holders of the Series A, Series B, Series C and Series D preferred
stock have certain rights of first refusal to purchase common stock from
certain common stockholders.
Subsequent Event
In February 1999, the Company issued an additional 3,039,313 shares of
Series D preferred stock for gross proceeds of approximately $4,500,000.
9. Common Stock
At December 31, 1998, the Company has outstanding 4,434,030 shares of
common stock which are subject to stock restriction agreements (the
"Restriction Agreements"). Pursuant to the Restriction Agreements, the
Company has the right to repurchase any unvested shares of common stock in
the event of termination of employment with cause, as defined, or due to
the stockholder's voluntary resignation with the Company at 25% of the
then-current fair market value of the common stock. Shares subject to the
Restriction Agreements vest quarterly over a five year period commencing in
December 1995, subject to certain acceleration provisions. At December 31,
1998, the aggregate number of unvested common shares is approximately
1,400,000.
During 1996, the Company issued 2,754,650 shares of restricted common stock
to certain employees and consultants. The estimated value of these shares
totaled $110,000, was recorded as deferred compensation and is being
amortized as compensation expense over the vesting period of the restricted
common stock.
F-15
<PAGE>
FUTURETENSE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999, and for the six months ended June 30, 1998 and
1999, is unaudited
In 1997 and in connection with the resignation of one of the founding
stockholders who was party to a Restriction Agreement, the Company
repurchased 700,000 shares of unvested common stock for $20,000. The
difference between the original cost and repurchase price of $19,930 was
recorded as compensation expense.
A five-for-one stock split of the Company's common stock became effective
May 18, 1998. All shares of common stock, options and per share amounts
included in the accompanying financial statements have been adjusted to
give retroactive effect to the stock split for all years presented.
In July 1998, 20,620 shares of unvested restricted stock, granted to a
consultant in 1996, were canceled. The deferred compensation associated
with the grant was not significant at the date of cancellation.
10. Stock Option Plan
In September 1996, the Board of Directors adopted the 1996 Stock Incentive
Plan (the "Plan") under which 3,217,720 shares of common stock are reserved
for issuance to employees, officers, directors and consultants upon the
exercise of options granted under the Plan. The Board of Directors
determines the term of each option, option price, number of shares for
which each option is granted and the rate at which each option is
exercisable. The term of each option generally cannot exceed ten years
(five years for options granted to holders of more than 10% of the voting
stock of the Company). The exercise price of incentive stock options may
not be less than the fair market value of the common stock at the date of
grant (110% of fair market value for options granted to holders of more
than 10% of the voting stock of the Company). Non-qualified stock options
may be issued under the Plan at an option price determined by the Board of
Directors. The Plan also allows the Board of Directors to grant restricted
stock and stock appreciation rights. The Board of Directors determines, and
may modify or accelerate, the terms of restriction on the restricted stock.
Compensation expense recognized in 1996, 1997 and 1998 related to stock-
based awards totaled $27,500, $19,000 and $18,000, respectively. Had
compensation cost been determined based on the fair value of the options at
the grant date consistent with the provisions of SFAS No. 123, the
Company's net loss and net loss per share would have been increased to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss
As reported......................... $(2,583,818) $(4,453,930) $(6,443,357)
Pro forma........................... (2,587,000) (4,470,000) (6,483,000)
Basic and diluted net loss per share
As reported......................... $ (3.24) $ (2.50) $ (2.50)
Pro forma........................... (3.24) (2.51) (2.51)
</TABLE>
Because options vest over several years and additional option grants are
expected to be made in future years, the above pro forma results are not
necessarily representative of pro forma results for future years.
F-16
<PAGE>
FUTURETENSE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999, and for the six months ended June 30, 1998 and
1999, is unaudited
For the purposes of pro forma disclosure, the fair value of each option
grant was estimated on the date of grant using the Black-Scholes option-
pricing model to apply the minimum value method with the following
weighted-average assumptions used for grants made during the years ended
December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
Year ended
December 31,
----------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Expected option term (years)............................... 7 7 7
Risk-free interest rate.................................... 6.40% 6.10% 5.10%
Expected volatility........................................ 0.0% 0.0% 0.0%
Dividend yield............................................. 0.0% 0.0% 0.0%
</TABLE>
A summary of the status of the Company's options as of December 31, 1996,
1997 and 1998 and activity during the years then ended are presented below:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------
1996 1997 1998
------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
-------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ -- $0.20 442,295 $0.20 1,310,970 $0.20
Granted................. 661,185 0.20 974,985 0.20 1,516,515 0.20
Canceled................ (218,890) 0.20 (106,310) 0.20 (497,235) 0.20
-------- ----- --------- ----- --------- -----
Outstanding at end of
year................... 442,295 $0.20 1,310,970 $0.20 2,330,250 $0.20
======== ----- ========= ----- ========= -----
Options available for
grant at end of year... 747,240 906,750 887,470
-------- --------- ---------
Options exercisable..... 46,685 226,375 566,322
-------- --------- ---------
Weighted-average fair
value of options
granted during the
year................... $0.07 $0.07 $0.06
-------- --------- ---------
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------
Weighted-average
Exercise remaining Weighted-average Number Weighted-average
price Number outstanding contractual life exercise price exercisable exercise price
-------- ------------------ ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.20 2,330,250 8.71 $0.20 566,332 $0.20
</TABLE>
From January 1, 1999 to May 1, 1999, FutureTense granted stock options to
purchase 489,500 shares of its common stock with an exercise price of $0.20.
FutureTense recorded deferred compensation expense relating to these options
totaling $696,100, representing the difference between the estimated fair
market value of the common stock on the date of grant for accounting purposes
and the exercise price. Compensation related to options which vest over time
was recorded as a component of stockholders' deficit and is being amortized
over the vesting periods of the related options.
F-17
<PAGE>
FUTURETENSE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 1999, and for the six months ended June 30, 1998 and
1999, is unaudited
11. Income Taxes
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforwards................. $ 2,718,000 $ 5,166,000
Research and development tax credit
carryforwards................................... 130,000 239,000
Intangible assets................................ 191,000 350,000
Other............................................ (11,000) 36,000
----------- -----------
Net deferred tax assets......................... 3,028,000 5,791,000
Deferred tax asset valuation allowance........... (3,028,000) (5,791,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The Company has provided a full valuation allowance for the net deferred
tax assets at December 31, 1997 and 1998 since the realization of these
future benefits cannot be sufficiently assured. If the Company achieves
future probability, these deferred tax assets may be available to offset
future income taxes.
At December 31, 1998, the Company has federal net operating loss
carryforwards and research and development tax credits carryforwards of
approximately $12,548,000 and $156,200, respectively. If not utilized,
these carryforwards will expire at various dates ranging from 2010 to 2018.
Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may result in a limitation on the amount
of net operating loss carryforwards and research and development tax credit
carryforwards which can be used in future years.
12. Commitments
Leases
The Company leases its office space under a non-cancelable operating lease
that expires in 2001. Rent expense for the years ended December 31, 1996,
1997 and 1998 was approximately $50,000, $105,000 and $260,500,
respectively. At December 31, 1998, future minimum rental payments (net of
future sublease rental income of $150,000 for 1999 and $25,000 for 2000)
under the facilities lease and under capital lease agreements (Note 4) are
as follows:
<TABLE>
<CAPTION>
Year ending December 31, Operating lease Capital lease
------------------------ --------------- -------------
<S> <C> <C>
1999......................................... $264,000 $10,882
2000......................................... 264,000 --
2001......................................... 22,000 --
-------- -------
Total........................................ $550,000 10,882
======== -------
Less--amount representing interest........... 172
-------
Present value of future minimum lease
payment..................................... $10,710
=======
</TABLE>
F-18
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
OPEN MARKET, INC.,
OM/SA ACQUISITION CORPORATION
AND
FUTURETENSE, INC.
July 14, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I--THE MERGER..................................................... A-1
1.1 The Merger....................................................... A-1
1.2 The Closing...................................................... A-1
1.3 Actions at the Closing........................................... A-1
1.4 Additional Action................................................ A-1
1.5 Conversion of Shares............................................. A-2
1.6 Dissenting Shares................................................ A-3
1.7 Exchange of Shares............................................... A-3
1.8 Dividends........................................................ A-4
1.9 Fractional Shares................................................ A-4
1.10 Escrow........................................................... A-4
1.11 Options and Warrants............................................. A-5
1.12 Certificate of Incorporation..................................... A-5
1.13 By-laws.......................................................... A-5
1.14 Directors and Officers........................................... A-6
1.15 No Further Rights................................................ A-6
1.16 Closing of Transfer Books........................................ A-6
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. A-7
2.1 Corporate Existence and Power, etc............................... A-7
2.2 Authorization; Binding Agreement................................. A-7
2.3 Capitalization................................................... A-8
2.4 Governmental Authorization; Consents............................. A-8
2.5 Non-Contravention................................................ A-9
2.6 No Subsidiaries.................................................. A-9
2.7 Financial Statements............................................. A-9
2.8 Absence of Certain Changes....................................... A-9
2.9 No Undisclosed Material Liabilities.............................. A-11
2.10 Litigation....................................................... A-11
2.11 Restrictions on Business Activities.............................. A-11
2.12 Taxes............................................................ A-11
2.13 Employee Benefits................................................ A-12
2.14 Material Contracts; Property and Leases.......................... A-14
2.15 Permits.......................................................... A-16
2.16 Insurance........................................................ A-16
2.17 Compliance with Laws............................................. A-16
2.18 Finders' Fees.................................................... A-16
2.19 Intellectual Property............................................ A-16
2.20 Employees and Consultants........................................ A-18
2.21 Environment, Health and Safety................................... A-18
2.22 Accounts Receivable.............................................. A-20
2.23 Powers of Attorney............................................... A-20
2.24 Customers........................................................ A-20
2.25 Suppliers........................................................ A-20
2.26 Acquisitions..................................................... A-20
2.27 Certain Business Relationships With Affiliates................... A-20
2.28 Books and Records................................................ A-20
2.29 Accounting and Tax Matters....................................... A-21
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
2.30 Company Action................................................. A-21
2.31 Government Contracts........................................... A-21
2.32 Disclosure..................................................... A-21
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE
TRANSITORY SUBSIDIARY.................................................. A-22
3.1 Organization................................................... A-22
3.2 Capitalization................................................. A-22
3.3 Authorization of Transaction................................... A-22
3.4 Noncontravention............................................... A-22
3.5 Reports and Financial Statements............................... A-22
3.6 Accounting and Tax Matters..................................... A-23
3.7 Brokers' Fees.................................................. A-23
3.8 Disclosure..................................................... A-23
ARTICLE IV--COVENANTS................................................... A-24
4.1 Best Efforts................................................... A-24
4.2 Notices and Consents........................................... A-24
4.3 Stockholder Approval........................................... A-24
4.4 Hart-Scott-Rodino Act.......................................... A-25
4.5 Operation of Business.......................................... A-25
4.6 Access to Information.......................................... A-27
4.7 Notice of Breaches............................................. A-27
4.8 Exclusivity.................................................... A-27
4.9 Agreement from Certain Affiliates of the Company............... A-27
4.10 Indemnification................................................ A-28
4.11 Listing Merger Shares.......................................... A-28
4.12 Voting Agreements.............................................. A-28
4.13 Existing Voting Agreement...................................... A-28
4.14 Employment Agreements.......................................... A-29
4.15 Section 16..................................................... A-29
4.16 [Intentionally omitted.]....................................... A-29
4.17 Funding Commitment............................................. A-29
4.18 Pooling........................................................ A-29
4.19 Reseller Agreement............................................. A-29
ARTICLE V--CONDITIONS TO CONSUMMATION OF MERGER......................... A-30
5.1 Conditions to Each Party's Obligations......................... A-30
Conditions to Obligations of the Buyer and the Transitory
5.2 Subsidiary..................................................... A-30
5.3 Conditions to Obligations of the Company....................... A-31
ARTICLE VI--INDEMNIFICATION............................................. A-33
6.1 Indemnification by the Company Stockholders.................... A-33
6.2 Indemnification by the Buyer................................... A-33
6.3 Limitations.................................................... A-33
6.4 Indemnification Claims......................................... A-34
6.5 Survival of Representations and Warranties..................... A-36
ARTICLE VII--REGISTRATION RIGHTS........................................ A-37
7.1 Registration of Shares......................................... A-37
7.2 Registration Procedures........................................ A-38
7.3 Requirements of Resale Company Stockholders.................... A-39
7.4 Indemnification................................................ A-39
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
7.5 Rule 144........................................................ A-39
7.6 Assignment of Rights............................................ A-39
ARTICLE VIII--TERMINATION................................................. A-40
8.1 Termination of Agreement........................................ A-40
8.2 Effect of Termination........................................... A-40
ARTICLE IX--DEFINITIONS................................................... A-41
ARTICLE X--MISCELLANEOUS.................................................. A-44
10.1 Press Releases and Announcements................................ A-45
10.2 No Third Party Beneficiaries.................................... A-45
10.3 Entire Agreement................................................ A-45
10.4 Succession and Assignment....................................... A-45
10.5 Counterparts.................................................... A-45
10.6 Headings........................................................ A-45
10.7 Notices......................................................... A-45
10.8 Governing Law................................................... A-45
10.9 Amendments and Waivers.......................................... A-45
10.10 Severability.................................................... A-45
10.11 Specific Performance............................................ A-45
10.12 Submission to Jurisdiction...................................... A-46
10.13 Construction.................................................... A-46
10.14 Incorporation of Exhibits and Schedules......................... A-46
</TABLE>
EXHIBITS
<TABLE>
<CAPTION>
<C> <C> <S>
Exhibit A -- Escrow Agreement
Exhibit B-1 -- Affiliate's Agreement (Company Affiliates)
Exhibit B-2 -- Affiliate's Agreement (Buyer Affiliates)
Exhibit C-1 -- Company Voting Agreement
Exhibit C-2 -- Buyer Voting Agreement
Exhibit D-1 -- Silicon Valley Bank Financing Proposal
Exhibit D-2 -- Form of Bridge Loan Letter Agreement
Exhibit E -- Form of Opinion of Counsel to the Company
Exhibit F -- Form of Hale and Dorr LLP Tax Opinion
Exhibit G -- Form of Certificate of the Buyer
Exhibit H -- Form of Certificate of the Company
Exhibit I -- Form of Opinion of Counsel to the Buyer
Exhibit J -- Form of Testa, Hurwitz & Thibeault, LLP Tax Opinion
</TABLE>
-iii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger entered into as of July 14, 1999 by and among
Open Market, Inc., a Delaware corporation (the "Buyer"), OM/SA Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of the Buyer
(the "Transitory Subsidiary"), and FutureTense, Inc., a Delaware corporation
(the "Company"). The Buyer, the Transitory Subsidiary and the Company are
referred to collectively herein as the "Parties."
This Agreement contemplates a merger of the Transitory Subsidiary into the
Company in a transaction that is intended to qualify for federal tax purposes
as a reorganization under Section 368 of the Code (as defined below) and for
accounting purposes as a "pooling of interests" pursuant to Accounting
Principles Bulletin Opinion No. 16. In such merger, the stockholders of the
Company will receive capital stock of the Buyer in exchange for their capital
stock of the Company.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
Agreement, the Transitory Subsidiary shall merge with and into the Company
(with such merger referred to herein as the "Merger") at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"). The "Effective Time" shall be the time at which the Company and
the Transitory Subsidiary shall file the certificate of merger or other
appropriate documents prepared and executed in accordance with Section 251(c)
of the Delaware General Corporation Law (the "Certificate of Merger") with the
Secretary of State of the State of Delaware. The Merger shall have the effects
set forth in Section 259 of the Delaware General Corporation Law.
1.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hale and Dorr LLP,
60 State Street, Boston, Massachusetts, commencing at 9:00 a.m. local time on
the third business day after all of the conditions to the obligations of the
Parties to consummate the transactions contemplated hereby have been satisfied
or waived by such date by the Party or Parties entitled to the benefit of such
conditions, or at such other time and date as the Parties shall agree (the
"Closing Date").
1.3 Actions at the Closing. At the Closing, (a) the Company shall deliver to
the Buyer and the Transitory Subsidiary the various certificates, instruments
and documents referred to in Section 5.2, (b) the Buyer and the Transitory
Subsidiary shall deliver to the Company the various certificates, instruments
and documents referred to in Section 5.3, (c) the Company and the Transitory
Subsidiary shall file with the Secretary of State of the State of Delaware the
Certificate of Merger, (d) the Buyer shall deliver certificates for the Initial
Shares (as defined below) to the stockholders of the Company in accordance with
Section 1.7 and (e) the Buyer, the Indemnification Representative (as defined
therein) and the Escrow Agent (as defined therein) shall execute and deliver an
Escrow Agreement substantially in the form attached hereto as Exhibit A (the
"Escrow Agreement") and the Buyer shall deliver to the Escrow Agent a
certificate for the Escrow Shares (as defined below) being placed in escrow on
the Closing Date pursuant to Section 1.10.
1.4 Additional Action. The Surviving Corporation may, at any time after the
Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
<PAGE>
1.5 Conversion of Shares. At the Effective Time, by virtue of the Merger and
without any action on the part of any Party or the holder of any of the
following securities:
(a) Each share of common stock, $.0002 par value per share, of the
Company ("Common Shares") issued and outstanding immediately prior to the
Effective Time (other than Company Shares owned beneficially by the Buyer
or the Transitory Subsidiary, Dissenting Shares (as defined below) and
Company Shares held in the Company's treasury) shall be converted into and
represent the right to receive (subject to the provisions of Section 1.10)
such number of shares of common stock, $.001 par value per share, of the
Buyer ("Buyer Common Stock") as is equal to the Common Conversion Ratio (as
defined below) for such share.
(b) Each share of the Company's Series A Preferred Stock, $.001 par
value per share (the "Series A Preferred Stock"), Series B Preferred Stock,
$.001 par value per share (the Series B Preferred Stock"), Series C
Preferred Stock, $.001 par value per share (the "Series C Preferred
Stock"), and Series D Preferred Stock, $.001 par value per share (the
"Series D Preferred Stock", and together with the Series A Preferred Stock,
the Series B Preferred and the Series C Preferred Stock, the "Preferred
Shares"; and, together with the Common Shares, the "Company Shares") issued
and outstanding immediately prior to the Effective Time (other than
Preferred Shares owned beneficially by the Buyer or the Transitory
Subsidiary, Dissenting Shares and Preferred Shares held in the Company's
treasury) shall be converted into and represent the right to receive
(subject to the provisions of Section 1.10) such number of shares of Buyer
Common Stock as is equal to the Preferred Conversion Ratio (as defined
below) for such share.
(c) The "Common Conversion Ratio" shall initially be the result obtained
by (i) dividing the difference between (1) the sum of $125,000,000 and the
aggregate amount receivable by the Company upon the exercise of outstanding
Options (the "Purchase Price") and (2) the Deductible Obligations (as
defined below), by (ii) $14.7064, and then dividing such quotient by the
sum of (x) the number of Common Shares issued and outstanding, (y) the
number of Company Shares issuable upon exercise of outstanding Options (as
defined below) and Warrants (as defined below) (but only those Warrants
that are not included in the Deductible Obligations) whether vested,
unvested or subject to repurchase by the Company following such exercise
and (z) the number of Common Shares issuable upon conversion of the
Preferred Shares, all of which will be determined immediately prior to the
Effective Time. The "Preferred Conversion Ratio" for each share of
Preferred Stock shall be the result obtained by multiplying the Common
Conversion Ratio by the number of Common Shares into which each Preferred
Share is convertible immediately prior to the Effective Time. Each of the
Common Conversion Ratio and the Preferred Conversion Ratio shall be subject
to equitable adjustment in the event of any stock split, stock dividend,
reverse stock split or similar event affecting the Buyer Common Stock
between the date of this Agreement and the Effective Time. Stockholders of
record of the Company (the "Company Stockholders") shall be entitled to
receive immediately 90% of the shares of Buyer Common Stock into which
their Company Shares were converted pursuant to this Section 1.5(c) (the
"Initial Shares"); the remaining 10% of the shares of Buyer Common Stock
into which their Company Shares were converted pursuant to this Section
1.5(c) (the "Escrow Shares") shall be deposited in escrow pursuant to
Section 1.10 and shall be held and disposed of in accordance with the terms
of the Escrow Agreement. The Initial Shares and the Escrow Shares shall
together be referred to herein as the "Merger Shares." As used in this
Agreement, the "Deductible Obligations" means the sum, immediately prior to
the Effective Time, of certain amounts paid or to be paid by the Company in
connection with the Merger, the preparation of the S-4 Registration
Statement (as defined below) and the transactions contemplated hereby,
including (v) the fees and expenses of R.S. Cheheyl, (w) all legal fees
(including those of Testa, Hurwitz & Thibeault, LLP), (x) all accounting
fees (including those of PricewaterhouseCoopers LLP), (y) the amount of any
indebtedness incurred after June 30, 1999 and before December 31, 1999
outstanding at the Closing (i) decreased by any increase, if any, in the
amount of Net Current Assets (as defined below) of the Company from June
30, 1999 to December 31, 1999 (or if earlier, the Closing Date) or (ii)
increased by any decrease, if any, in the amount of Net Current Assets of
the Company from June 30, 1999 to December 31, 1999 (or if earlier, the
Closing Date), and (z) the amount payable in respect of any
A-2
<PAGE>
outstanding Warrant (to the extent such warrant is payable in cash upon
consummation of the Merger and not exercisable into Company Shares). "Net
Current Assets" shall mean (x) the sum of (i) cash, (ii) accounts
receivable, (iii) prepaid expenses and (iv) all other current assets minus
(y) the sum of (i) accounts payable, (ii) accrued expenses, (iii) deferred
revenues and (iv) all other current liabilities (excluding the indebtedness
referred to in clause (y) above). Notwithstanding the foregoing, the Buyer
shall pay the expenses of printing the S-4 Registration Statement.
(d) Each Company Share held in the Company's treasury immediately prior
to the Effective Time and each Company Share owned beneficially by the
Buyer or the Transitory Subsidiary shall be cancelled and retired without
payment of any consideration therefor.
(e) Each share of common stock, $.001 par value per share, of the
Transitory Subsidiary issued and outstanding immediately prior to the
Effective Time shall be converted into and thereafter evidence 100 shares
of common stock, $.001 par value per share, of the Surviving Corporation.
1.6 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares" means Company Shares
held as of the Effective Time by a Company Stockholder who has not voted such
Company Shares in favor of the adoption of this Agreement and the Merger and
with respect to which appraisal shall have been duly demanded and perfected in
accordance with Section 262 of the Delaware General Corporation Law and not
effectively withdrawn or forfeited prior to the Effective Time. Notwithstanding
Section 1.5(a) above, Dissenting Shares shall not be converted into or
represent the right to receive Merger Shares, unless such Company Stockholder
shall have forfeited his or her right to appraisal under the Delaware General
Corporation Law or properly withdrawn his, her or its demand for appraisal. If
such Company Stockholder has so forfeited or withdrawn his, her or its right to
appraisal of Dissenting Shares, then (i) as of the occurrence of such event,
such holder's Dissenting Shares shall cease to be Dissenting Shares and shall
be converted into and represent the right to receive the Merger Shares issuable
in respect of such Company Shares pursuant to Section 1.5(a), and (ii) promptly
following the occurrence of such event, the Buyer shall deliver to such Company
Stockholder a certificate representing 90% of the Merger Shares to which such
holder is entitled pursuant to Section 1.5(a) (which shares shall be considered
Initial Shares for all purposes of this Agreement) and shall deliver to the
Escrow Agent a certificate representing the remaining 10% of the Merger Shares
to which such holder is entitled pursuant to Section 1.5(a) (which shares shall
be considered Escrow Shares for all purposes of this Agreement).
(b) The Company shall give the Buyer (i) prompt notice of any written
demands for appraisal of any Company Shares, withdrawals of such demands, and
any other instruments that relate to such demands received by the Company and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the Delaware General Corporation Law. The Company
shall not, except with the prior written consent of the Buyer, make any payment
with respect to any demands for appraisal of Company Shares or offer to settle
or settle any such demands.
1.7 Exchange of Shares.
(a) Prior to the Effective Time, the Buyer shall send a notice and a
transmittal form to each holder of a certificate representing Company Shares (a
"Certificate") advising such holder of the anticipated effectiveness of the
Merger and the procedure for surrendering to the Company such Certificate in
exchange for the Initial Shares issuable. Such transmittal form shall include
such representations and certifications as are customary. Each holder of a
Certificate, upon proper surrender thereof to the Company in accordance with
the instructions in such notice, shall be entitled to receive in exchange
therefor the Initial Shares issuable. Until properly surrendered, each such
Certificate shall be deemed for all purposes to evidence only the right to
receive the Initial Shares issuable pursuant to Section 1.5(a). Holders of
Certificates shall not be entitled to receive certificates for the Initial
Shares to which they would otherwise be entitled until such Certificates are
properly surrendered.
A-3
<PAGE>
(b) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed, the Buyer shall issue in exchange
for such lost, stolen or destroyed Certificate the Initial Shares issuable in
exchange therefor pursuant to Section 1.5(a). The Board of Directors of the
Buyer may, in its reasonable discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
Certificate to give the Buyer a bond in such sum as it may direct as indemnity
against any claim that may be made against the Buyer with respect to the
Certificate alleged to have been lost, stolen or destroyed.
(c) Certificates representing the Merger Shares which are not registered on
the Buyer's S-4 Registration Statement (as defined below) shall contain a
legend substantially in the following form together with any other legends
required by applicable state securities laws:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold,
transferred or otherwise disposed of in the absence of an effective
registration statement under such Act or an opinion of counsel satisfactory
to the corporation to the effect that such registration is not required."
1.8 Dividends. No dividends or other distributions that are payable to the
holders of record of Buyer Common Stock as of a date on or after the Closing
Date shall be paid to former Company Stockholders entitled by reason of the
Merger to receive Initial Shares until such holders surrender their
Certificates in accordance with Section 1.7. Upon such surrender, the Buyer
shall pay or deliver to the persons in whose name the certificates representing
such Initial Shares are issued any dividends or other distributions that are
payable to the holders of record of Buyer Common Stock as of a date on or after
the Closing Date and which were paid or delivered between the Effective Time
and the time of such surrender; provided that no such person shall be entitled
to receive any interest on such dividends or other distributions.
1.9 Fractional Shares. No certificates or scrip representing fractional
Initial Shares shall be issued to former Company Stockholders upon the
surrender for exchange of Certificates, and such former Company Stockholders
shall not be entitled to any voting rights, rights to receive any dividends or
distributions or other rights as a stockholder of the Buyer with respect to any
fractional Initial Shares that would otherwise be issued to such former Company
Stockholders. In lieu of any fractional Initial Shares that would otherwise be
issued, each former Company Stockholder that would have been entitled to
receive a fractional Initial Share shall, upon proper surrender of such
person's Certificates, receive a cash payment equal to the closing price per
share of the Buyer Common Stock on the Nasdaq National Market, as reported by
Nasdaq, on the business day immediately preceding the Closing Date, multiplied
by the fraction of a share that such Company Stockholder would otherwise be
entitled to receive.
1.10 Escrow.
(a) On the Closing Date, the Buyer shall deliver to the Escrow Agent a
certificate (issued in the name of the Escrow Agent or its nominee)
representing the Escrow Shares, as described in Section 1.5(a), for the purpose
of securing the post-closing adjustments and other indemnification obligations
of the Company Stockholders set forth in this Agreement. The Escrow Shares
shall be held by the Escrow Agent under the Escrow Agreement pursuant to the
terms thereof. The Escrow Shares shall be held as a trust fund and shall not be
subject to any lien, attachment, trustee process or any other judicial process
of any creditor of any party, and shall be held and disbursed solely for the
purposes and in accordance with the terms of the Escrow Agreement.
(b) The adoption of this Agreement and the approval of the Merger by the
Company Stockholders shall constitute approval of the indemnification
provisions included in Section 6 of this Agreement and of the Escrow Agreement
and of all of the arrangements relating thereto, including without limitation
the placement of the Escrow Shares in escrow and the appointment of the
Indemnification Representative.
A-4
<PAGE>
1.11 Options and Warrants.
(a) As of the Effective Time, all options to purchase Common Shares issued
by the Company ("Options"), whether vested or unvested, shall be assumed by the
Buyer. Immediately after the Effective Time, each Option outstanding
immediately prior to the Effective Time shall be deemed to constitute an option
to acquire, on the same terms and conditions as were applicable under such
Option at the Effective Time (taking into account any acceleration of
exercisability due to the Merger), such number of shares of Buyer Common Stock
as is equal to the number of Common Shares subject to the unexercised portion
of such Option multiplied by the Common Conversion Ratio (with any fraction
resulting from such multiplication to be rounded down to the next lowest whole
number). The exercise price per share of each such assumed Option shall be
equal to the exercise price of such Option immediately prior to the Effective
Time, divided by the Common Conversion Ratio (with any fraction of a cent
resulting from such division to be rounded up to the next highest whole cent).
The term, exercisability, vesting schedule (taking into account any
acceleration of exercisability due to the Merger), repurchase provisions,
status as an "incentive stock option" under Section 422 of the Internal Revenue
Code of 1986 (as amended, the "Code"), if applicable, and all of the other
terms of the Options shall otherwise remain unchanged.
(b) As soon as practicable after the Effective Time, the Buyer or the
Surviving Corporation shall deliver to the holders of Options appropriate
notices setting forth such holders' rights pursuant to such Options, as amended
by this Section 1.11, and the agreements evidencing such Options shall continue
in effect on the same terms and conditions (subject to any acceleration of
exercisability due to the Merger).
(c) The Buyer shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Buyer Common Stock for delivery upon
exercise of the Options assumed in accordance with this Section 1.11. As soon
as practicable after the Effective Time and in any event within seven (7) days
thereof, the Buyer shall file a Registration Statement on Form S-8 (or any
successor form) under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to all shares of Buyer Common Stock subject to such Options
that may be registered on a Form S-8, and shall use its best efforts (as
defined below) to maintain the effectiveness of such Registration Statement for
so long as such Options remain outstanding. As used in this Agreement, "best
efforts" of any person shall mean and refer to the use of commercially
reasonable efforts of such person under the circumstances and shall not require
the expenditure of money other than for the fees and expenses of professional
advisors.
(d) As of the Effective Time, all warrants to purchase Company Shares issued
by the Company ("Warrants"), shall be assumed by the Buyer. Immediately after
the Effective Time, each Warrant outstanding immediately prior to the Effective
Time shall be deemed to constitute a warrant to acquire, on the same terms and
conditions as were applicable under such Warrant at the Effective Time, such
number of shares of Buyer Common Stock as is equal to the number of Common
Shares or Preferred Shares subject to the unexercised portion of such Warrant
multiplied by the Common Conversion Ratio or the Preferred Conversion Ratio,
respectively (with any fraction resulting from such multiplication to be
rounded down to the next lowest whole number). The exercise price per share of
each such assumed Warrant shall be equal to the exercise price of such Warrant
immediately prior to the Effective Time, divided by the Common Conversion Ratio
or the Preferred Conversion Ratio, as applicable (with any fraction of a cent
resulting from such division to be rounded up to the next highest whole cent).
The term, exercisability and all of the other terms of the Warrants shall
otherwise remain unchanged.
1.12 Certificate of Incorporation. The Certificate of Incorporation of the
Surviving Corporation immediately following the Effective Time shall be the
same as the Certificate of Incorporation of the Transitory Subsidiary
immediately prior to the Effective Time, except that (a) the name of the
corporation set forth therein shall be changed to the name of the Company and
(b) the identity of the incorporators shall be deleted.
1.13 By-laws. The By-laws of the Surviving Corporation immediately following
the Effective Time shall be the same as the By-laws of the Transitory
Subsidiary immediately prior to the Effective Time, except that the name of the
corporation set forth therein shall be changed to the name of the Company.
A-5
<PAGE>
1.14 Directors and Officers. The directors and officers of the Transitory
Subsidiary shall become the directors and officers of the Surviving Corporation
as of the Effective Time.
1.15 No Further Rights. From and after the Effective Time, no Company Shares
shall be deemed to be outstanding, and holders of Certificates shall cease to
have any rights with respect thereto, except as provided herein or by law.
1.16 Closing of Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Company Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Surviving Corporation, they shall be cancelled and exchanged for Initial
Shares in accordance with Section 1.5(a), subject to Section 1.10 and to
applicable law in the case of Dissenting Shares.
A-6
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer and the Transitory
Subsidiary that the statements contained in this Article II are true and
correct, except as set forth in the Disclosure Schedule attached hereto (the
"Disclosure Schedule"). The Disclosure Schedule shall be initialed by the
Parties and shall be arranged in section and paragraphs corresponding to the
numbered and lettered sections and paragraphs contained in this Article II, and
the disclosures in any paragraph of the Disclosure Schedule shall also qualify
other sections or paragraphs in this Article II only to the extent it is clear
from a reading of the disclosure that such disclosure is applicable to such
other sections or paragraphs.
2.1 Corporate Existence and Power, etc. The Company is a corporation duly
organized, validly existing and in corporate and tax good standing under the
laws of its jurisdiction of organization and has all requisite corporate power
and authority to own or lease its properties and to carry on its business as
now conducted. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the character
of the properties owned or leased by it or the nature of its activities makes
such qualification necessary except where the failure to be qualified would not
have a Material Adverse Effect (as defined below). The Company has made
available to the Buyer true and complete copies of its Certificate of
Incorporation and By-laws, each as amended and in effect on the date hereof.
The Company is not in default under or in violation of any provisions of its
Certificate of Incorporation or By-laws.
As used in this Agreement, the term "Material Adverse Effect" means a
material adverse effect on the business, financial condition, properties,
results of operation or prospects of the Company, provided, however, that
neither of the following shall be deemed by itself or by themselves, either
alone or in combination, to constitute a Material Adverse Effect on the
Company: (a) any change arising out of conditions affecting the economy or
industry of the Company in general which does not affect the Company in a
materially disproportionate manner relative to other participants in the
economy or such industry, respectively, or (b) with respect to the Company,
employee attrition which is primarily attributable to the announcement of the
execution of this Agreement and the transactions contemplated hereby. A
Material Adverse Effect will be deemed to exist if the "effect" results in or
could reasonably be expected to result in a liability or reduction in value of
the Company's assets in excess of $100,000.
As used in this Agreement, the term "Closing Material Adverse Effect" means
a material adverse effect on the business, financial condition, properties,
results of operation or prospects of the Company, provided, however, that
neither of the following shall be deemed by itself or by themselves, either
alone or in combination, to constitute a Closing Material Adverse Effect on the
Company: (a) any change arising out of conditions affecting the economy or
industry of the Company in general which does not affect the Company in a
materially disproportionate manner relative to other participants in the
economy or such industry, respectively, or (b) with respect to the Company,
employee attrition which is primarily attributable to the announcement of the
execution of this Agreement and the transactions contemplated hereby. A Closing
Material Adverse Effect will be deemed to exist if the "effect" results in or
could reasonably be expected to result in a liability or reduction in value of
the Company's assets in excess of $750,000.
2.2 Authorization; Binding Agreement. The Company has all requisite
corporate power and authority to execute and deliver this Agreement and the
agreements and instruments attached as exhibits hereto or otherwise
contemplated hereby and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, including the Merger, have been duly and
validly authorized by the Company's Board of Directors, and no other corporate
proceedings on the part of the Company are necessary to authorize the execution
and delivery of this Agreement or to consummate the transactions contemplated
hereby (other than the adoption of this Agreement by stockholders entitled to
vote on this Agreement and the Merger holding a majority of votes represented
by the outstanding Company Shares, 75% of the votes represented by the
outstanding Preferred Shares voting together with the outstanding Common
Shares, a majority of the votes represented by the outstanding Series C
Preferred Stock,
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<PAGE>
voting as a separate class, and a majority of the votes represented by the
outstanding Series D Preferred Stock, voting as a separate class (the
"Requisite Stockholder Approval")). This Agreement has been duly and validly
executed and delivered by the Company and constitutes the legal, valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except to the extent that enforceability thereof may be limited
by applicable bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by principles of
equity regarding the availability of remedies ("Enforceability Exceptions").
2.3 Capitalization. The authorized capital stock of the Company consists of
(a) 25,000,000 shares of Common Shares, of which, as of the date of this
Agreement, (i) 4,442,468 shares are issued and outstanding and (ii) no shares
are held in the treasury of the Company, and (b) 380,651 shares of Series A
Preferred Stock, all of which are issued and outstanding, (c) 754,178 shares of
Series B Preferred Stock, all of which are issued and outstanding, (d) 711,979
shares of Series C Preferred Stock, of which 711,842 shares are issued and
outstanding, and (e) 5,436,837 shares of Series D Preferred Stock, all of which
are issued and outstanding. Section 2.3 of the Disclosure Schedule sets forth a
complete and accurate list of (i) all the Company Stockholders, indicating the
number and class or series of Company Shares held by each stockholder and (for
Company Shares other than Common Shares) the number of Common Shares (if any)
into which such Company Shares are convertible, (ii) all outstanding Options
and Warrants, indicating (A) the holder thereof, (B) the number and class or
series of Company Shares subject to each Option and Warrant and (for Company
Shares other than Common Shares) the number of Common Shares (if any) into
which such Company Shares are convertible, (C) the exercise price, date of
grant, vesting schedule and expiration date for each Option or Warrant, and (D)
any terms regarding the acceleration of vesting, and (iii) all stock option
plans and other stock or equity-related plans of the Company. All issued and
outstanding Company Shares have been, and all Company Shares that may be issued
upon exercise of Options or Warrants will be (upon issuance in accordance with
their terms), duly authorized and validly issued and are fully paid and
nonassessable, with no personal liability attaching to the ownership thereof.
Other than the Options and Warrants listed in Section 2.3 of the Disclosure
Schedule, there are no outstanding (i) securities of the Company convertible
into or exchangeable for capital stock of or other ownership interests in the
Company, (ii) options, warrants or other rights (including preemptive rights)
to acquire from the Company, and other obligations of the Company to issue,
capital stock of or other ownership interests in, or securities convertible
into or exchangeable for capital stock of or other ownership interests in, the
Company and (iii) obligations of the Company to purchase, redeem or otherwise
acquire any shares of capital stock of the Company. Except as set forth in
Section 2.3 of the Disclosure Schedule, there are no agreements, voting trusts,
proxies or understandings with respect to the voting or registration under the
Securities Act of any Company Shares. No stockholder of the Company has
initiated any claim against the Company nor to the knowledge of the Company do
any grounds exist for making any claim.
2.4 Governmental Authorization; Consents.
(a) The execution, delivery and performance of this Agreement by the Company
and the consummation of the Merger require no action by or in respect of, or
filing by the Company with, any court, arbitrational tribunal, governmental
body, agency, commission, official or other governmental or regulatory
authority or agency ("Governmental Entity"), other than compliance with any
applicable requirements of the Securities Act and any applicable state
securities laws, the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the filing of the Certificate of Merger as
provided in Section 1.1 hereof.
(b) Except as set forth in Section 2.4 of the Disclosure Schedule, no
consent, approval, waiver or other action by any individual, corporation,
partnership, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof
("Person") (other than the Governmental Entities referred to in paragraph (a)
above) under any contract, agreement, indenture, instrument of indebtedness,
agreement or mortgage for borrowed money, lease, sublease, license, sublicense,
franchise, or other instrument to which the Company is a party or by which any
of them is bound is necessary for the
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execution, delivery and performance of this Agreement by the Company, other
than (i) any thereof required pursuant to the agreements and instruments
referred to in item (a)(vi) in Section 2.15 of the Disclosure Schedule (the
"Bank Agreements") and (ii) such other consents, approvals, waivers or other
actions the absence of which would not, in the aggregate, have a Material
Adverse Effect with respect to the Company.
2.5 Non-Contravention. Assuming compliance with the matters referred to in
Section 2.4(a) hereof, the execution, delivery and performance of this
Agreement by the Company and the consummation of the Merger do not and will not
(i) conflict with or violate any provision of the Certificate of Incorporation
or By-laws of the Company, (ii) require on the part of the Company any filing
with, or any permit, authorization, consent or approval of any Governmental
Entity, (iii) violate any provision of applicable law or regulation or any
judgment, injunction, order, decree or award binding upon the Company or
affecting any of its assets or properties or (iv) except as set forth on
Section 2.5 of the Disclosure Schedule, conflict with, contravene or constitute
a default under, or result in the creation or imposition of any Lien (as
defined below) on any asset of the Company or give rise to a right of
termination, cancellation, modification, or acceleration of any obligation of
the Company under any contract, agreement, indenture, lease, sublease, license,
sublicense, franchise or other instrument binding upon the Company, or
affecting any of its assets or properties which would, in the aggregate, have a
Material Adverse Effect with respect to the Company. As used in this Agreement,
the term "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or other encumbrance of any kind in respect of such
asset (whether arising by contract or by operation of law).
2.6 No Subsidiaries. The Company does not have any subsidiaries. There is no
corporation, partnership, joint venture or other entity in which the Company
has, directly or indirectly, any equity interest.
2.7 Financial Statements. The Company has previously furnished to the Buyer
complete and accurate copies, as amended or supplemented, of (i) the audited
balance sheets of the Company as of December 31, 1998, 1997 and 1996, together
with the related audited statements of operations, stockholders' equity and
cash flows for such fiscal years and the notes thereto, accompanied by the
report thereon of PricewaterhouseCoopers LLP, independent auditors (the "Annual
Financial Statements"), (ii) the unaudited balance sheet of the Company as of
May 31, 1999 and the related unaudited statements of operations and cash flows
for the five-month fiscal period ended on such date, certified by the chief
financial officer on behalf of the Company (the "Interim Financial Statements",
and together with the Annual Financial Statements, the "Financial Statements").
The Financial Statements have been prepared in accordance with United States
generally accepted accounting principles ("GAAP") and present fairly the
financial position, and the results of operations and cash flows for the
Company as of and for the respective dates thereof and for the periods referred
to therein (subject, in the case of the Interim Financial Statements, to normal
recurring adjustments and to the inclusion of certain notes not required in
interim financial statements in conformity with GAAP).
2.8 Absence of Certain Changes.
(a) Except as set forth in the Financial Statements or in Section 2.8 of the
Disclosure Schedule, or as contemplated by this Agreement, since December 31,
1998, the Company has conducted its business in the ordinary course consistent
with past custom and practice ("Ordinary Course of Business") and there has not
been, and the Company has not agreed or committed that there shall be:
(i) any events that, individually or in the aggregate, have had or could
reasonably be expected to have a Material Adverse Effect with respect to
the Company;
(ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company;
(iii) any alteration of any outstanding security of the Company;
(iv) any incurrence, assumption or guarantee by the Company of any
indebtedness for borrowed money, other than in the Ordinary Course of
Business pursuant to the Bank Agreements;
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(v) any creation or assumption by the Company of any Lien on any
material asset other than pursuant to the Bank Agreements;
(vi) any making of any loan, guarantee, advance or capital contribution
to or investment in any Person other than (1) short-term investments in the
Ordinary Course of Business, or (2) travel, salary or other like advances
to officers or employees in the Ordinary Course of Business;
(vii) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company;
(viii) any transaction or commitment made, or any contract or agreement
entered into, by the Company relating to its assets or business (including
the acquisition or disposition of any substantial assets) or any
relinquishment by the Company of any contract or other right, in any such
case material to the Company taken as a whole, other than transactions or
commitments in the Ordinary Course of Business;
(ix) any change in any method of accounting or accounting practice by
the Company, except for any such change required by reason of a concurrent
change in GAAP;
(x) any grant of any severance or termination pay to any officer or
employee of the Company other than in the Ordinary Course of Business
pursuant to a Company policy described in Section 2.8(a) of the Disclosure
Schedule, any entering into of any employment, deferred compensation or
other similar agreement (or any amendment to any such existing agreement)
with any officer, director or employee of the Company or any increase in
benefits payable under any existing severance or termination pay policies
or employment agreements, or any increase in compensation, bonus or other
benefits payable to officers, directors or employees of the Company, other
than such increases in the Ordinary Course of Business;
(xi) any payment of any obligation or liability other than in the
Ordinary Course of Business;
(xii) any amendment, termination, taking or failure to take any action
that would constitute a violation of or default under, or a waiver of any
rights under, any contract or agreement listed in Section 2.14 of the
Disclosure Schedule;
(xiii) any making or commitment to make capital expenditures in excess
of $650,000 in the aggregate;
(xiv) any failure to take any action necessary to preserve the validity
of any Intellectual Property or Permit (each as defined below) that could
reasonably be expected to have a Material Adverse Effect on the Company;
(xv) any labor dispute, other than routine grievances, or any activity
or proceeding by a labor union or representative thereof to organize
employees of the Company, which employees were not subject to a collective
bargaining agreement at December 31, 1998, or any lockout, strike,
slowdown, work stoppage or, to the knowledge of the Company, threat thereof
by or with respect to a significant number of employees of the Company;
(xvi) any change in the Company's relationship with any independent
contractor, customer, or supplier that could reasonably be expected to have
a Material Adverse Effect on the Company;
(xvii) any amendment of the Certificate of Incorporation or By-laws of
the Company;
(xviii) any claim or dispute between the Company and any stockholder
thereof; or
(xix) any material election with respect to Taxes (as defined below).
(b) Since December 31, 1998, except as set forth on Section 2.8(b) of the
Disclosure Schedule, there has not been:
(i) any change in the number of outstanding shares of the capital stock
of or other ownership interests in or the capitalization of the Company,
whether by reason of a reclassification, recapitalization, stock split or
combination, exchange or readjustment of shares, stock dividend or
otherwise, other than any issuance of additional shares of the Common Stock
upon the exercise of Options outstanding; or
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(ii) any purchase, redemption or other acquisition by the Company of any
outstanding shares of capital stock of or other ownership interests in the
Company.
2.9 No Undisclosed Material Liabilities. Except as set forth in Section 2.9
of the Disclosure Schedule, the Company has no liability or obligation (whether
known or unknown, whether accrued or unaccrued, whether due or to become due or
otherwise) except for (a) liabilities shown on the Interim Financial
Statements, (b) liabilities which have arisen since May 31, 1999 in the
Ordinary Course of Business and are similar generally in nature to the
liabilities which arose during the comparable period of the immediately
preceding financial period and (c) liabilities incurred in the Ordinary Course
of Business which are not required by GAAP to be reflected on the Interim
Financial Statements and which in the aggregate do not exceed $100,000.
2.10 Litigation. Except as set forth in Section 2.10 of the Disclosure
Schedule, there is no (a) unsatisfied judgment, order, decree or injunction or
(b) claim, complaint, action, suit, investigation, hearing or proceeding
pending, or to the knowledge of the Company threatened, by or against the
Company or any of its properties or assets, or to which the Company or any of
its properties or assets is a party, before or by any Governmental Entity or
arbitrator. None of the complaints, actions, suits, investigations, hearings or
proceedings described in Section 2.10 of the Disclosure Schedule could have a
Material Adverse Effect.
2.11 Restrictions on Business Activities. There is no judgment, injunction,
order, decree, agreement or instrument binding upon the Company that has or may
reasonably be expected to have the effect of prohibiting any material business
practice of the Company or restricting the conduct of business by the Company.
2.12 Taxes.
(a) Except as set forth on Section 2.12(a) of the Disclosure Schedule, the
Company has filed all material Tax Returns (as defined below) that it was
required to file, and all such Tax Returns were correct and complete in all
material respects. The Company has paid all Taxes that were shown to be due on
any Tax Returns. The unpaid Taxes of the Company for tax periods through the
date of the balance sheet included in the Interim Financial Statements do not
exceed the accruals and reserves for Taxes set forth on the Interim Financial
Statements (exclusive of any accruals for "deferred taxes" or similar items
that reflect timing differences between Tax and financial accounting
principles). All Taxes that the Company is or was required by law to withhold
or collect have been duly withheld or collected and, to the extent required,
have been paid to the proper Governmental Entity. For purposes of this
Agreement, "Taxes" means all taxes, charges, fees, levies or other similar
assessments or liabilities, including without limitation income, gross
receipts, ad valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, payroll and franchise
taxes and charges imposed by the United States of America or any state, local
or foreign government, or any agency thereof, or other political subdivision of
the United States or any such government, and any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or incurred in
connection with any tax or any contest or dispute thereof. For purposes of this
Agreement, "Tax Returns" means all reports, returns, declarations, statements
or other information required to be supplied to a taxing authority in
connection with Taxes.
(b) The Company has delivered to the Buyer correct and complete copies of
all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Company since December 31,
1995.
(c) The federal income Tax Returns of the Company have not been audited by
the Internal Revenue Service. No examination or audit of any Tax Return of the
Company by any Governmental Entity is currently in progress or, to the
knowledge of the Company, threatened or contemplated. The Company has not been
informed by any jurisdiction that the jurisdiction believes that the Company
was required to file any Tax Return that was not filed.
(d) The Company, has not waived any statute of limitations with respect to
Taxes or agreed to an extension of time with respect to a Tax assessment or
deficiency.
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(e) The Company is not a "consenting corporation" within the meaning of
Section 341(f) of the Code and none of the assets of the Company are subject to
an election under Section 341(f) of the Code.
(f) The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(l)(A)(ii) of the Code.
(g) Except as set forth on Section 2.12(g) of the Disclosure Schedule, the
Company has not made any payment, is not obligated to make any payment, and is
not a party to any agreement that could obligate it to make any payment that
will be an "excess parachute payment" under Section 280G of the Code.
(h) The Company does not have any liability for any Taxes of any person
(other than the Company) under Treasury Regulation Section 1.1502-6 (or any
similar provision of federal, state, local, or foreign law), or as a transferee
or successor, by contract, or otherwise.
(i) None of the assets of the Company is property that is required to be
treated as being owned by any other person pursuant to the provisions of former
Section 168(f)(8) of the Code.
(j) None of the assets of the Company is "tax-exempt use property" within
the meaning of Section 168(h) of the Code.
(k) None of the assets of the Company directly or indirectly secures any
debt the interest on which is tax exempt under Section 103(a) of the Code.
(l) The Company has not undergone a change in its method of accounting
resulting in an adjustment to its taxable income pursuant to Section 481(a) of
the Code.
(m) Section 2.12(m) of the Disclosure Schedule sets forth the following
information with respect to the Company as of the most recent practicable date:
(i) the federal income tax basis of the Company in its assets; (ii) the amount
of any net operating loss, net capital loss, unused investment or other credit,
unused foreign tax, or excess charitable contribution allocable to the Company;
and (iii) the amount of any deferred gain or loss allocable to the Company
arising out of any "deferred intercompany transaction."
(n) The Company has never participated in or cooperated with an
international boycott within the meaning of Section 999 of the Code.
2.13 Employee Benefits
(a) Section 2.13 of the Disclosure Schedule contains a complete and accurate
list of all Employee Benefit Plans (as defined below) maintained, or
contributed to, by the Company for the benefit of present or former employees
of the Company (the "Company Plans"). For purposes of this Agreement, "Employee
Benefit Plan" means any "employee pension benefit plan" (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) other than a "multiemployer plan" as defined in Section 4001(a)(3)
of ERISA, any "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA), and any other written or oral plan, agreement or arrangement involving
direct or indirect compensation, including without limitation insurance
coverage, severance benefits, disability benefits, deferred compensation,
bonuses, stock options, stock purchase, phantom stock, stock appreciation or
other forms of incentive compensation or post-retirement compensation. Complete
and accurate copies of all Company Plans and all related trust agreements,
insurance contracts and summary plan descriptions, have been made available to
the Buyer, and the Company to date has not had any obligation to file any
annual reports with the Internal Revenue Service on Forms 5500 or 5500 C/R for
the Company Plans. Each Company Plan has been administered in all material
respects in accordance with its terms and the Company has met its obligations
with respect to such Company Plan and has made all required contributions
thereto. The Company and the Company Plans are in material compliance with the
currently applicable provisions of ERISA and the Code and the regulations
thereunder and other laws applicable to such plans.
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(b) To the Company's knowledge, there are no investigations by any
Governmental Entity, termination proceedings or other claims (except claims for
benefits payable in the normal operation of the Company Plans and proceedings
with respect to qualified domestic relations orders), audits, suits or
proceedings against or involving any Company Plan or asserting any rights or
claims to benefits under any Company Plan.
(c) All the Company Plans that are intended to be qualified under Section
401(a) of the Code may either rely on opinion letters issued by the Internal
Revenue Service or have received determination letters from the Internal
Revenue Service to the effect that such Company Plans are qualified and the
plans and the trusts related thereto are exempt from federal income taxes under
Section 401(a) and 501(a), respectively, of the Code and no such opinion letter
or determination letter has been revoked and revocation has not been
threatened. No event has occurred that would reasonably be expected to give
rise to disqualification or loss of tax-exempt status of any such Company Plan
or related trust under Sections 401(a) and 501(a) of the Code. No Company Plan
has been amended since the date of its most recent determination letter in any
material respect, and no act or omission has occurred that would adversely
affect its qualification or materially increase its costs.
(d) The Company has never been obligated to contribute to any "multiemployer
plan" (as defined in Section 4001(a)(3) of ERISA) or any Employee Benefit Plan
that is subject to Section 412 of the Code or Title IV of ERISA.
(e) Except as set forth on Section 2.13 of the Disclosure Schedule, there
are no unfunded obligations under any Company Plan providing benefits after
termination of employment to any employee of the Company (or to any beneficiary
of any such employee), including but not limited to retiree health coverage and
deferred compensation, but excluding continuation of health coverage required
to be continued under Section 4980B of the Code and applicable state law.
(f) No act or omission has occurred and no condition exists with respect to
any Employee Benefit Plan ever maintained by the Company that would subject the
Company to any fine, penalty, tax or liability of any kind imposed under ERISA
or the Code.
(g) Each Company Plan (excluding agreements with individual employees,
including without limitation, severance agreements and stock option agreements)
is amendable and terminable unilaterally by the Company at any time without
liability to the Company (other than for benefits accrued through the date of
such termination or expenses of termination), and no Company Plan, plan
documentation or agreement, summary plan description or other written
communication distributed generally to employees by its terms prohibits the
Company from amending or terminating any such plan.
(h) Each Employee Benefit Plan which is required to satisfy Section
401(k)(3) or Section 401(m)(2) of the Code has been tested for compliance with,
and has satisfied the requirements of, Section 401(k)(3) and Section 401(m)(2)
of the Code for each plan year ending prior to the Closing Date.
(i) The assets of each uninsured Company Plan which is funded are reported
at their fair market value on the books and records of such plan.
(j) The Company has complied in all respects with the applicable
requirements of Section 4980 B of the Code, Subtitle K, Chapter 100 of the Code
and Sections 601 through 608 and Section 701 et seq. of ERISA.
(k) All material filings and reports as to each Employee Benefit Plan
required to have been made on or before the Closing Date to the Internal
Revenue Service or to the United States Department of Labor have been or will
be duly made by the Closing Date.
(l) Section 2.13 of the Disclosure Schedule discloses each: (i) agreement
with any director, executive officer or other employee of the Company (A) the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving the Company of the nature of any
of the transactions contemplated by this Agreement, (B) providing any term of
employment or compensation
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guarantee or (C) providing severance benefits or other benefits after the
termination of employment of such director, executive officer or employee; and
(ii) agreement or plan binding the Company, including without limitation any
stock option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan, severance benefit plan or employee benefit plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
(m) The Company is not, and never has been, a member of (i) a controlled
group of corporations (as defined in Section 414(b) of the Code), (ii) a group
of trades or businesses under common control (as defined in Section 414(c) of
the Code), or (iii) an affiliated service group (as defined in Section 414(m)
of the Code).
2.14 Material Contracts; Property and Leases.
(a) Except as set forth in Section 2.14 of the Disclosure Schedule the
Company is not a party to or subject to:
(i) any employment contract or arrangement, written or oral, with any
officer, consultant, independent contractor, agent, director or employee;
(ii) any lease providing for annual rentals of $100,000 or more or any
lease for real property;
(iii) any contract for the purchase of equipment, materials or supplies
or for construction requiring aggregate payments in any twelve-month period
by or to the Company that are expected to be $50,000 or more;
(iv) any sales, distribution or other similar agreement providing for
the sale, distribution or marketing of products, materials, supplies,
goods, services or equipment and requiring aggregate payments in any
twelve-month period to the Company that are expected to be $50,000 or more;
(v) any partnership, joint venture, or other similar contract,
arrangement or agreement;
(vi) any contract relating to indebtedness for borrowed money involving
an amount outstanding on or after December 31, 1998 (whether incurred,
assumed, guaranteed or secured by any asset);
(vii) any written material arrangement concerning confidentiality, or
any arrangement concerning assignment of inventions or non-competition or
involving material Intellectual Property;
(viii) any written arrangement that prohibits the Company from freely
engaging in business anywhere in the world;
(ix) any written arrangement involving any stockholder, executive
officer or director of the Company or their affiliates, as defined in Rule
12b-2 under the Exchange Act ("Affiliates");
(x) any written arrangement not otherwise listed on Section 2.14 of the
Disclosure Schedule under which the consequences of a default or
termination would reasonably be expected to have a Material Adverse Effect;
(xi) any collective bargaining agreements or other contracts or
commitments to or with any labor union, representative or group of
employees;
(xii) any agreement relating to the acquisition or disposition of
assets, businesses or companies (whether by sale of assets, sale of stock,
merger or otherwise) with a purchase price (in cash, stock, or other
consideration) of over $500,000; or
(xiii) any other written arrangement (or group of related arrangements)
involving more than $100,000 or which is material to the Company taken as a
whole.
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(b) The Company has made available to the Buyer a correct and complete copy
of each written arrangement (as amended to date) listed in Section 2.14 of the
Disclosure Schedule. Except as set forth in Section 2.14 of the Disclosure
Schedule, with respect to each written arrangement so listed: (i) the written
arrangement is legal, valid, binding and enforceable against the Company and to
the knowledge of the Company is valid, binding and enforceable against each
other party thereto, and the written agreement is in full force and effect;
(ii) with respect to written arrangements to which the Company is a party, the
written arrangement will continue to be legal, valid, binding and enforceable
against the Company and to the knowledge of the Company is valid, binding and
enforceable against each other party thereto, and the written agreement is and
will be in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect prior to the Closing; and (iii)
neither the Company, nor, to the Company's knowledge, any other party is in
material breach or default, and no event has occurred which with notice or
lapse of time would constitute a material breach or default or permit
termination, modification or acceleration under the written arrangement by the
Company as to the Company's knowledge, by any other party thereto, nor is there
any material dispute between the parties thereto. The Company is not a party to
any oral contract, agreement or other arrangement which, if reduced to written
form, would be required to be listed in Section 2.14 of the Disclosure Schedule
under the terms of this Section 2.14.
(c) The Company has good and valid title to all of the tangible personal
property reflected on the balance sheet contained in the Interim Financial
Statements (other than property sold, consumed or otherwise disposed of in the
Ordinary Course of Business since the date of the balance sheet contained in
the Interim Financial Statements), free and clear of all Liens, other than (i)
Liens for taxes and assessments not yet due or otherwise being contested in
good faith, (ii) mechanic's, materialmen's and like Liens arising under
operation of law for amounts not yet due or otherwise being contested in good
faith; (iii) liens under the Bank Agreements; and (iv) imperfections in title
which do not prevent the assets from being used for the purpose for which they
are currently being used or otherwise materially impair the operations of the
Company. The tangible personal property owned or used by the Company is in
condition sufficient and adequate to permit the Company to carry on its
business as presently conducted.
(d) The Company does not own any real property. Section 2.14 of the
Disclosure Schedule lists all real property leased or subleased to or by the
Company. The Company has made available to the Buyer correct and complete
copies of the leases and subleases (as amended to date) listed therein. With
respect to each such lease and sublease:
(i) The lease or sublease is legal, valid, binding, enforceable against
the Company, and to the knowledge of the Company, against each other party
thereto, and is in full force and effect. In the case of any sublease from
the Company to any subtenant, the Company, has obtained all landlord and
other consents required in connection with such sublease.
(ii) The lease or sublease will continue to be legal, valid, binding,
enforceable against the Company and to the knowledge of the Company,
against each other party thereto, and is and in full force and effect
immediately following the Closing in accordance with the terms thereof as
in effect prior to the Closing.
(iii) Neither the Company nor, to the Company's knowledge, any other
party to the lease or sublease, is in material breach or default, and no
event has occurred which, with notice or lapse of time, would constitute a
material breach or default or permit termination, modification or
acceleration thereunder by any other party thereto or, to the Company's
knowledge, by the Company.
(iv) There are no disputes, oral agreements or forbearance programs to
which the Company is a party in effect as to the lease or sublease.
(v) The Company has not assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the leasehold or
subleasehold.
(vi) All facilities leased or subleased by the Company thereunder are
supplied with utilities necessary for the operation of said facilities.
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(vii) None of such leases or subleases has been capitalized on the
balance sheet contained in the Interim Financial Statements.
(viii) The Company has obtained consents for all alterations made as of
the date hereof to each such facility and, upon the expiration or earlier
termination of the lease or sublease with respect thereto, shall not be
obligated to remove any such alterations or restore the premises to the
condition they were in prior to the time such alterations were undertaken,
except for removal or restoration obligations which individually or in the
aggregate do not exceed $25,000.
2.15 Permits. Section 2.15 of the Disclosure Schedule sets forth a list of
each material permit, license, registration, certificate, order, approval or
authorization from any Governmental Entity used in the business or operations
of the Company as presently conducted ("Permit") and the status thereof
(including without limitation those issued or required under Environmental
Laws, as defined in Section 2.21 below) issued to or held by the Company. Such
listed Permits are the only Permits that are required for the Company to
conduct the business of the Company as presently conducted or proposed to be
conducted. Each such Permit is in full force and effect and, to the Company's
knowledge, no suspension or cancellation of such Permit is threatened and the
Company has no basis for believing that such Permit will not be renewable upon
expiration. The Company is not in violation of or default under any Permit. No
Permit will be revoked, terminated prior to its normal expiration date,
violated or not renewed as a result of the consummation of the transactions
contemplated by this Agreement.
2.16 Insurance. Section 2.16 of the Disclosure Schedule sets forth a list
(including the name of the insurer, the name of each insured, the policy
number, the periods of coverage, the scope of coverage and any pending claims
thereunder) of each insurance policy maintained by the Company or under which
the Company is a named insured or otherwise the beneficiary of such coverage.
All of such insurance policies are in full force and effect and the Company is
not in default with respect to its obligations under any of such insurance
policies. None of the transactions contemplated by this Agreement shall
eliminate or alter the coverage provided by such policies for occurrences prior
to Closing, and the Company shall continue to be entitled to the benefit and
recovery under such policies for pre-Closing occurrences (subject to the
deductibles, limits and other terms and conditions of such policies).
2.17 Compliance with Laws. The Company is conducting and has conducted its
business and operations in compliance with all applicable laws (including rules
and regulations thereunder) currently in effect of any federal, state, local or
foreign government, or Governmental Entity except where the failure to so
comply would not have a Material Adverse Effect with respect to the Company.
The Company has not received any notice of communication from any Governmental
Entity alleging non-compliance with any applicable laws (including rules and
regulations).
2.18 Finders' Fees. Except for R. S. Cheheyl, whose fees and expenses are
Deductible Obligations, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
the Company which is or will be entitled to any fee or commission from the
Company upon consummation of the transactions provided for in this Agreement.
2.19 Intellectual Property.
(a) The Company owns or has the right to use all Intellectual Property (as
defined below) necessary (i) to use, develop, manufacture, market and
distribute the products manufactured, marketed, sold or licensed, and to
provide the services provided, by the Company to other parties (together, the
"Customer Deliverables") or (ii) to operate the Company's internal systems that
are material to the business or operations of the Company, including, without
limitation, computer hardware systems, software applications and embedded
systems (the "Internal Systems"; the Intellectual Property owned by or licensed
to the Company and incorporated in or underlying the Customer Deliverables or
the Internal Systems is referred to herein as the "Company Intellectual
Property"). Each item of Company Intellectual Property will be owned or
available for use by the Surviving Corporation immediately following the
Closing on substantially identical terms and conditions as it was immediately
prior to the Closing. The Company has taken all reasonable measures to
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protect the proprietary nature of each material item of Company Intellectual
Property. To the knowledge of the Company, (a) no other person or entity has
any rights to any of the Company Intellectual Property owned by the Company
(except pursuant to agreements or licenses specified in Section 2.19(c) of the
Disclosure Schedule), and (b) no other person or entity is infringing,
violating or misappropriating any of the Company Intellectual Property. For
purposes of this Agreement, "Intellectual Property" means all (i) patents and
patent applications, (ii) copyrights and registrations thereof, (iii) mask
works and registrations and applications for registration thereof, (iv)
computer software, data and documentation, (v) trade secrets and confidential
business information, whether patentable or unpatentable and whether or not
reduced to practice, know-how, manufacturing and production processes and
techniques, research and development information, copyrightable works,
financial, marketing and business data, pricing and cost information, business
and marketing plans and customer and supplier lists and information, (vi)
trademarks, service marks, trade names, domain names and applications and
registrations therefor and (vii) other proprietary rights relating to any of
the foregoing. Section 2.19(a) of the Disclosure Schedule lists each patent,
patent application, copyright registration or application therefor, mask work
registration or application therefor, and trademark, service mark and domain
name registration or application therefor of the Company.
(b) None of the Customer Deliverables, or the marketing, distribution,
provision or use thereof, infringes or violates, or constitutes a
misappropriation of, any Intellectual Property rights of any person or entity.
None of the Internal Systems, or the use thereof, infringes or violates, or
constitutes a misappropriation of, any Intellectual Property rights of any
person or entity. Section 2.19(b) of the Disclosure Schedule lists any
complaint, claim or notice, or written threat thereof, received by the Company
alleging any such infringement, violation or misappropriation; and the Company
has provided to the Buyer complete and accurate copies of all written
documentation in the possession of the Company relating to any such complaint,
claim, notice or threat. The Company has made available to the Buyer complete
and accurate copies of all written documentation in the Company's possession
relating to claims or disputes known to the Company concerning any Company
Intellectual Property.
(c) Section 2.19(c) of the Disclosure Schedule identifies each license or
other agreement (or type of license or other agreement) pursuant to which the
Company has licensed, distributed or otherwise granted any rights to any third
party with respect to, any Company Intellectual Property.
(d) Section 2.19(d) of the Disclosure Schedule identifies each item of
Company Intellectual Property that is owned by a party other than the Company,
and the license or agreement pursuant to which the Company uses it (excluding
off-the-shelf software programs licensed by the Company pursuant to "shrink
wrap" licenses).
(e) The Company has not disclosed the source code for any of the software
owned by the Company (the "Software") or other confidential information
constituting, embodied in or pertaining to the Software to any person or
entity, except pursuant to the agreements listed in Section 2.19(e) of the
Disclosure Schedule, and the Company has taken reasonable measure to prevent
disclosure of such source code.
(f) All of the copyrightable materials (including Software) incorporated in
or bundled with the Customer Deliverables have been created by employees of the
Company within the scope of their employment by the Company or by independent
contractors of the Company who have executed agreements expressly assigning all
right, title and interest in such copyrightable materials to the Company. No
portion of such copyrightable materials was jointly developed with any third
party.
(g) The Customer Deliverables and the Internal Systems are free from
material defects or programming errors and conform in all material respects to
the written documentation and specifications therefor.
(h) All of the Customer Deliverables currently being marketed, distributed
or licensed by the Company or which were marketed, distributed or licensed by
the Company since January 1, 1996, and all Internal Systems, are Year 2000
Compliant. The Company is not aware of any failure to be Year 2000 Compliant of
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any third-party system that is material to the business or operations of the
Company, including without limitation any system belonging to any of the
Company's suppliers, service providers or customers. The Company has made
available to the Buyer all files relating to Year 2000 Compliant testing
conducted by the Company to date.
(i) For purposes of this Agreement, "Year 2000 Compliant" means that the
applicable system or item:
(i) will accurately receive, record, store, provide, recognize and
process all date and time data from, during, into and between the twentieth
and twenty-first centuries, the years 1999 and 2000 and all leap years;
(ii) will accurately perform all date-dependent calculations and
operations (including, without limitation, mathematical operations,
sorting, comparing and reporting) from, during, into and between the
twentieth and twenty-first centuries, the years 1999 and 2000 and all leap
years; and
(iii) will not malfunction, cease to function or provide invalid or
incorrect results as a result of (x) the change of years from 1999 to 2000,
(y) date data, including date data which represents or references different
centuries, different dates during 1999 and 2000, or more than one century
or (z) the occurrence of any particular date;
in each case without human intervention, other than original data entry.
2.20 Employees and Consultants.
(a) Section 2.20 of the Disclosure Schedule identifies all of the current
employees and consultants of the Company. None of such employees has indicated
to the Company that he or she intends to resign or retire as a result of the
transaction contemplated hereby or otherwise prior to December 31, 1999.
(b) Section 2.20 of the Disclosure Schedule sets forth the annual
compensation, including all bonuses and fringe benefits, of each officer,
employee or consultant of the Company.
(c) Section 2.20 of the Disclosure Schedule sets forth the base salary,
annual bonus description of Company benefits and all other forms of
compensation provided to each employee of the Company entitled to a severance
payment.
(d) The Company has not experienced any strikes, grievances (other than
routine industrial grievances, which in the aggregate are not material),
claims of unfair labor practices or other collective bargaining disputes. No
organizational effort is being made or to the Company's knowledge, has been
threatened by or on behalf of any labor union with respect to employees of the
Company.
(e) Each such person has entered into a confidentiality and assignment of
inventions agreement with the Company in the form previously delivered to the
Buyer and attached to the Disclosure Schedule.
(f) No employees of the Company are employed or located outside the United
States.
2.21 Environment, Health and Safety.
(a) The Company has complied with, and their operations as of the Closing
Date are in compliance with, all applicable Environmental Laws (as defined
below) except where the failure to comply would not have a Material Adverse
Effect with respect to the Company.
(b) There is no pending or, to the Company's knowledge, threatened civil or
criminal litigation, written notice of violation or noncompliance, formal
administrative or judicial proceeding claim, cause of action, liability
investigation by any Governmental Entity against the Company relating to any
of the following: (i) violation of any Environmental Law, (ii) violation of
any material permit, license or registration issued under any Environmental
Law, (iii) the disposal discharge or release of Materials of Environmental
Concern (as
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defined below), whether or not in compliance with Environmental Laws, (iv) the
generation, storage, treatment, transportation, reclamation, recycling or other
handling of Materials of Environmental Concern, whether or not in compliance
with Environmental Laws, (v) the ownership, operation or use of any landfill,
surface impoundment, pit, pond, lagoon, underground injection well, waste pile,
land treatment unit, wastewater treatment plant, air pollution control
equipment, or any other unit used for the storage, disposal, handling or
treatment of Materials of Environmental Concern, (vi) the exacerbation of
previously existing environmental conditions, or (vii) exposure to any
Materials of Environmental Concern, noises, odors, or vibrations at or from any
real property or facility formerly or currently owned, leased, operated or
controlled by the Company. Without limiting the foregoing, the Company has not
been named a "potentially responsible party" or received any correspondence or
notice that it may be named a "potentially responsible party" pursuant to any
Environmental Law.
(c) There have been no releases of any Materials of Environmental Concern
into the environment at or from (i) any parcel of real property or any facility
formerly or currently owned, leased, operated or controlled by the Company or
(ii) to the Company's knowledge, any facility to which waste of the Company has
been transported for processing, storage or disposal. With respect to any such
releases of Materials of Environmental Concern, the Company has given all
required notices to Governmental Entities. The Company is not aware of any
releases of Materials of Environmental Concern at parcels of real property or
facilities other than those owned, leased, operated or controlled by the
Company that could reasonably be expected to have an impact on such real
property or facilities.
(d) The Company possess all material permits, licenses and/or registrations
required under Environmental Laws for its business and operations and all such
permits, licenses and/or registrations are valid and in full force and effect.
The Company is in compliance with all lease terms and conditions relating to
all current and former operating facilities to the extent that such lease terms
relate to compliance with Environmental Laws or releases of Materials of
Environmental Concern except where the failure to so comply would not have a
Material Adverse Effect with respect to the Company.
(e) Section 2.21 of the Disclosure Schedule is a list of all environmental
reports, investigations, audits, assessments, surveys and analyses (whether
conducted by or on behalf of the Company or a third party, and whether done at
the initiative of the Company or directed by a Governmental Entity or other
third party) relating to premises currently or previously owned, leased or
operated by the Company which the Company has possession of or has knowledge
of.
(f) To the Company's knowledge, all entities, including without limitation
transporters, treatment, storage and disposal facilities and remediation
companies, used by the Company for the transportation, storage, disposal,
treatment or other handling of Materials of Environmental Concern possess all
permits, licenses and registrations required under Environmental Laws. To the
Company's knowledge, there is no previous, pending or threatened civil or
criminal litigation, written notice of violation of noncompliance, formal
administrative or judicial proceedings, investigation, citation, order, consent
order, consent decree, inquiry or information request by any Governmental
Entity, relating to such entities for any violations of Environmental Laws.
(g) For purposes of this Agreement, "Environmental Law" means any law,
statute, rule or regulation of any Governmental Entity relating to the
environment or environmental health and safety, including without limitation
any statute, regulation or order pertaining to (i) treatment, storage,
disposal, generation or transportation of industrial, toxic or hazardous
substances or solid or hazardous waste; (ii) air, water and noise pollution;
(iii) groundwater and soil contamination; (iv) the release or threatened
release into the environment of industrial, toxic or hazardous substances, or
solid or hazardous waste, including without limitation emissions, discharges,
injections, spills, escapes or dumping of pollutants, contaminants or
chemicals; (v) underground and other storage tanks or vessels; (vi)
environmental health and safety of employees; and (vii) manufacture,
processing, use, distribution, treatment, storage, disposal, transportation or
handling of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or oil or petroleum products or solid or hazardous waste.
As used in this Agreement, the terms "release", "hazardous substance",
"pollutants or contaminants" and
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"environment" shall have the meanings set forth in the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") or
pursuant to any applicable Environmental Law, and the terms "solid waste" and
"hazardous waste" shall have the meanings set forth in the federal Resource
Conservation Recovery Act ("RCRA").
(h) For purposes of this Agreement, "Materials of Environmental Concern"
mean any chemicals, pollutants or contaminants, hazardous substances (as such
terms is defined under CERCLA), toxic materials, oil or petroleum and petroleum
products, or any other material subject to regulation under any Environmental
Law.
2.22 Accounts Receivable. All accounts receivable of the Company reflected
on the Interim Financial Statements are valid receivables subject to no setoffs
or counterclaims and are current and collectible (within 90 days after the date
on which it first became due and payable), net of the applicable reserve for
bad debts on the Interim Financial Statements. All accounts receivable
reflected in the financial or accounting records of the Company that have
arisen since the Interim Financial Statements are valid receivables subject to
no setoffs or counterclaims and are collectible (within 90 days after the date
on which it first became due and payable), net of a reserve for bad debts.
2.23 Powers of Attorney. Except as set forth in Section 2.23 of the
Disclosure Schedule, there are no outstanding powers of attorney executed on
behalf of the Company.
2.24 Customers. Except as set forth in Section 2.24 of the Disclosure
Schedule, there are no customers that accounted for more than 5% of the
revenues of the Company taken as a whole, during the last full fiscal year. No
unfilled customer order or commitment obligating the Company to process or
deliver products or perform services will result in a loss to the Company upon
completion of performance.
2.25 Suppliers. Section 2.25 of the Disclosure Schedule sets forth a true,
correct and complete list of (i) the names and addresses of each of the
suppliers of the Company which accounted for a dollar volume of purchases by
the Company in excess of $50,000 for the fiscal year ended December 31, 1998
and (ii) the present sole source suppliers of significant goods or services,
other than utilities, for any product or service with respect to which
practical alternative sources of supply are not available on comparable terms
and conditions, indicating the contractual arrangements for continued supply
from each such supplier. The Company believes it has good relations with all of
its suppliers.
2.26 Acquisitions. Attached hereto as Section 2.26 of the Disclosure
Schedule is a complete and correct list of all acquisitions undertaken by the
Company. Except as set forth in Section 2.26 of the Disclosure Schedule, (i) no
such acquisition involved the issuance of stock, options or warrants by the
Company, or any continuing material obligations of the Company, (ii) all such
acquisitions included the purchase of assets and did not involve a merger or
purchase of stock, and (iii) no such acquisition involved the assumption of
unknown liabilities by the Company except for liabilities which in the
aggregate do not have a Material Adverse Effect.
2.27 Certain Business Relationships With Affiliates. No Affiliate of the
Company (a) owns any property or right, tangible or intangible, which is used
in the business of the Company, (b) has any claim or cause of action against
the Company, or (c) owes any money to, or is owed any money by, the Company.
Section 2.27 of the Disclosure Schedule describes any transactions or
relationships between the Company and any Affiliate thereof.
2.28 Books and Records. The minute books and other similar records of the
Company contain complete and accurate records of all actions taken at any
meetings of the Company's stockholders, Board of Directors or any committee
thereof and of all written consents executed in lieu of the holding of any such
meeting. The books and records of the Company accurately reflect in all
material respects the assets, liabilities, business, financial condition and
results of operations of the Company and have been maintained in accordance
with good business and bookkeeping practices.
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2.29 Accounting and Tax Matters. To the knowledge of the Company, neither
the Company nor any of its Affiliates has through the date of this Agreement
taken or agreed to take any action that would prevent the Buyer from accounting
for the business combination to be effected by the Merger as a "pooling of
interests" in conformity with GAAP or prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
2.30 Company Action. The Board of Directors of the Company, by special
meeting of the Company's Board of Directors duly held and called, has (a)
determined that the Merger is fair and in the best interests of the Company and
its stockholders, (b) adopted this Agreement in accordance with the provisions
of the Delaware General Corporation Law, and (c) directed that this Agreement
and the Merger be submitted to the Company Stockholders for their adoption and
approval and resolved to recommend that Company Stockholders vote in favor of
the adoption of this Agreement and the approval of the Merger.
2.31 Government Contracts
(a) The Company has not been suspended or debarred from bidding on contracts
or subcontracts with any Governmental Entity; no such suspension or debarment
has been threatened or initiated; and the consummation of the transactions
contemplated by this Agreement will not result in any such suspension or
debarment of the Company or the Buyer (assuming that no such suspension or
debarment will result solely from the identity of the Buyer). The Company has
not been or is now being audited or investigated by the United States
Government Accounting Office, the United States Department of Defense or any of
its agencies, the Defense Contract Audit Agency, the contracting or auditing
function of any Governmental Entity with which it is contracting, the United
States Department of Justice, the Inspector General of the United States
Governmental Entity, or any prime contractor with a Governmental Entity; nor
has any such audit or investigation been threatened. There is no valid basis
for (i) the suspension or debarment of the Company from bidding on contracts or
subcontracts with any Governmental Entity or (ii) any claim (including any
claim for return of funds to the Government) pursuant to an audit or
investigation by any of the entities named in the foregoing sentence. The
Company has no agreements, contracts or commitments which require it to obtain
or maintain a security clearance with any Governmental Entity.
(b) No basis exists for any of the following with respect to any of its
contracts or subcontracts with any Governmental Entity: (i) a Termination for
Default (as provided in 48 C.F.R. Ch.1 '52.249-8, 52.249-9 or similar
sections), (ii) a Termination for Convenience (as provided in 48. C.F.R. Ch.1
'52,241-1, 52.249-2 or similar sections), or a Stop Work Order (as provided in
48 C.F.R. Ch.1 '52.212-13 or similar sections); and the Company has no reason
to believe that funding may not be provided under any contract or subcontract
with any Governmental Entity in the upcoming federal fiscal year.
2.32 Disclosure. The representations and warranties contained in this
Article II, when taken together with the related Disclosure Schedule, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements and information contained in
this Article II, when taken together with the related schedules hereto, not
misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents and warrants to
the Company as follows:
3.1 Organization. Each of the Buyer and the Transitory Subsidiary is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the state of its incorporation.
3.2 Capitalization. The authorized capitalized stock of the Buyer as of
March 31, 1999, is as set forth in the Quarterly Report on Form 10-Q of the
Company, as filed with the Securities and Exchange Commission (the "SEC")
for the quarter ended March 31, 1999 (the "Quarterly Report on Form 10-Q").
All of the Buyer Common Stock is duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights. All of the Merger Shares
will be, when issued in accordance with this Agreement, duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights.
The authorized capital stock of the Transitory Subsidiary consists of 1,000
shares of common stock, $.01 par value per share, of which 1,000 shares are
issued and outstanding and held by the Buyer. The common stock of the
Transitory Subsidiary represents the only class or series of capital stock
of the Transitory Subsidiary entitled to vote on the adoption of this
Agreement. Since the date of its incorporation, the Transitory Subsidiary
has not engaged in any activity of any nature except in connection with or
as contemplated by this Agreement.
3.3 Authorization of Transaction. Each of the Buyer and the Transitory
Subsidiary has all requisite power and authority to execute and deliver
this Agreement and (in the case of the Buyer) the Escrow Agreement and to
perform its obligations hereunder and thereunder. The execution and
delivery of this Agreement and (in the case of the Buyer) the Escrow
Agreement by the Buyer and the Transitory Subsidiary and the performance of
this Agreement and (in the case of the Buyer) the Escrow Agreement the
consummation of the transactions contemplated hereby and thereby by the
Buyer and the Transitory Subsidiary have been duly and validly authorized
by all necessary corporate and stockholder action on the part of the Buyer
and Transitory Subsidiary (other than approval of the additional shares of
Buyer Common Stock by stockholders holding a majority of votes represented
by the outstanding Buyer Common Stock). This Agreement has been duly and
validly executed and delivered by the Buyer and the Transitory Subsidiary
and constitutes a valid and binding obligation of the Buyer and the
Transitory Subsidiary, enforceable against them in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditor's rights
generally.
3.4 Noncontravention. Subject to compliance with the applicable
requirements of the Securities Act, any applicable state securities laws,
the Exchange Act and the filing of the Certificate of Merger as required by
the Delaware General Corporation Law, the execution and delivery of this
Agreement and the agreements provided for herein, and the consummation by
the Buyer or the Transitory Subsidiary of the transactions contemplated
hereby or thereby (including the issuance of the Merger Shares), will not
(a) conflict with or violate any provision of the charter or by-laws of the
Buyer or the Transitory Subsidiary, (b) require on the part of the Buyer or
the Transitory Subsidiary any filing with, or permit, authorization,
consent or approval of, any Governmental Entity, (c) conflict with, result
in breach of, constitute (with or without due notice or lapse of time or
both) a default under, result in the acceleration of, create in any party
any right to accelerate, terminate, modify or cancel, or require any
notice, consent or waiver under, any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest or other
arrangement to which the Buyer or Transitory Subsidiary is a party or by
which either is bound or to which any of their assets are subject, or (d)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Buyer or the Transitory Subsidiary or any of their
properties or assets.
3.5 Reports and Financial Statements. The Buyer has previously furnished
or made available to the Company complete and accurate copies, as amended
or supplemented, of its (a) Annual Report on Form 10-K and (b) all other
reports filed by the Buyer under Section 13 of the Exchange Act with the
SEC since
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December 31, 1998 (such reports, together with any amendments or
supplements thereto are collectively referred to herein as the "Buyer
Reports"). The Buyer Reports constitute all of the documents required to be
filed by the Buyer under Section 13 or subsection (a) or (c) of Section 14
of the Exchange Act with the SEC from December 31, 1998 through the date of
this Agreement. The Buyer Reports complied in all material respects with
the requirements of the Exchange Act and the rules and regulations
thereunder when filed. As of their respective dates, the Buyer Reports did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. All exhibits required to be filed in connection with
the Buyer Reports have been filed by the Buyer.
3.6 Accounting and Tax Matters. To the knowledge of the Buyer, neither
the Buyer nor any of its Affiliates has through the date of this Agreement
taken or agreed to take any action that would prevent the Buyer from
accounting for the business combination to be effected by the Merger as a
"pooling of interests" in conformity with GAAP or prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
3.7 Brokers' Fees. Other than the Buyer's obligation to pay the fees of
PaineWebber Incorporated, neither the Buyer nor the Transitory Subsidiary
has any liability or obligation to pay any fees or commissions to any
broker, finder or agent with respect to the transactions contemplated by
this Agreement.
3.8 Disclosure. No representation or warranty by the Buyer contained in
this Agreement, and no statement contained in any document, certificate or
other instrument delivered to or to be delivered by or on behalf of the
Buyer pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omit or will omit to state any material
fact necessary, in light of the circumstances under which it was or will be
made, in order to make the statements herein or therein not misleading.
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ARTICLE IV
COVENANTS
4.1 Best Efforts. Each of the Parties shall use its best efforts to take all
actions and to do all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, including without limitation,
ensuring that (i) its representations and warranties remain true and correct in
all material respects through the Closing Date and (ii) the conditions to the
obligations of the other parties to consummate the Merger are satisfied.
Notwithstanding the foregoing, the Buyer shall not be required to sell or
dispose of or hold separately (through a trust or otherwise) any assets or
business of the Buyer or any of its Affiliates.
4.2 Notices and Consents. The Company shall use its best efforts to obtain,
at its expense, all such waivers, permits, consents, approvals or other
authorizations from third parties and Governmental Entities, and to effect all
such registrations, filings and notices with or to third parties and
Governmental Entities, as may be required by or with respect to the Company in
connection with the transactions contemplated by this Agreement (including
without limitation those listed in Section 2.4 or Section 2.16 of the
Disclosure Schedule). Each of the Buyer and the Transitory Subsidiary shall use
its best efforts to obtain, at its expense, all such waivers, permits,
consents, approvals or other authorizations from third parties and Governmental
Entities, and to effect all such registrations, filings and notices with or to
third parties and Governmental Entities, as may be required by or with respect
to the Buyer or the Transitory Subsidiary, as the case may be, in connection
with the transactions contemplated by this Agreement.
4.3 Stockholder Approval.
(a) The Company shall hold one or more special meetings of stockholders in
accordance with the applicable requirements of the Delaware General Corporation
Law and obtain the Requisite Stockholder Approval to enable the Merger to be
effective on the Closing Date (determined without regard to the condition to
closing that the Requisite Stockholder Approval be obtained). The Buyer shall
use its best efforts to obtain, as promptly as practicable, the approval of the
issuance of its shares in connection with the Merger by the stockholders of the
Buyer at a special meeting of the stockholders of the Buyer, as required by the
rules of the Nasdaq Stock Market, in accordance with the applicable
requirements of the Delaware General Corporation Law; provided that the Buyer
shall have no liability to the Company, any Indemnifying Stockholders (as
defined below) or any other person if its stockholders do not approve the
issuance of shares of Buyer Common Stock in connection with the Merger,
provided that the Buyer is not otherwise in breach of this Agreement. The Buyer
shall also engage a proxy solicitation firm to aid the Buyer's efforts to
obtain the approval of its stockholders. In connection with obtaining the
approval of its stockholders, the Buyer shall prepare, with the assistance and
cooperation of the Company, a Registration Statement on Form S-4 (the "S-4
Registration Statement"). The S-4 Registration Statement shall combine a proxy
and a prospectus and shall be used for purposes of offering the Merger Shares
to the Company Stockholders, solicitating proxies from the Company Stockholders
for the purpose of obtaining the Requisite Stockholder Approval and soliciting
proxies from stockholders of the Buyer for the purposes of obtaining approval
of the issuance of its shares in connection with the Merger by the stockholders
of the Buyer (such prospectus/proxy statement, together with the accompanying
letter to stockholders, notice of meeting and form of proxy shall be referred
to herein as the "Prospectus/Proxy Statement"). The Company agrees to fully
cooperate with the Buyer in the preparation of the S-4 Registration Statement,
and shall, upon request, furnish the Buyer with all information concerning it
and its affiliates, directors, officers and stockholders as the Buyer may
reasonably request in connection with the preparation of the S-4 Registration
Statement. The Company shall prepare the portions of the S-4 Registration
Statement relating to the Company including but not limited to the Company's
financial information, management of the Company, description of the Company's
business, executive compensation of the Company, the recommendation of the
Company's Board of Directors, dissenters rights, risk factors relating to the
Company, and the Company portions of background of the Merger, reasons for the
Merger, interests of certain persons in the Merger, security ownership of
certain beneficial owners and management and comparison of stockholder rights.
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(b) The Buyer shall file the S-4 Registration Statement with the SEC and
shall, with the assistance of the Company, promptly respond to any SEC comments
on the S-4 Registration Statement and shall otherwise use its best efforts to
have the S-4 Registration Statement declared effective under the Securities Act
as promptly as practicable. Promptly following such time as the S-4
Registration Statement is declared effective, the Company shall distribute the
Prospectus/Proxy Statement to its stockholders and the Buyer shall distribute
the Prospectus/Proxy Statement to its stockholders. The Buyer shall comply with
all applicable provisions of and rules under the Securities Act and the
Exchange Act and state securities laws in the preparation and filing of the S-4
Registration Statement, the offering and issuance of the Merger Shares, the
filing and distribution of the Proxy Statement, the solicitation of proxies
thereunder, and the calling and holding of the special meeting of stockholders
of the Buyer. The Buyer shall also ensure that any S-4 Registration Statement
filed by the Buyer does not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (provided that the Buyer shall not
be responsible for the accuracy and completeness of information relating to the
Company or any other information furnished by the Company in writing for
inclusion in the S-4 Registration Statement).
(c) The Company shall ensure that the Prospectus/Proxy Statement does not
contain an untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statement made,
under the circumstances under which it is made, not misleading (provided that
the Company shall not be responsible for the accuracy or completeness of any
information relating to the Buyer or furnished by the Buyer in writing for
inclusion in the Prospectus/Proxy Statement).
(d) The Company, acting through its Board of Directors, shall include in the
Prospectus/Proxy Statement the unanimous recommendation of its Board of
Directors eligible to vote on such matters that the Company Stockholders vote
in favor of the adoption of this Agreement and the approval of the Merger.
Notwithstanding the foregoing, the obligation set forth in the foregoing
sentence shall not apply (and the Board of Directors shall be permitted to
modify or withdraw any such recommendation previously made) if the Board of
Directors of the Company concludes in good faith, after consultation with its
outside legal counsel, that the fiduciary duties of the Board of Directors
under applicable law prohibit it from fulfilling the obligations in the
foregoing sentence; provided, however, that nothing shall limit the obligation
of the Company to otherwise use its best efforts to fulfill all of its
obligations under this Agreement, including without limitation, the Company's
obligations under Section 4.3(a).
(e) The Buyer, acting through its Board of Directors, shall include in the
Prospectus/Proxy Statement the unanimous recommendation of its Board of
Directors eligible to vote on such matters that the stockholders of the Buyer
vote in favor of the issuance of its shares in connection with the Merger.
Notwithstanding the foregoing, the obligation set forth in the foregoing
sentence shall not apply (and the Board of Directors shall be permitted to
modify or withdraw any such recommendation previously made) if the Board of
Directors of the Buyer concludes in good faith, after consultation with its
outside legal counsel, that the fiduciary duties of the Board of Directors
under applicable law prohibit it from fulfilling the obligations in the
foregoing sentence; provided, however, that nothing shall limit the obligation
of the Buyer to otherwise use its best efforts to fulfill all of its
obligations under this Agreement, including without limitation, the Buyer's
obligations under Section 4.3(b).
4.4 Hart-Scott-Rodino Act. Each of the Parties shall use reasonable efforts
to cause any of its stockholders to promptly file any Notification and Report
Forms and related material that such stockholders may be required to file with
the Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the HSR Act, and shall use best efforts to cause
such stockholders to obtain an early termination of the applicable waiting
period, and shall make any further filings or information submissions pursuant
thereto that may be necessary, proper or advisable.
4.5 Operation of Business. Except as contemplated by this Agreement, during
the period from the date of this Agreement to the Effective Time, the Company
shall conduct its operations in the Ordinary Course of Business and in
compliance with all applicable laws and regulations and, to the extent
consistent therewith, use
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all reasonable efforts to preserve intact its current business organization,
keep its physical assets in good working condition, keep available the services
of its current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to the end
that its goodwill and ongoing business shall not be impaired in any material
respect. Without limiting the generality of the foregoing, prior to the
Effective Time, the Company shall not, without the prior written consent of the
Buyer:
(a) except as set forth on Section 4.5(a) of the Disclosure Schedule,
issue, sell, deliver or agree or commit to issue, sell or deliver (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) or authorize the issuance,
sale or delivery of, or redeem or repurchase, any stock of any class or any
other securities or any rights, warrants or options to acquire any such
stock or other securities (except pursuant to the conversion or exercise of
convertible securities, Options or warrants outstanding on the date
hereof), or amend any of the terms of any such convertible securities,
Options or warrants;
(b) split, combine or reclassify any shares of its capital stock; or
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock;
(c) except as set forth on Section 4.5(c) of the Disclosure Schedule,
create, incur or assume any indebtedness not currently outstanding
(including obligations in respect of capital leases); assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person or
entity; or make any loans, advances or capital contributions to, or
investments in, any other person or entity;
(d) enter into, adopt or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement of the type described in
Section 2.13(l) or (except for normal increases in the Ordinary Course of
Business) increase in any manner the compensation or fringe benefits of, or
materially modify the employment terms of, its directors, officers or
employees, generally or individually, or pay any benefit not required by
the terms in effect on the date hereof of any existing Employee Benefit
Plan;
(e) acquire, sell, lease, encumber or dispose of any assets or property,
other than purchases and sales of assets in the Ordinary Course of
Business;
(f) amend its Certificate of Incorporation or By-laws;
(g) change in any material respect its accounting methods, principles or
practices, except insofar as may be required by law or by a generally
applicable change in GAAP;
(h) discharge or satisfy any Lien or pay any obligation or liability
other than in the Ordinary Course of Business;
(i) mortgage or pledge any of its property or assets or subject any such
assets to any Lien;
(j) sell, assign, transfer or license any Intellectual Property, other
than in the Ordinary Course of Business;
(k) enter into, amend, terminate, take or omit to take any action that
would constitute a violation of or default under, or waive any rights
under, any material contract or agreement;
(l) make or commit to make any capital expenditure in excess of $100,000
per expenditure or $750,000 in the aggregate;
(m) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action
would result in any of the conditions to the Merger set forth in Article V
not being satisfied;
(n) take any action that would jeopardize the treatment of the Merger as
a "pooling of interests" for accounting purposes;
(o) agree in writing or otherwise to take any of the foregoing actions;
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(p) make any material Tax election, provided that the Buyer's consent
shall not be unreasonably withheld; or
(q) hire any new employees for a salary in excess of $100,000 per annum.
The provisions of this Section 4.5 shall not preclude the Company from using
cash on hand to pay, prior to the Closing Date, indebtedness and other amounts
constituting Deductible Obligations.
4.6 Access to Information.
(a) The Company shall permit representatives of the Buyer to have full
access (at all reasonable times, and in a manner so as not to interfere with
the normal business operations of the Company) to all premises, properties,
financial and accounting records, contracts, other records and documents, and
personnel, of or pertaining to the Company.
(b) Within 15 days after the end of each month ending prior to the Closing,
beginning with July 31, 1999, and within 30 days of the end of each fiscal
quarter ending prior to the Closing, beginning with June 30, 1999, the Company
shall furnish to the Buyer an unaudited income statement for such month and/or
quarter, and a balance sheet as of the end of such month and/or quarter,
prepared on a basis consistent with the Financial Statements. Financial
statements shall present fairly the financial condition and results of
operations of the Company as of the date thereof and for the period covered
thereby, and shall be consistent with the books and records of the Company.
4.7 Notice of Breaches. The Company shall promptly deliver to the Buyer
written notice of any event or development that would (a) render any statement,
representation or warranty of the Company or the Company Stockholders in this
Agreement (including the Disclosure Schedule) inaccurate or incomplete in any
material respect, or (b) constitute or result in a breach by the Company or the
Company Stockholders of, or a failure by the Company or the Company
Stockholders to comply with, any agreement or covenant in this Agreement
applicable to such party. The Buyer shall promptly deliver to the Company
written notice of any event or development that would (i) render any statement,
representation or warranty of the Buyer or the Transitory Subsidiary in this
Agreement inaccurate or incomplete in any respect or (ii) constitute or result
in a breach by the Buyer or the Transitory Subsidiary of, or a failure by the
Buyer or the Transitory Subsidiary to comply with, any agreement or covenant in
this Agreement applicable to such party. No disclosure shall be deemed to avoid
or cure any such misrepresentation or breach.
4.8 Exclusivity. The Company shall not, and the Company shall cause each of
the Company's officers, directors, employees, representatives and agents not
to, directly or indirectly, (a) encourage, solicit, initiate, engage or
participate in discussions or negotiations with any person or entity (other
than the Buyer) concerning any merger, consolidation, sale of material assets,
tender offer, recapitalization, accumulation of Company Shares, proxy
solicitation or other business combination involving the Company, or any
division of the Company or (b) provide any non-public information concerning
the business, properties or assets of the Company to any person or entity
(other than the Buyer); provided that nothing contained in this Agreement shall
prevent the Board of Directors of the Company from referring any third party to
this Section 4.8 or providing any third party with a copy of this Section 4.8.
The Company shall immediately notify the Buyer of, and shall disclose to the
Buyer all details of, any inquiries, discussions or negotiations of the nature
described in the first sentence of this Section 4.8.
4.9 Agreement from Certain Affiliates of the Company. Prior to the execution
of this Agreement, the Buyer and the Company shall have provided to each other
a list of those persons or entities who are Affiliates of the Buyer or the
Company, respectively. The Buyer and the Company shall also have provided each
other such information and documents as the Company or the Buyer shall have
reasonably requested for purposes of reviewing such list and shall notify the
other party in writing regarding any change in the identity of its Affiliates
prior to the Closing Date. In order to help ensure that the Merger will be
accounted for as a "pooling of interests", that the issuance of and any resale
of the Merger Shares will comply with the Securities Act and
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that the Merger will be treated as a tax-free reorganization, each of the
Company and the Buyer is delivering to each other simultaneously herewith, an
Affiliate Agreement, in the form attached hereto as Exhibit B-1 (in the case of
Affiliates of the Company) or Exhibit B-2 (in the case of Affiliates of the
Buyer) (an "Affiliate Agreement"), executed by each of its Affiliates. The
Buyer shall be entitled to place appropriate legends on the certificates
evidencing any Merger Shares to be issued to Affiliates of the Company, and to
issue appropriate stop transfer instructions to the transfer agent for the
Buyer Common Stock, setting forth restrictions on transfer consistent with the
terms of the Affiliate Agreement.
4.10 Indemnification.
(a) The Buyer shall not, for a period of six years after the Effective Time,
take any action to alter or impair any exculpatory or indemnification
provisions now existing in the Certificate of Incorporation or By-laws of the
Company for the benefit of any individual who served as a director or officer
of the Company at any time prior to the Effective Time, except for any changes
which may be required to conform with changes in applicable law and any changes
which do not affect the application of such provisions to acts or omissions of
such individuals prior to the Effective Time.
(b) From and after the Effective Time, the Buyer agrees that it will, and
will cause the Surviving Corporation to, indemnify and hold harmless each
present and former director and officer of the Company (the "Indemnified
Executives") against any costs or expenses (including attorneys' fees),
judgments, fines, losses, claims, damages, liabilities or amounts paid in
settlement incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of or pertaining to matters existing or occurring at or prior to
the Effective Time, whether asserted or claimed prior to, at or after the
Effective Time, to the fullest extent permitted under Delaware law (and the
Buyer and the Surviving Corporation shall also advance expenses as incurred to
the fullest extent permitted under Delaware law, provided the Indemnified
Executive to whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such Indemnified Executive is not
entitled to indemnification).
(c) For a period of six years after the Effective Time, the Buyer shall
cause the Surviving Corporation to maintain (to the extent available in the
market) in effect a directors' and officers' liability insurance policy
covering those persons who are currently covered by the Company's directors'
and officers' liability insurance policy (a copy of which has been heretofore
delivered to the Buyer) with coverage in amount and scope at least as favorable
to such persons as the Company's existing coverage; provided, that in no event
shall Buyer or the Surviving Corporation be required to expend in excess of
125% the annual premium currently paid by the Company for such coverage.
4.11 Listing Merger Shares. The Buyer shall use its best efforts to list the
Merger Shares on the Nasdaq National Market.
4.12 Voting Agreements. Simultaneous with the execution of this Agreement,
the Company has caused the Voting Agreement in the form attached hereto as
Exhibit C-1 (the "Company Voting Agreement"), to be executed by all officers,
directors and holders of 5% or more of the Company's securities, and delivered
to the Buyer. The signatories of the Company Voting Agreement represent greater
than 90% of the outstanding voting securities of the Company. Simultaneous with
the execution of this Agreement, the Buyer has caused the Voting Agreement on
the form attached hereto as Exhibit C-2 to be executed by all named executive
officers, as identified on the Buyer's most recent Proxy Statement, and
directors, and delivered to the Company.
4.13 Existing Voting Agreement. Pursuant to the Voting Agreement, dated
January 2, 1996, by and among the Company and Avi Corfas, B.C. Krishna, Howard
Webber, Daniel E. Latham, Julie A. Melbin and Joel Bresler, each of B.C.
Krishna, Daniel E. Latham, Julie A. Melbin and Howard Webber (collectively, the
"Designated Stockholders") shall irrevocably agree in writing to vote in favor
of the adoption of this Agreement and the approval of the Merger, and,
therefore, requiring that each other stockholder of the Company that is a party
to such agreement vote in accordance with the direction of the majority in
number of
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the Designated Stockholders. The Company has delivered to the Buyer written
evidence of the irrevocable vote of the Designated Stockholders simultaneous
with the execution of this Agreement.
4.14 Employment Agreements. Simultaneous with the execution of this
Agreement, the Buyer and each of Ronald Matros, Carol Mitchell, Julie A.
Melbin, Daniel E. Latham and B.C. Krishna shall execute employment agreements
in the form and substance acceptable to Buyer.
4.15 Section 16. Assuming that the Company delivers to Buyer the Section 16
Information (as defined below) in a timely fashion, the Board of Directors of
Buyer, or a committee of two or more Non-Employee Directors thereof (as such
item is defined for purposes of Rule 16b-3 under the Exchange Act), shall adopt
resolutions prior to the consummation of the Merger, providing that the receipt
by the Company Insiders (as defined below) of Buyer Common Stock in exchange
for the Company Shares, and of options for Buyer Common Stock upon conversion
of the Options, in each case pursuant to the transactions contemplated hereby
and to the extent such securities are listed in the Section 16 Information, are
intended to be exempt from liability pursuant to Section 16(b) under the
Exchange Act. Such resolutions shall comply with the approval conditions of
Rule 16b-3 under the Exchange Act for purposes of such Section 16(b) exemption,
including, but not limited to, specifying the name of the Company Insiders, the
number of securities to be acquired or disposed of for each such person, the
material terms of any derivative securities, and that the approval is intended
make the receipt of such securities exempt pursuant to Rule 16b-3(d). "Section
16 Information" shall mean information accurate in all respects regarding the
Company Insiders, the number of Company Shares held by each such Company
Insider and expected to be exchanged for Buyer Common Stock in the Merger, and
the number and description of the Options held by each such Company Insider and
expected to be converted into options on Buyer Common Stock in connection with
the Merger. "Company Insiders" shall mean those officers and directors of the
Company who will be subject to the reporting requirements of Section 16(b) of
the Exchange Act with respect to Buyer and who are listed in the Section 16
Information.
4.16 [Intentionally omitted.]
4.17 Funding Commitment. Following the execution of this Agreement, the
Company shall use its best efforts to enter into a loan agreement with Silicon
Valley Bank documenting a $2,000,000 loan with terms substantially similar to
those set forth in the Financing Proposal attached hereto as Exhibit D-1. In
addition, the Company and the Buyer shall have entered into a funding
commitment in the amount of $1,000,000 as attached hereto as Exhibit D-2. The
proceeds of the foregoing loans shall be used to enable the Company to fund its
operations in accordance with its existing business plan and to otherwise carry
out its business in the Ordinary Course of Business through the Final Date (as
defined below).
4.18 Pooling. The Company and the Buyer shall use their respective best
efforts to allow the Buyer to account for the business combination to be
effected by the Merger as a "pooling of interests" in conformity with GAAP and
in connection therewith the Company and the Buyer shall use their respective
best efforts to cause the following to be delivered to the Buyer:
(a) a letter from PricewaterhouseCoopers LLP, auditors for the Company,
in a form reasonably satisfactory to the Buyer, to the effect that the
Company is "poolable" for accounting purposes under Accounting Principles
Board Opinion No. 16; and
(b) a letter from Arthur Andersen LLP, auditors for the Buyer, in a form
reasonably satisfactory to the Buyer, to the effect that (i) the Buyer is
"poolable" for accounting purposes under Accounting Principles Board
Opinion No. 16 and (ii) the Buyer may treat the Merger as a "pooling of
interests" for accounting purposes under Accounting Principles Board
Opinion No. 16.
4.19 Reseller Agreement. Following the execution of this Agreement, the
Company and the Buyer agree to enter into good faith negotiations to enter into
a non-exclusive reseller agreement on industry standard terms with no up-front,
prepaid amounts due or minimum requirements, pursuant to which the Buyer will
be able to resell the Company's IPS product prior to the Closing.
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ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations. The respective obligations of
each Party to consummate the Merger are subject to the satisfaction of the
following condition:
(a) the authorization of additional shares of Buyer Common Stock shall
have received the approval of the stockholders of the Buyer; and
(b) all applicable waiting periods (and any extensions thereof) under
the HSR Act shall have expired or otherwise been terminated.
5.2 Conditions to Obligations of the Buyer and the Transitory
Subsidiary. The obligation of each of the Buyer and the Transitory Subsidiary
to consummate the Merger is subject to the satisfaction (or waiver by the
Buyer) of the following additional conditions:
(a) the number of Dissenting Shares shall not exceed 3% of the number of
outstanding Company Shares as of the Effective Time;
(b) the Company shall have obtained (and shall have provided copies
thereof to the Buyer) all of the waivers, permits, consents, approvals or
other authorizations, and effected all of the registrations, filings and
notices, referred to in the first sentence of Section 4.2 and which are
necessary for the consummation of the Merger and the transactions
contemplated hereby or material to the conduct of the Company's business
other than the waivers, permits, consents, approvals and authorizations
listed in Section 5.2 of the Disclosure Schedule;
(c) the representations and warranties of the Company set forth in this
Agreement shall be true and correct as of the date of this Agreement and
shall be true and correct as of the Effective Time as though made as of the
Effective Time, except to the extent that the inaccuracy of any such
representation or warranty is the result of events or circumstances
occurring subsequent to the date of this Agreement and any such
inaccuracies, individually or in the aggregate, would not have a Closing
Material Adverse Effect or a material adverse effect on the ability of the
Parties to consummate the transactions contemplated by this Agreement (it
being agreed that any materiality qualifications in particular
representations and warranties shall be disregarded in determining whether
any such inaccuracies would have a Closing Material Adverse Effect for
purposes of this Section 5.2(c));
(d) the Company shall have performed or complied with its agreements and
covenants required to be performed or complied with under this Agreement as
of or prior to the Effective Time;
(e) no action, suit or proceeding shall be pending or threatened before
any Governmental Entity wherein an unfavorable judgment, order, decree,
stipulation or injunction would (i) prevent consummation of any of the
transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation or (iii) have a Closing Material Adverse Effect on the
Company, and no such judgment, order, decree, stipulation or injunction
shall be in effect;
(f) the Company shall have delivered to the Buyer and the Transitory
Subsidiary a certificate (without qualification as to knowledge or
materiality or otherwise) to the effect that each of the conditions
specified in Section 5.1 and clauses (a) through (e) of this Section 5.2 is
satisfied in all respects;
(g) the Buyer and the Transitory Subsidiary shall have received from
Testa, Hurwitz & Thibeault, LLP, counsel to the Company, an opinion in the
form attached hereto as Exhibit E, addressed to the Buyer and the
Transitory Subsidiary and dated as of the Closing Date;
(h) the Buyer, the Indemnification Representative and the Escrow Agent
shall have entered into an Escrow Agreement substantially in the form
attached hereto as Exhibit A and such Agreement shall be in full force and
effect on the Closing Date in accordance with its terms;
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(i) the S-4 Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and there shall not
be in effect any stop order suspending the effectiveness of the S-4
Registration Statement or any proceeding seeking such a stop order;
provided, however, that if the SEC does not permit the Buyer to register
shares of Buyer Common Stock issuable to a stockholder of the Company
pursuant to the S-4 Registration Statement then the Company is not required
to register such shares on the S-4 Registration Statement and the Buyer
will instead register the shares of Buyer Common Stock issuable to such
stockholder of the Company pursuant to Section 7;
(j) the Buyer shall have received a letter dated as of a date not more
than two days prior to the date that the S-4 Registration Statement is
declared effective and shall have received a subsequent similar letter
dated as of a date not more than two days prior to the Effective Time, from
PricewaterhouseCoopers LLP, auditors for the Company, addressed to the
Buyer in a customary form reasonably satisfactory to the Buyer, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" with respect to the financial statements and financial
information of the Company included in the S-4 Registration Statement;
(k) this Agreement and the Merger shall have received the Requisite
Stockholder Approval;
(l) the Buyer shall have received an opinion from Hale and Dorr LLP,
counsel to the Buyer and the Transitory Subsidiary, in the form attached
hereto as Exhibit F dated the Closing Date, to the effect that the Merger
will constitute a reorganization for federal income tax purposes within the
meaning of Section 368(a) of the Code. In rendering such opinion, Hale and
Dorr LLP shall require delivery of and rely upon the representations
letters delivered by the Buyer and the Company substantially in the forms
of Exhibit G and Exhibit H hereto;
(m) the monies contemplated by the funding commitment referenced in
Section 4.18 have been funded to the extent necessary to enable the Company
to fund its operations in accordance with its existing business plan and to
otherwise carry out its business in the Ordinary Course of Business through
the Final Date;
(n) the Company shall have terminated its 401(k) Plan or shall have
amended its 401(k) Plan to exclude all employees other than the employees
of the Company; and
(o) within seven (7) days of the date hereof, the Company shall have
caused Silicon Valley Bank to deliver an amendment to their Warrant to
Purchase Stock, issued September 25, 1998, which amendment shall be in the
form of Section 5.2(o) of the Disclosure Schedule.
5.3 Conditions to Obligations of the Company. The obligation of the Company
to consummate the Merger is subject to the satisfaction of the following
additional conditions:
(a) the representations and warranties of the Buyer set forth in this
Agreement shall be true and correct as of the date of this Agreement and
shall be true and correct as of the Effective Time as though made as of the
Effective Time, except to the extent that the inaccuracy of any such
representation or warranty is the result of events or circumstances
occurring subsequent to the date of this Agreement and any such
inaccuracies, individually or in the aggregate, would not have a Closing
Material Adverse Effect or a material adverse effect on the ability of the
Parties to consummate the transactions contemplated by this Agreement (it
being agreed that any materiality qualifications in particular
representations and warranties shall be disregarded in determining whether
any such inaccuracies would have a Closing Material Adverse Effect for
purposes of this Section 5.3(a));
(b) each of the Buyer and the Transitory Subsidiary shall have performed
or complied with its agreements and covenants required to be performed or
complied with under this Agreement as of or prior to the Effective Time;
(c) no action, suit or proceeding shall be pending or threatened before
any Governmental Entity wherein an unfavorable judgment, order, decree,
stipulation or injunction would (i) prevent consummation of any of the
transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated
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by this Agreement to be rescinded following consummation or (iii) have a
Closing Material Adverse Effect on the Buyer, and no such judgment, order,
decree, stipulation or injunction shall be in effect;
(d) each of the Buyer and the Transitory Subsidiary shall have delivered
to the Company a certificate (without qualification as to knowledge or
materiality or otherwise) to the effect that each of the conditions
specified in Section 5.1 and clauses (a) through (c) of this Section 5.3 is
satisfied in all respects;
(e) the Company shall have received from Hale and Dorr LLP, counsel to
the Buyer and the Transitory Subsidiary, an opinion in the form attached
hereto as Exhibit I addressed to the Company and dated as of the Closing
Date;
(f) the Buyer, the Indemnification Representative and Escrow Agent shall
have entered into an Escrow Agreement substantially in the form attached
hereto as Exhibit A and such Agreement shall be in full force and effect on
the Closing Date in accordance with its terms;
(g) the Merger Shares shall have been authorized for listing on the
Nasdaq National Market upon official notice of issuance; and
(h) the Company shall have received an opinion from Testa, Hurwitz &
Thibeault, LLP, counsel to the Company, in the form attached hereto as
Exhibit J dated the Closing Date, to the effect that the Merger will
constitute a reorganization for federal income tax purposes within the
meaning of Section 368(a) of the Code. In rendering such opinion, Testa,
Hurwitz & Thibeault, LLP, shall require delivery of and rely upon the
representations letters delivered by the Buyer and the Company
substantially in the forms of Exhibit G and Exhibit H hereto.
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ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Company Stockholders. The Company Stockholders
receiving the Merger Shares pursuant to Section 1.5 (the "Indemnifying
Stockholders") shall indemnify the Buyer in respect of, and hold it harmless
against, any and all debts, obligations and other liabilities (whether
absolute, accrued, contingent, fixed or otherwise, or whether known or unknown,
or due or to become due or otherwise), monetary damages, fines, fees,
penalties, interest obligations, deficiencies, losses and expenses (including
without limitation amounts paid in settlement, interest, court costs, costs of
investigators, fees and expenses of attorneys, accountants, financial advisors
and other experts, and other expenses of litigation) ("Damages") incurred or
suffered by the Surviving Corporation or the Buyer or any Affiliate thereof
resulting from, relating to or constituting:
(a) any misrepresentation, breach of warranty or failure to perform any
covenant or agreement of the Company contained in this Agreement or the
Certificate delivered pursuant to Section 5.2(f);
(b) any claim by a stockholder or former stockholder of the Company, or any
other person or entity, seeking to assert, or based upon: (i) ownership or
rights to ownership of any shares of stock of the Company; (ii) any rights of a
stockholder (other than the right to receive the Merger Shares pursuant to this
Agreement or appraisal rights under the applicable provisions of the Delaware
General Corporation Law), including any option, preemptive rights or rights to
notice or to vote; (iii) any rights under the Certificate of Incorporation or
By-laws of the Company; or (iv) any claim that his, her or its shares were
wrongfully repurchased by the Company; or
(c) any liability arising out of the matters set forth in Section 2.12(a) of
the Disclosure Schedule.
6.2 Indemnification by the Buyer. The Buyer shall indemnify the Indemnifying
Stockholders in respect of, and hold them harmless against, any and all Damages
incurred or suffered by the Indemnifying Stockholders resulting from, relating
to or constituting any misrepresentation, breach of warranty or failure to
perform any covenant or agreement of the Buyer or the Transitory Subsidiary
contained in this Agreement or the Buyer Certificate.
6.3 Limitations.
(a) Notwithstanding anything to the contrary herein, (i) the aggregate
liability of each of the Indemnifying Stockholders and the Buyer for Damages
under this Article VI shall not exceed the fair market value of the Escrow
Property (as defined in the Escrow Agreement), as determined in accordance with
the Escrow Agreement (or in the case of the aggregate liability of the Buyer,
cash equal to the fair market value of the Escrow Property), and (ii) neither
the Indemnifying Stockholders nor the Buyer shall be liable under this Article
VI unless and until the aggregate Damages for which they or it would otherwise
be liable exceed $500,000 (at which point the Indemnifying Stockholders or the
Buyer, as the case may be, shall become liable for the aggregate Damages in
excess of $500,000); provided that the limitation set forth in clause (ii)
above shall not apply to a claim made by the Buyer pursuant to Section 6.1(a)
relating to a breach of the representations and warranties set forth in
Sections 2.1, 2.2, or 2.3 or a claim made by the Indemnifying Stockholders
pursuant to Section 6.2 relating to a breach of the representations and
warranties set forth in Sections 3.1, 3.2 and 3.3. For purposes solely of this
Article VI, all representations and warranties of the Company in Article II and
of the Buyer in Article III shall be construed as if the term "material" and
any reference to "Material Adverse Effect" (and variations thereof) were
omitted from such representations and warranties.
(b) Except with respect to claims based on fraud, after the Closing, the
rights of the Indemnified Parties (as defined below) under this Article VI and
the Escrow Agreement shall be the exclusive remedy of the Indemnified Parties
with respect to claims resulting from or relating to any misrepresentation,
breach of
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warranty or failure to perform any covenant or agreement contained in this
Agreement. The Escrow Agreement is intended to secure the indemnification
obligations of the Indemnifying Stockholders under this Agreement.
(c) No Indemnifying Stockholder shall have any right of contribution against
the Company or the Surviving Corporation with respect to any breach by the
Company of any of its representations, warranties, covenants or agreements.
6.4 Indemnification Claims.
(a) A party entitled, or seeking to assert rights, to indemnification under
this Article VI (an "Indemnified Party") shall give written notification to the
party from whom indemnification is sought (an "Indemnifying Party") of the
commencement of any suit or proceeding relating to a third party claim for
which indemnification pursuant to this Article VI may be sought. Such
notification shall be given within 20 business days after receipt by the
Indemnified Party of notice of such suit or proceeding, and shall describe in
reasonable detail (to the extent known by the Indemnified Party) the facts
constituting the basis for such suit or proceeding and the amount of the
claimed damages; provided, however, that no delay on the part of the
Indemnified Party in notifying the Indemnifying Party shall relieve the
Indemnifying Party of any liability or obligation hereunder except to the
extent of any damage or liability caused by or arising out of such failure.
Within 20 days after delivery of such notification, the Indemnifying Party may,
upon written notice thereof to the Indemnified Party, assume control of the
defense of such suit or proceeding with counsel reasonably satisfactory to the
Indemnified Party; provided that (i) the Indemnifying Party may only assume
control of such defense if it acknowledges in writing to the Indemnified Party
that any damages, fines, costs or other liabilities that may be assessed
against the Indemnified Party in connection with such suit or proceeding
constitute Damages for which the Indemnified Party shall be indemnified
pursuant to this Article VI. Notwithstanding the foregoing, the Indemnifying
Party may not assume control of the defense of a suit or proceeding involving
criminal liability or in which equitable relief is sought against the
Indemnified Party. In addition, notwithstanding anything in this Agreement to
the contrary, the Buyer shall control the defense of any claim that the Buyer
certifies in writing to the Indemnifying Party that the Buyer reasonably
believes that the amount of Damages relating to such claim and all other
pending claims may exceed the Value (as defined below) in the Escrow Property.
If the Indemnifying Party does not so assume control of such defense (or does
not have the right to such control), the Indemnified Party shall control such
defense. The party not controlling such defense (the "Non-controlling Party")
may participate therein at its own expense; provided that if the Indemnifying
Party assumes control of such defense and the Indemnified Party reasonably
concludes that the Indemnifying Party and the Indemnified Party have
conflicting interests or different defenses available with respect to such suit
or proceeding, the reasonable fees and expenses of counsel to the Indemnified
Party shall be considered "Damages" for purposes of this Agreement. The party
controlling such defense (the "Controlling Party") shall keep the Non-
controlling Party advised of the status of such suit or proceeding and the
defense thereof and shall consider in good faith recommendations made by the
Non-controlling Party with respect thereto. The Non-controlling Party shall
furnish the Controlling Party with such information as it may have with respect
to such suit or proceeding (including copies of any summons, complaint or other
pleading which may have been served on such party and any written claim,
demand, invoice, billing or other document evidencing or asserting the same)
and shall otherwise cooperate with and assist the Controlling Party in the
defense of such suit or proceeding. The Indemnifying Party shall not agree to
any settlement of, or the entry of any judgment arising from, any such suit or
proceeding without the prior written consent of the Indemnified Party, which
shall not be
unreasonably withheld or delayed. The Indemnified Party shall not agree to any
settlement of, or the entry of any judgment arising from, any such suit or
proceeding without the prior written consent of the Indemnifying Party, which
shall not be unreasonably withheld or delayed.
(b) In order to seek indemnification under this Article VI, an Indemnified
Party shall give written notification (a "Claim Notice") to the Indemnifying
Party which contains (i) a description and the amount (the "Claimed Amount") of
any Damages incurred or reasonably expected to be incurred by the Indemnified
Party, (ii) a statement that the Indemnified Party is entitled to
indemnification under this Article VI for such Damages and a reasonable
explanation of the basis therefor, and (iii) a demand for payment (in the
manner provided in
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paragraph (c) below) in the amount of such Damages. If the Indemnified Party is
the Buyer, the Indemnifying Party shall deliver a copy of the Claim Notice to
the Escrow Agent.
(c) Within 20 days after delivery of a Claim Notice, the Indemnifying Party
shall deliver to the Indemnified Party a written response (the "Response") in
which the Indemnifying Party shall: (i) agree that the Indemnified Party is
entitled to receive all of the Claimed Amount (in which case the Response shall
be accompanied by a payment by the Indemnifying Party to the Indemnified Party
of the Claimed Amount, by check or by wire transfer; provided that if the
Indemnified Party is the Buyer, the Indemnifying Party and the Indemnified
Party shall deliver to the Escrow Agent, within three days following the
delivery of the Response, a written notice executed by both parties instructing
the Escrow Agent to distribute to the Buyer such number of Escrow Shares as
have an aggregate Value (as defined below) equal to the Claimed Amount), (ii)
agree that the Indemnified Party is entitled to receive part, but not all, of
the Claimed Amount (the "Agreed Amount") (in which case the Response shall be
accompanied by a payment by the Indemnifying Party to the Indemnified Party of
the Agreed Amount, by check or by wire transfer; provided that if the
Indemnified Party is the Buyer, the Indemnifying Party and the Indemnified
Party shall deliver to the Escrow Agent, within three days following the
delivery of the Response, a written notice executed by both parties instructing
the Escrow Agent to distribute to the Buyer such number of Escrow Shares as
have an aggregate Value equal to the Agreed Amount) or (iii) dispute that the
Indemnified Party is entitled to receive any of the Claimed Amount. If the
Indemnifying Party in the Response disputes its liability for all or part of
the Claimed Amount, the Indemnifying Party and the Indemnified Party shall
follow the procedures set forth in Section 6.4(d) for the resolution of such
dispute (a "Dispute"). For purposes of this Article VI, the "Value" of any
Escrow Shares delivered in satisfaction of an indemnity claim shall be the
average of the last reported sale prices per share of the Buyer Common Stock on
the Nasdaq National Market over the five consecutive trading days ending on the
Closing Date (subject to equitable adjustment in the event of any stock split,
stock dividend, reverse stock split or similar event affecting the Buyer Common
Stock since the beginning of such five-day period), multiplied by the number of
such Escrow Shares.
(d) During the 60-day period following the delivery of a Response that
reflects a Dispute, the Indemnifying Party and the Indemnified Party shall use
good faith efforts to resolve the Dispute. If the Dispute is not resolved
within such 60-day period, the Indemnifying Party and the Indemnified Party
shall discuss in good faith the submission of the Dispute to a mutually
acceptable alternative dispute resolution procedure (which may be non-binding
or binding upon the parties, as they agree in advance) (the "ADR Procedure").
In the event the Indemnifying Party and the Indemnified Party agree upon an ADR
Procedure, such parties shall, in consultation with the chosen dispute
resolution service (the "ADR Service"), promptly agree upon a format and
timetable for the ADR Procedure, agree upon the rules applicable to the ADR
Procedure, and promptly undertake the ADR Procedure. The provisions of this
Section 6.4(d) shall not obligate the Indemnifying Party and the Indemnified
Party to pursue an ADR Procedure or prevent either such party from pursuing the
Dispute in a court of competent jurisdiction; provided that, if the
Indemnifying Party and the Indemnified Party agree to pursue an ADR Procedure,
neither the Indemnifying Party nor the Indemnified Party may commence
litigation or seek other remedies with respect to the Dispute prior to the
completion of such ADR Procedure. Any ADR Procedure undertaken by the
Indemnifying Party and the Indemnified Party shall be considered a compromise
negotiation for purposes of federal and state rules of evidence, and all
statements, offers, opinions and disclosures (whether written or oral) made in
the course of the ADR Procedure by or on behalf of the Indemnifying Party, the
Indemnified Party or the ADR Service shall be treated as confidential and,
where appropriate, as privileged work product. Such statements, offers,
opinions and disclosures shall not be discoverable or admissible for any
purposes in any litigation or other proceeding relating to the Dispute
(provided that this sentence shall not be construed to exclude from discovery
or admission any matter that is otherwise discoverable or admissible). The fees
and expenses of any ADR Service used by the Indemnifying Party and the
Indemnified Party shall be shared equally by the Indemnifying Party and the
Indemnified Party. If the Indemnified Party is seeking to enforce the claim
that is the subject of the Dispute pursuant to the Escrow Agreement, the
Indemnifying Party and the Indemnified Party shall deliver to the Escrow Agent,
promptly following the resolution of the Dispute (whether by mutual agreement,
pursuant to an ADR Procedure, as a
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result of a judicial decision or otherwise), a written notice executed by both
parties instructing the Escrow Agent as to what (if any) portion of the Escrow
Shares shall be distributed to the Buyer and/or the Indemnifying Stockholders
(which notice shall be consistent with the terms of the resolution of the
Dispute).
(e) Notwithstanding the other provisions of this Section 6.4, if a third
party asserts (other than by means of a lawsuit) that an Indemnified Party is
liable to such third party for a monetary or other obligation which may
constitute or result in Damages for which such Indemnified Party may be
entitled to indemnification pursuant to this Article VI, and such Indemnified
Party reasonably determines that it has a valid business reason to fulfill such
obligation, then (i) such Indemnified Party shall be entitled to satisfy such
obligation, without prior notice to or consent from the Indemnifying Party,
(ii) such Indemnified Party may subsequently make a claim for indemnification
in accordance with the provisions of this Article VI, and (iii) such
Indemnified Party shall be reimbursed, in accordance with the provisions of
this Article VI, for any such Damages for which it is entitled to
indemnification pursuant to this Article VI (subject to the right of the
Indemnifying Party to dispute the Indemnified Party's entitlement to
indemnification, or the amount for which it is entitled to indemnification,
under the terms of this Article VI). If the Indemnified Party exercised its
rights pursuant to this Section 6.4(e), it shall advise the Indemnifying Party
prior to exercising such right and in good faith seek to solicit the views of
the Indemnifying Party with respect to any such matters. Notwithstanding
anything in Section 6.1, the payment or satisfaction of any obligation pursuant
to this Section 6.4(e) shall not itself evidence the existence or amount of
Damages.
(f) For purposes of this Section 6.4 and the last two sentences of Section
6.5, (i) if the Indemnifying Stockholders comprise the Indemnifying Party, any
references to the Indemnifying Party (except provisions relating to an
obligation to make or a right to receive any payments provided for in Section
6.4 or Section 6.5) shall be deemed to refer to the Indemnification
Representatives, and (ii) if the Indemnifying Stockholders comprise the
Indemnified Party, any references to the Indemnified Party (except provisions
relating to an obligation to make or a right to receive any payments provided
for in Section 6.4 or Section 6.5) shall be deemed to refer to the
Indemnification Representatives. The Indemnification Representatives shall have
full power and authority on behalf of each Indemnifying Stockholder to take any
and all actions on behalf of, execute any and all instruments on behalf of, and
execute or waive any and all rights of, the Indemnifying Stockholders under
this Article VI. The Indemnification Representatives shall have no liability to
any Indemnifying Stockholder for any action taken or omitted on behalf of the
Indemnifying Stockholders pursuant to this Article VI.
6.5 Survival of Representations and Warranties. All representations and
warranties contained in this Agreement, the Company Certificate or the Buyer
Certificate shall (a) survive the Closing and any investigation at any time
made by or on behalf of an Indemnified Party and (b) shall, absent fraud,
expire on the date one year following the Closing Date. If an Indemnified Party
delivers to an Indemnifying Party, before expiration of a representation or
warranty, either a Claim Notice based upon a breach of such representation or
warranty, or a notice that, as a result a legal proceeding instituted by or
written claim made by a third party, the Indemnified Party reasonably expects
to incur Damages as a result of a breach of such representation or warranty (an
"Expected Claim Notice"), then such representation or warranty shall survive
until, but only for purposes of, the resolution of the matter covered by such
notice. If the legal proceeding or written claim with respect to which an
Expected Claim Notice has been given is definitively withdrawn or resolved in
favor of the Indemnified Party, the Indemnified Party shall promptly so notify
the Indemnifying Party; and if the Indemnified Party has delivered a copy of
the Expected Claim Notice to the Escrow Agent and Escrow Shares have been
retained in escrow after the Termination Date (as defined in the Escrow
Agreement) with respect to such Expected Claim Notice, the Indemnifying Party
and the Indemnified Party shall promptly deliver to the Escrow Agent a written
notice executed by both parties instructing the Escrow Agent to distribute such
retained Escrow Shares to the Indemnifying Stockholders in accordance with the
terms of the Escrow Agreement.
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ARTICLE VII
REGISTRATION RIGHTS
7.1 Registration of Shares.
(a) For the benefit of the holders of the Company Shares that are unable to
have registered shares of Buyer Common Stock included in the S-4 Registration
Statement as contemplated by Section 5.2(i) (the "Resale Company
Stockholders"), the Buyer agrees to use its best efforts to file with the SEC,
on or before 30 days following the Closing Date, a registration statement on
Form S-3 covering the resale to the public by the Resale Company Stockholders
of the Merger Shares (the "Stockholder Registration Statement"). The Buyer
shall use its best efforts to cause the Stockholder Registration Statement to
be declared effective by the SEC as soon as practicable following the filing
thereof and to remain effective until the second anniversary of the Closing
Date or such earlier time as all of the Merger Shares covered by the
Stockholder Registration Statement (the "Registered Shares") have been sold
pursuant thereto (the "Effective Period").
(b) (i) The Buyer shall promptly notify the Resale Company Stockholders of
the issuance by the SEC of any stop order suspending the effectiveness of the
Stockholder Registration Statement or the initiation of any proceedings for
that purpose. The Buyer shall use its best efforts to obtain the withdrawal of
any such stop order. In the event of any stop order suspending the
effectiveness of the Stockholder Registration Statement, the Buyer shall be
required to keep the Stockholder Registration Statement effective until the
earlier of (A) such time as all Stockholder Registered Shares offered thereby
have been disposed of in accordance with the intended methods of distribution
set forth in the Stockholder Registration Statement or (B) the period required
by Section 7.1(a) above plus an extended period equal to the number of days
during which any such suspension was in effect.
(ii) Notwithstanding anything to the contrary set forth in this Agreement,
the Buyer's obligations under this Article VII to file the Stockholder
Registration Statement and to use its best efforts to cause the Stockholder
Registration Statement to become and remain effective (and the right of the
Resale Company Stockholders to use the prospectus contained therein) shall be
suspended for two periods not to exceed 90 days each in any twelve month period
in the event and during such period as the Buyer determines that the existence
of any fact or the happening of any event (including without limitation pending
negotiations relating to, or the consummation of, a transaction or the
occurrence of any other event) would require additional disclosure of material
information by the Buyer in the Stockholder Registration Statement the
confidentiality of which the Buyer has a business purpose to preserve or which
fact or event would render the Buyer unable to comply with SEC requirements (in
either case, a "Suspension Event"). The suspension of the Buyer's obligations
in accordance with the preceding sentence shall not exist for any longer period
of time than such suspension exists for other similarly restricted stockholders
of the Buyer. The Buyer shall notify the Resale Company Stockholders promptly
in writing of the existence of any Suspension Event. In the case of any
Suspension Event occurring prior to and delaying the filing of the Stockholder
Registration Statement, the Buyer shall file the Stockholder Registration
Statement as soon as practicable after the conclusion of the Suspension Event.
In the case of any Suspension Event occurring after effectiveness of the
Stockholder Registration Statement, the Buyer shall still be required to keep
the Stockholder Registration Statement effective until the earlier of (i) such
time as all of the Registered Shares offered thereby have been disposed of in
accordance with the intended methods of distribution set forth in the
Stockholder Registration Statement or (ii) the period required by Section
7.1(a) above.
(iii) Following the effectiveness of the Stockholder Registration Statement,
each of the Resale Company Stockholders agrees that it will not effect any
sales of the Registered Shares offered thereby at any time after it has
received notice from the Buyer to suspend sales as a result of a stop order or
the occurrence or existence of any Suspension Event. The Resale Company
Stockholders may recommence effecting sales of the Registered Shares offered
thereby following further notice to such effect from the Buyer, which notice
shall be give by the Buyer promptly after the withdrawal of any stop order or
the conclusion of any such Suspensions Event.
(iv) Upon the effectiveness of the Stockholder Registration Statement, the
Buyer shall, as promptly as practicable, furnish to each of the Resale Company
Stockholders such number of conformed copies of the
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Stockholder Registration Statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus contained in the Stockholder Registration Statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as the Resale
Company Stockholders may reasonably request in order to facilitate the public
sale or other disposition of the Registered Shares owned by the Resale Company
Stockholders.
(v) The Buyer shall use its reasonable efforts to register or qualify all
Registered Shares covered by the Stockholder Registration Statement under such
other securities laws or "blue sky" laws of such jurisdictions as the Resale
Company Stockholders shall reasonably request, to keep such registrations or
qualifications in effect for so long as the Stockholder Registration Statement
remains in effect and to take any other action which may be reasonably
necessary or advisable to enable the Resale Company Stockholders to consummate
the disposition in such jurisdictions of the Registered Shares owned by such
Resale Company Stockholders; provided, however, that the Buyer shall not be
required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this subparagraph
(v) be obligated to be so qualified, to subject itself to taxation in any such
jurisdiction or to consent to general service of process in any such
jurisdiction.
7.2 Registration Procedures.
(a) In connection with the filing by the Buyer of the Stockholder
Registration Statement, the Buyer shall furnish to each Resale Company
Stockholder a copy of the prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act. Subject to Section 7.1
hereof, the Buyer shall prepare and file with the SEC such amendments and
supplements to the Stockholder Registration Statement and the prospectus used
in connection such Stockholder Registration Statement as may be reasonably
necessary to keep such Stockholder Registration Statement effective and to
comply with the provisions of the Securities Act with respect to the
disposition of all Registered Shares until the earlier of (i) such time as all
such Registered Shares have been disposed of or (ii) the expiration of the
Effective Period. The Buyer shall furnish to each Resale Company Stockholder a
copy of any amendment or supplement to such Stockholder Registration Statement
or prospectus prior to filing the same with the SEC, and shall not file any
such amendment or supplement to which any such requesting Resale Company
Stockholder shall reasonably have objected to in writing prior to the filing
thereof on the grounds that such amendment or supplement contains a material
inaccuracy with respect to the description of such Resale Company Stockholder.
(b) If the Buyer has delivered preliminary or final prospectuses to the
Resale Company Stockholders and after having done so the prospectus is amended
or supplemented to comply with the requirements of the Securities Act as
described in Section 7.2(a) hereof, the Buyer shall promptly notify the Resale
Company Stockholders and, if requested by the Buyer, the Resale Company
Stockholders shall immediately cease making offers or sales of shares under the
Stockholder Registration Statement and return all prospectuses to the Buyer.
The Buyer shall promptly provide the Resale Company Stockholders with revised
prospectuses and, following receipt of the revised prospectuses, the Resale
Company Stockholders shall be free to resume making offers and sales under the
Stockholder Registration Statement.
(c) The Buyer shall furnish to each requesting Resale Company Stockholder
such number of conformed copies of the Stockholder Registration Statement and
of each such amendment and supplement thereto (in each case including all
exhibits thereto), such number of copies of the prospectus included in such
Stockholder Registration Statement (including each preliminary prospectus) and
such number of documents, if any, incorporated by reference in such Stockholder
Registration Statement or prospectus, as such requesting Resale Company
Stockholder may reasonably request.
(d) The Buyer shall use its best efforts to register or qualify the
Registered Shares under the securities or "blue sky" laws of such states as the
Resale Company Stockholders shall reasonably request; provided, however, that
the Buyer shall not be required in connection with this paragraph (d) to
qualify as a foreign corporation or execute a general consent to service of
process in any jurisdiction.
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(e) The Buyer shall pay the expenses incurred by it in complying with its
obligations under this Article VII, including all registration and filing fees,
exchange listing fees, fees and expenses of counsel for the Buyer, and fees and
expenses of accountants for the Buyer and fees and expenses of one counsel
selected by the Resale Company Stockholders up to $7,500, but excluding (i) any
brokerage fees, selling commissions or underwriting discounts incurred by the
Company Stockholders in connection with sales under the Stockholder
Registration Statement and (ii) the fees and expenses of any additional counsel
retained by Resale Company Stockholders.
7.3 Requirements of Resale Company Stockholders. The Buyer shall not be
required to include any Merger Shares in the Stockholder Registration Statement
unless:
(a) the Resale Company Stockholder owning such shares furnishes to the
Buyer in writing such information regarding such Resale Company Stockholder
and the proposed sale of Merger Shares by such Resale Company Stockholder
as the Buyer may reasonably request in writing in connection with the
Stockholder Registration Statement or as shall be required in connection
therewith by the SEC or any state securities law authorities;
(b) such Resale Company Stockholder shall have provided to the Buyer
its written agreement:
(i) to indemnify the Buyer and each of its directors and officers
against, and hold the Buyer and each of its directors and officers
harmless from, any losses, claims, damages, expenses or liabilities
(including reasonable attorneys fees) to which the Buyer or such
directors and officers may become subject by reason of any statement or
omission in the Stockholder Registration Statement made in reliance
upon, or in conformity with, a written statement by such Resale Company
Stockholder furnished pursuant to this Section 7.3; and
(ii) to promptly report to the Buyer sales made pursuant to the
Stockholder Registration Statement.
7.4 Indemnification. The Buyer agrees to indemnify and hold harmless each
Resale Company Stockholder whose shares are included in the Stockholder
Registration Statement against any losses, claims, damages, expenses or
liabilities to which such Resale Company Stockholder may become subject by
reason of any untrue statement of a material fact contained in the Stockholder
Registration Statement or any omission to state therein a fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, expenses or liabilities arise
out of or are based upon information furnished in writing to the Buyer by or on
behalf of a Resale Company Stockholder for use in the Stockholder Registration
Statement. The Buyer shall have the right to assume the defense and settlement
of any claim or suit for which the Buyer may be responsible for indemnification
under this Section 7.4.
7.5 Rule 144. The Buyer shall comply with the requirements of Rule 144(c)
under the Securities Act, as such Rule may be amended from time to time (or any
similar rule or regulation hereafter adopted by the SEC), regarding the
availability of current public information to the extent required to enable
each Resale Company Stockholder to sell Merger Shares without registration
under the Securities Act pursuant to the resale provision of Rule 144 (or any
similar rule or regulation). Upon the request of a Resale Company Stockholder,
the Buyer will deliver to such Resale Company Stockholder a written statement
as to whether it has complied with such requirements and, upon a Resale Company
Stockholder's compliance with the applicable provision of Rule 144, will take
such action as may be required (including, without limitation, causing legal
counsel to issue an appropriate opinion) to cause its transfer agent to
effectuate any transfer of Merger Shares properly requested by such Resale
Company Stockholder, in accordance with the terms and conditions of Rule 144.
7.6 Assignment of Rights. A Resale Company Stockholder may not assign any of
his or her rights under this Article VII except in connection with the transfer
of some or all of his or her Merger Shares to a child or spouse, or trust for
their benefit, or to a partner, stockholder, member or affiliate of such Resale
Company Stockholder, provided each such transferee agrees in a written
instrument delivered to the Buyer to be bound by the provisions of this Article
VII.
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ARTICLE VIII
TERMINATION
8.1 Termination of Agreement. The Parties may terminate this Agreement prior
to the Effective Time as provided below:
(a) the Parties may terminate this Agreement by mutual written consent;
(b) the Buyer may terminate this Agreement by giving written notice to
the Company in the event the Company is in breach, and the Company may
terminate this Agreement by giving written notice to the Buyer and the
Transitory Subsidiary in the event the Buyer or the Transitory Subsidiary
is in breach, of any material representation, warranty or covenant
contained in this Agreement, and such breach is not remedied within 10 days
of delivery of written notice thereof;
(c) the Buyer may terminate this Agreement by giving written notice to
the Company prior to 5:00 p.m., Boston time, on January 7, 2000 (the "Final
Date"), if the Closing shall not have occurred on or before the Final Date
by reason of the failure of any condition precedent under Section 5.2
hereof (unless the failure results primarily from a breach by the Buyer or
the Transitory Subsidiary of any representation, warranty or covenant
contained in this Agreement);
(d) the Company may terminate this Agreement by giving written notice
to the Buyer prior to 5:00 p.m., Boston time, on the Final Date, if the
Closing shall not have occurred on or before the Final Date by reason of
the failure of any condition precedent under Section 5.3 hereof (unless the
failure results primarily from a breach by the Company of any
representation, warranty or covenant contained in this Agreement);
(e) any Party may terminate this Agreement by giving written notice to
the other Parties if the Buyer does not receive the approval of its
stockholders to consummate the merger as provided in Section 4.3(d) at the
meeting called for such purpose (including any adjournments thereof); or
(f) in the event that after the execution of this Agreement and before
the Final Date (i) (A) the Buyer enters into an agreement or letter of
intent with a third-party to sell the Buyer to such third-party (through a
merger or otherwise) and as a result (I) the Board of Directors withdraws
or withholds its recommendation to stockholders to vote in favor of the
issuance of shares in connection with the Merger and (II) the vote of the
stockholders of Buyer is not obtained or (B) a tender offer is made for the
purchase of at least 80% of the outstanding securities of the Buyer by a
person or group that recommends to the stockholders of the Buyer to vote
against the issuance of shares in connection with the Merger or otherwise
conditions such offer on the Merger not being consummated and such tender
offer is successful or (C) over 30% of the outstanding securities of the
Buyer are purchased by a third-party, such third-party votes against the
issuance of shares of the Buyer in connection with the Merger at the
Buyer's meeting of stockholders called for such purpose and the vote of the
stockholders of Buyer is not obtained and (ii) all of the other conditions
to closing of the Buyer set forth in Sections 5.2(b), (c), (d) and (e) of
this Agreement have been satisfied and the Company is not otherwise in
breach of this Agreement, or in the event that after the execution of this
Agreement and before the Final Date the Company terminates this Agreement
which it shall have the right to do under any of the circumstances
described above, then upon the closing of such sale, tender offer or other
transaction by Buyer, the Buyer shall pay cash to the Company in the amount
of $5,000,000. In such event the Buyer shall have no further liability to
the Company.
8.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8.1, all obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for
any liability of any Party for breaches of this Agreement).
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ARTICLE IX
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
ADR Procedure 6.4(d)
ADR Service 6.4(d)
Affiliate Agreement 4.9
Affiliates 2.14(a)(ix)
Agreed Amount 6.4(c)
Annual Financial Statements 2.7
Bank Agreements 2.4(b)
Best efforts 1.11(c)
Buyer Introduction
Buyer Common Stock 1.5(a)
Buyer Reports 3.5
CERCLA 2.21(g)
Certificate 1.7(a)
Certificate of Merger 1.1
Claimed Amount 6.4(b)
Claim Notice 6.4(b)
Closing 1.2
Closing Date 1.2
Closing Material Adverse Effect 2.1
Code 1.11(a)
Common Shares 1.5(a)
Common Conversion Ratio 1.5(c)
Company Introduction
Company Insiders 4.16
Company Intellectual Property 2.19(a)
Company Plans 2.13(a)
Company Shares 1.5(b)
Company Stockholders 1.5(c)
Company Voting Agreement 4.12
Controlling Party 6.4(a)
Customer Deliverables 2.19(a)
Damages 6.1
Deductible Obligations 1.5(c)
Designated Stockholders 4.13
Disclosure Schedule Article II
Disclosure Statement 4.3(a)
Dispute 6.4(c)
Dissenting Shares 1.6(a)
Effective Period 7.1(a)
Effective Time 1.1
Employee Benefit Plan 2.13(a)
Enforceability Exceptions 2.2
Environmental Law 2.21(g)
ERISA 2.13(a)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Escrow Agreement 1.3
Escrow Agent 1.3
Escrow Shares 1.5(c)
Exchange Act 2.4(a)
Expected Claim Notice 6.5
Final Date 8.1(c)
Financial Statements 2.7
GAAP 2.7
Governmental Entity 2.4(a)
HSR Act 2.4(a)
Indemnification Representative 1.3
Indemnified Executives 4.10(b)
Indemnified Party 6.4(a)
Indemnifying Party 6.4(a)
Indemnifying Stockholders 6.1
Initial Shares 1.5(c)
Intellectual Property 2.19(a)
Interim Financial Statements 2.7
Internal Systems 2.19(a)
Lien 2.5
Material Adverse Effect 2.1
Materials of Environmental Concern 2.21(h)
Merger 1.1
Merger Shares 1.5(c)
Non-controlling Party 6.4(a)
Options 1.11(a)
Ordinary Course of Business 2.8(a)
Party Introduction
Permit 2.15
Person 2.4(b)
Preferred Conversion Ratio 1.5(c)
Preferred Shares 1.5(d)
Prospectus/Proxy Statement 4.3(a)
Purchase Price 1.5(c)
Quarterly Report on Form 10-Q 3.2
RCRA 2.21(g)
Registered Shares 7.1(a)
Requisite Stockholder Approval 2.2
Resale Company Stockholders 7.1(a)
Response 6.4(c)
S-4 Registration Statement 4.3(a)
SEC 3.2
Section 16 Information 4.16
Securities Act 1.11(c)
Series A Preferred Stock 1.5(b)
Series B Preferred Stock 1.5(b)
Series C Preferred Stock 1.5(b)
Series D Preferred Stock 1.5(b)
Software 2.19(e)
Stockholder Registration Statement 7.1(a)
Surviving Corporation 1.1
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Suspension Event 7.1(b)(ii)
Taxes 2.12(a)
Tax Returns 2.12(a)
Termination Date 6.5
Transitory Subsidiary Introduction
Value 6.4(c)
Warrants 1.11(d)
Year 2000 Compliant 2.19(i)
</TABLE>
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<PAGE>
ARTICLE X
MISCELLANEOUS
10.1 Press Releases and Announcements. No Party shall issue any press
release or public disclosure relating to the subject matter of this Agreement
without the prior written approval of the other Parties; provided, however,
that any Party may make any public disclosure it believes in good faith is
required by law or regulation (in which case the disclosing Party shall consult
with the other Parties and provide them with a copy of the proposed disclosure
prior to making the disclosure); provided further that following the Effective
Time, the Buyer may issue any press release or make public disclosure relating
to the subject matter of this Agreement without the consent of the other
Parties.
10.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that (a) the provisions in
Article I concerning issuance of the Merger Consideration, Article VI
concerning indemnification and Article VII concerning registration rights are
intended for the benefit of the Company Stockholders and (b) the provisions of
Section 4.11 concerning indemnification are intended for the benefit of the
individuals specified therein.
10.3 Entire Agreement. This Agreement, including the Exhibits and Schedules
attached hereto and the documents referred to herein, constitute the entire
agreement among the Parties and supersedes any prior understandings,
agreements, or representations by or among the Parties, written or oral, with
respect to the subject matter hereof.
10.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior
written approval of the other Parties; provided that the Transitory Subsidiary
may assign its rights, interests and obligations hereunder to an Affiliate of
the Buyer.
10.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
10.6 Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent via a
reputable nationwide overnight courier service, in each case to the intended
recipient as set forth below:
If to the Company: Copy to:
FutureTense, Inc. Testa, Hurwitz & Thibeault, LLP
43 Nagog Park 125 High Street
Acton, MA 01720 Boston, MA 02110
Attn: Mr. Ronald Matros and Attn: Mark J. Macenka, Esq.
Mr. Paul Hallee
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<PAGE>
If to the Buyer: Copy to:
Open Market, Inc. Hale and Dorr LLP
One Wayside Road 60 State Street
Burlington, MA 01803 Boston, MA 02109
Attn: Mr. Gary Eichhorn and Attn: Jeffrey N. Carp, Esq.
Mr. Paul Esdale
If to the Transitory Subsidiary: Copy to:
OM/SA Acquisition Corporation Hale and Dorr LLP
c/o Open Market, Inc. 60 State Street
One Wayside Road Boston, MA 02109
Burlington, MA 01803 Attn: Jeffrey N. Carp, Esq.
Attn: Mr. Gary Eichhorn and
Mr. Paul Esdale
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited
courier, messenger service, telecopy, telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other communication shall
be deemed to have been duly given unless and until it actually is received by
the party for whom it is intended. Any Party may change the address to which
notices, requests, demands, claims, and other communications hereunder are to
be delivered by giving the other Parties notice in the manner herein set forth.
10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the
Commonwealth of Massachusetts without giving effect to any choice of law
provision or rule (whether of the Commonwealth of Massachusetts or any other
jurisdiction) that would cause the application of laws of any jurisdiction
other than those of the Commonwealth of Massachusetts.
10.9 Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time; provided, however, that
any amendment effected subsequent to the Requisite Stockholder Approval shall
be subject to any restrictions contained in the Delaware General Corporation
Law. No amendment of any provision of this Agreement shall be valid unless the
same shall be in writing and signed by all of the Parties. No waiver by any
Party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior
or subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
10.10 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
10.11 Specific Performance. Each of the Parties acknowledges and agrees that
one or more of the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this
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Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of the United States or
any state thereof having jurisdiction over the Parties and the matter (subject
to the provisions of Section 10.12), in addition to any other remedy to which
it may be entitled, at law or in equity.
10.12 Submission to Jurisdiction. Each of the Parties (a) submits to the
nonexclusive jurisdiction of any state or federal court sitting in the
Commonwealth of Massachusetts in any action or proceeding arising out of or
relating to this Agreement, and (b) agrees that all claims in respect of the
action or proceeding may be heard and determined in any such court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety or other security
that might be required of any other Party with respect thereto. Any Party may
make service on another Party by sending or delivering a copy of the process to
the Party to be served at the address and in the manner provided for the giving
of notices in Section 10.7. Nothing in this Section 10.12, however, shall
affect the right of any Party to serve legal process in any other manner
permitted by law.
10.13 Construction. The language used in this Agreement shall be deemed to
be the language chosen by the Parties hereto to express their mutual intent,
and no rule of strict construction shall be applied against any Party. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise.
10.14 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
[Remainder of page intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
Open Market, Inc.
/s/ Gary Eichhorn
By: _________________________________
Gary Eichhorn
President and Chief Executive
Officer
OM/SA Acquisition Corporation
/s/ Gary Eichhorn
By: _________________________________
Gary Eichhorn
President and Chief Executive
Officer
FutureTense, Inc.
/s/ Ronald Matros
By: _________________________________
Ronald Matros
President and Chief Executive
Officer
A-47
<PAGE>
ANNEX B
July 13, 1999
Confidential
Board of Directors
Open Market, Inc.
1 Wayside Road
Burlington, MA 01803
Gentlemen:
Open Market, Inc. ("Open Market") and FutureTense, Inc. ("FutureTense")
propose to enter into an Agreement and Plan of Merger (the "Agreement")
pursuant to which FutureTense will be merged with and into a wholly-owned
subsidiary of Open Market (the "Merger"). Under the terms of the proposed
Merger, the holders of FutureTense common stock, preferred stock, stock options
and warrants will receive, in the aggregate, not more than, 9.6 million shares
(including options) of Open Market's common stock (the "Consideration"). The
Consideration will be increased in accordance with the Agreement by the
aggregate exercise price of options and warrants assumed by Open Market in the
Merger and will be reduced by the Deductible Obligations, as defined in the
Agreement. The Merger is expected to be considered by the Shareholders of Open
Market at a special meeting and consummated shortly thereafter.
You have asked us whether or not, in our opinion, the proposed Consideration
to be paid by Open Market pursuant to the Merger is fair, from a financial
point of view, to Open Market.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed Open Market's Annual Reports, Forms 10-K and related financial
information for the two fiscal years ended December 31, 1998 and Open
Market's Form 10-Q and the related unaudited financial information for
the three months ended March 31, 1999;
(2) Reviewed certain information, including financial forecasts for fiscal
years 1999 and 2000, relating to the business, earnings, cash flow,
assets and prospects of FutureTense and Open Market, furnished to us by
FutureTense and Open Market, respectively;
(3) Conducted discussions with members of senior management of FutureTense
and Open Market concerning their respective businesses and prospects;
(4) Reviewed the historical market prices and trading activity for Open
Market's common stock and compared them with that of certain publicly
traded companies which we deemed to be relevant;
(5) Compared the financial position and results of operations of
FutureTense and Open Market with that of certain companies which we
deemed to be relevant;
(6) Compared the proposed financial terms of the transactions contemplated
by the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(7) Considered the pro forma effect of the Merger on Open Market's
capitalization ratios and earnings, revenue and cash flow per share;
(8) Reviewed a draft of the Agreement and Plan of Merger dated July 11,
1999; and
(9) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information publicly available, supplied or otherwise communicated to us by
FutureTense and Open Market, and we have not
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assumed any responsibility to independently verify such information. With
respect to the financial forecasts examined by us, we have assumed that they
were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the management of Open Market and
FutureTense as to the future performance of Open Market and FutureTense,
respectively. We have also relied upon assurances of the management of Open
Market and FutureTense that they are unaware of any facts that would make the
information or financial forecasts provided to us incomplete or misleading. We
have not been engaged to make, and have not made, any independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Open Market
or FutureTense nor have we been furnished with any such evaluations or
appraisals. We have also assumed, with your consent, that (i) the Merger will
be a tax-free reorganization and (ii) any material liabilities (contingent or
otherwise, known or unknown) of Open Market and FutureTense are as set forth in
the consolidated financial statements of Open Market and FutureTense,
respectively. Our opinion is based on economic, monetary and market conditions
existing on the date hereof. No opinion is expressed herein as to the price at
which the securities to be issued in the Merger to the shareholders of
FutureTense may trade at any time.
This opinion is directed to the Board of Directors of Open Market and does
not constitute a recommendation to any shareholder of Open Market as to how any
such shareholder should vote on the Merger. This opinion does not address the
relative merits of the Merger and any other transactions or business strategies
discussed by the Board of Directors of Open Market as alternatives to the
Merger or the decision of the Board of Directors of Open Market to proceed with
the Merger.
In the ordinary course of business, PaineWebber Incorporated may trade in
the securities of Open Market for our own account and for the accounts of our
customers and, accordingly, may at any time hold long or short positions in
such securities.
PaineWebber Incorporated is currently acting as financial advisor to Open
Market in connection with the Merger and will be receiving a fee in connection
with the rendering of this opinion and upon consummation of the Merger. In the
past, PaineWebber Incorporated and its affiliates have provided investment
banking and other financial services to Open Market and have received fees for
rendering these services.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed Consideration to be paid by Open Market in the Merger is fair,
from a financial point of view, to Open Market.
This opinion has been prepared for the information of the Board of Directors
of Open Market in connection with the Merger and shall not be reproduced,
summarized, described or referred to, provided to any person or otherwise made
public or used for any other purpose without the prior written consent of
PaineWebber Incorporated; provided, however, that this letter may be reproduced
in full in the Proxy Statement related to the Merger.
Very truly yours,
PAINEWEBBER INCORPORATED
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<PAGE>
ANNEX C
DELAWARE GENERAL CORPORATION LAW
SEC. 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S)228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the work "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251 (other than a merger effected pursuant to (S)251(g)
of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been
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given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to
receive either notice, each constituent corporation may fix, in advance, a
record date that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or
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resulting corporation pursuant to subsection (f) of this section and who has
submitted such stockholder's certificates of stock to the Register in Chancery,
if such is required, may participate fully in all proceedings until it is
finally determined that such stockholder not entitled to appraisal rights under
this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
C-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Section 102 of the Delaware General Corporation Law, as amended, allows a
corporation to eliminate the personal liability of directors of a corporation
to the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except where the director breached his duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation or is or was serving at its request in such capacity in another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The Registrant's By-laws generally allow indemnification of officers and
directors to the fullest extent permitted by law.
The Registrant has agreed that it will, and will cause OM/SA Acquisition
Corporation to indemnify each present and former director and officer of
FutureTense to the fullest extent permitted by law.
The Registrant has obtained directors' and officers' liability insurance
coverage from National Union Fire Insurance Company (Primary Policy); Lloyds of
London (First Excess Policy); and Old Republic Insurance Company (Second Excess
Policy). The policy covers up to $15,000,000 for each claim during each policy
year subject to a retention of $175,000 per claim under Securities laws and
$100,000 per claim for all other claims.
Pursuant to Section 4.10 of the Merger Agreement, the Registrant, for a
period of six years after the effective time of the Merger, has agreed to cause
OM/SA Acquisition Corporation to maintain (to the extent available in the
market) in effect a directors' and officers' liability insurance policy
covering those persons currently covered by FutureTense's director and officer
liability insurance policy with coverage in amount and scope at least as
favorable to such persons as FutureTense's existing coverage with certain
limitations. See "The Merger Agreement--Director and Officer Indemnification."
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
<TABLE>
<S> <C>
(a) Exhibits
2.1(1) Agreement and Plan of Merger, dated as of July 14, 1999, by and among the Registrant, OM/SA
Acquisition Corporation and FutureTense, Inc.
2.2 Form of Escrow Agreement to be entered into by and among the Registrant, Jarrett Collins,
as representative of the stockholders of FutureTense, Inc., and State Street Bank & Trust Company.
3.1 Amended and Restated Certificate of Incorporation of the Registrant, as amended to date.
3.2(2) Amended and Restated By-laws of the Registrant, as amended to date.
4.1(2) Specimen certificate for shares of common stock, $.001 par value per share, of the Registrant.
4.2(3) Form of Rights Certificate.
4.3(3) Rights Agreement, dated as of January 26, 1998, between the Registrant and BankBoston N.A.,
as Rights Agent.
4.4(4) Amendment No. 1, dated February 17, 1999, to Rights Agreement, dated as of January 26, 1998,
between the Registrant and BankBoston N.A., as Rights Agent.
5.1 Form of opinion of Hale and Dorr LLP.
8.1 Form of opinion of Hale and Dorr LLP as to tax matters.
8.2 Form of opinion of Testa, Hurwitz & Thibeault LLP as to tax matters.
21.1(5) Subsidiaries of the Registrant.
23.1 Consent of Hale and Dorr LLP (included in Exhibits 5.1 and 8.1).
23.2 Consent of Arthur Andersen LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Testa, Hurwitz & Thibeault LLP (included in Exhibit 8.2).
24.1 Power of Attorney with respect to the Registrant.
99.1(6) Consent of PaineWebber Incorporated.
99.2 Form of Proxy Card of the Registrant.
99.3 Form of Proxy Card of FutureTense, Inc.
</TABLE>
- --------
(1) Attached as Annex A to the Joint Proxy Statement/Prospectus.
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-1, as amended (File No. 333-03340).
(3) Incorporated by reference from the Registrant's Current Report on Form 8-K
dated January 26, 1998.
(4) Incorporated by reference from the Registrant's Current Report on Form 8-K
dated February 17, 1999.
(5) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998.
(6) Attached as Annex B to the Joint Proxy Statement/Prospectus.
II-2
<PAGE>
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are not applicable, and, therefore, have been
omitted.
Item 22. Undertakings.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the information set forth
in the Registration Statements.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the
Exchange Act that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. The Registration hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended (the "Securities Act"),
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (and where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act), that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. The Registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in
II-3
<PAGE>
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to this Registration Statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
D. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
E. The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11, or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This included information contained in documents filed
subsequent to the effective date of this Registration Statement through the
date of responding to the request.
F. The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Burlington, Commonwealth
of Massachusetts on the 6th day of August, 1999.
Open Market, Inc.
By: /s/ Gary B. Eichhorn
----------------------------------
Gary B. Eichhorn
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below on this Registration Statement hereby constitutes and appoints Gary B.
Eichhorn, Betty J. Savage, Paul Esdale, and Eric J. Pyenson, their true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for them and in their name, place and stead, in any and all
capacities (unless revoked in writing) to sign any and all amendments to this
Registration Statement to which this power of attorney is attached, including
any post-effective amendments as well as any related registration statement (or
amendment thereto) filed in reliance upon Rule 462(b) under the Securities Act
of 1933, as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting to such attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in connection therewith, as fully to all intents and purposes as
they might and could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gary B. Eichhorn President, Chief Executive Officer August 6, 1999
______________________ and Director
Gary B. Eichhorn
/s/ Betty J. Savage Vice President and Chief August 6, 1999
______________________ Financial Officer
Betty J. Savage (Principal Financial Officer)
/s/ Annmarie Russell Director of Finance August 6, 1999
______________________ (Principal Accounting Officer)
Annmarie Russell
/s/ Gulrez Arshad Director August 6, 1999
______________________
Gulrez Arshad
/s/ Thomas H. Bruggere Director August 6, 1999
______________________
Thomas H. Bruggere
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
-
<S> <C> <C>
/s/ Shikhar Ghosh Director August 6, 1999
_____________________
Shikhar Ghosh
/s/ William S. Kaiser Director August 6, 1999
_____________________
William S. Kaiser
/s/ Eugene F. Quinn Director August 6, 1999
_____________________
Eugene F. Quinn
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
2.1(1) Agreement and Plan of Merger, dated as of July 14, 1999, by and among the Registrant, OM/SA
Acquisition Corporation and FutureTense, Inc.
2.2 Form of Escrow Agreement to be entered into by and among the Registrant, Jarrett Collins, as
representative of the stockholders of FutureTense, Inc., and State Street Bank & Trust Company.
3.1 Amended and Restated Certificate of Incorporation of the Registrant, as amended to date.
3.2(2) Amended and Restated By-laws of the Registrant, as amended to date.
4.1(2) Specimen certificate for shares of common stock, $.001 par value per share, of the Registrant.
4.2(3) Form of Rights Certificate.
4.3(3) Rights Agreement, dated as of January 26, 1998, between the Registrant and BankBoston N.A., as
Rights Agent.
4.4(4) Amendment No. 1, dated February 17, 1999, to the Rights Agreement dated as of January 26, 1998,
between the Registrant and BankBoston N.A., as Rights Agent.
5.1 Form of opinion of Hale and Dorr LLP.
8.1 Form of opinion of Hale and Dorr LLP as to tax matters.
8.2 Form of opinion of Testa, Hurwitz & Thibeault LLP as to tax matters.
21.(5) Subsidiaries of the Registrant.
23.1 Consent of Hale and Dorr LLP (included in Exhibits 5.1 and 8.1).
23.2 Consent of Arthur Andersen LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Testa, Hurwitz & Thibeault LLP (included in Exhibit 8.2).
24.1 Power of Attorney with respect to the Registrant (see page II-5).
99.1(6) Consent of PaineWebber Incorporated.
99.2 Form of Proxy Card of the Registrant.
99.3 Form of Proxy Card of FutureTense.
</TABLE>
- --------
(1)Attached as Annex A to the Joint Proxy Statement/Prospectus.
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-1, as amended (File No. 333-03340).
(3)Incorporated by reference from the Registrant's Current Report on Form 8-K
dated January 26, 1998.
(4)Incorporated by reference from the Registrant's Current Report on Form 8-K
dated February 17, 1999
(5) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998.
(6)Attached as Annex B to the Joint Proxy Statement/Prospectus.
<PAGE>
Exhibit 2.2
-----------
ESCROW AGREEMENT
----------------
This Escrow Agreement is entered into as of _________, 1999, by and among
Open Market, Inc., a Delaware corporation (the "Buyer"), Jarrett Collins (the
"Indemnification Representative") and State Street Bank and Trust Company (the
"Escrow Agent").
WHEREAS, the Buyer and FutureTense, Inc., a Delaware corporation (the
"Company"), have entered into an Agreement and Plan of Merger dated July 14,
1999 (the "Merger Agreement"), by and among the Company, the Buyer and a
subsidiary of the Buyer, pursuant to which such subsidiary will be merged (the
"Merger") into the Company which, as the surviving corporation (the "Surviving
Corporation"), will become a wholly-owned subsidiary of the Buyer;
WHEREAS, the Merger Agreement provides that an escrow account will be
established to secure the indemnification obligations of the stockholders of the
Company receiving consideration pursuant to Section 1.5 of the Merger Agreement
(collectively, the "Indemnifying Stockholders") to the Buyer; and
WHEREAS, the parties hereto desire to establish the terms and conditions
pursuant to which such escrow account will be established and maintained;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Consent of Company Stockholders. The Indemnifying Stockholders have,
-------------------------------
either by virtue of their approval of the Merger Agreement or through the
execution of an instrument to such effect, consented to: (a) the establishment
of this escrow to secure the Indemnifying Stockholders' indemnification
obligations under Article VI of the Merger Agreement in the manner set forth
herein, (b) the appointment of the Indemnification Representative as their
representative for purposes of this Agreement and as attorney-in-fact and agent
for and on behalf of each Indemnifying Stockholder, and the taking by the
Indemnification Representative of any and all actions and the making of any
decisions required or permitted to be taken or made by them under this
Agreement, and (c) all of the other terms, conditions and limitations in this
Agreement.
2. Escrow and Indemnification.
--------------------------
(a) Escrow of Shares. Simultaneously with the execution of this
----------------
Agreement, the Buyer shall deposit with the Escrow Agent a certificate for _____
shares of common stock of the Buyer, as determined pursuant to Section 1.5 of
the Merger Agreement, issued in the name of the Escrow Agent or its nominee.
Upon receipt thereof, the Escrow Agent shall provide written acknowledgement to
the Buyer and the Indemnification Representative of the Escrow Agent's receipt
of such
<PAGE>
stock certificate. The Buyer may from time to time deposit with the Escrow Agent
additional shares of common stock of the Buyer pursuant to the final sentence of
Section 1.6(a) of the Merger Agreement (the "Additional Shares"). The shares
deposited with the Escrow Agent pursuant to the first sentence of this Section
2(a), together with any Additional Shares, are referred to herein as the "Escrow
Shares." The Escrow Shares, together with any cash proceeds received from the
sale of any Escrow Shares pursuant to Section 2(b) and held in the escrow
account established hereby, including any investment earnings received from the
investment thereof and held hereunder pursuant to Section 2(b) hereof, are
collectively referred to as the "Escrow Property." The Escrow Property shall be
held as an escrow fund and shall not be subject to any lien, attachment, trustee
process or any other judicial process of any creditor of any party hereto. The
Escrow Agent agrees to hold the Escrow Property in an escrow account (the
"Escrow Account"), subject to the terms and conditions of this Agreement.
In the event the Buyer deposits any Additional Shares with the Escrow
Agent: (i) the Buyer shall accompany the deposit with written notice to the
Escrow Agent identifying such shares as for deposit hereunder, and making
specific reference to this Agreement, (ii) the Buyer shall accompany such
deposit with an amended Attachment A (as contemplated by Section 3(c)) or
written notice stating that no amendment of Attachment A is required pursuant to
Section 3(c) in connection with such deposit and (iii) the stock certificate
representing such shares shall be issued in the name of the Escrow Agent or its
nominee. The Escrow Agent shall be entitled to rely conclusively upon any such
notice, and until it receives any such notice, the Escrow Agent shall be
entitled to rely conclusively on Attachment A. The Escrow Agent shall be under
no obligation to examine any stock certificate delivered to it hereunder, and
shall have no liability for the genuineness, validity, marketability or
sufficiency thereof.
(b) Additional Property Subject to Escrow.
-------------------------------------
(i) Any securities distributed in respect of or in exchange for
any of the Escrow Shares, whether by way of stock dividends, stock splits
or otherwise, shall be issued in the name of the Escrow Agent or its
nominee, and shall be delivered to the Escrow Agent, who shall hold such
securities in the Escrow Account. Such securities shall be considered
Escrow Shares for purposes hereof. Any cash dividends or property (other
than securities) distributed in respect of the Escrow Shares shall promptly
be distributed by the Escrow Agent to the Indemnifying Stockholders in
accordance with their percentage interest of the Escrow Shares as set forth
opposite such holder's name on Attachment A hereto, as such percentage
------------
interest set forth on Attachment A may be amended from time to time
pursuant to Section 3(c) (as so amended from time to time, the "Percentage
Interest"), and in each case to his or her notice address as provided in
Section 10 hereof.
-2-
<PAGE>
(ii) At any time beginning on the date that is thirty days after
the date on which the post-closing results of combined operations of Buyer
and the Company have been published (such thirtieth day, the "Permitted
Sale Date"), and subject to any restrictions on resale arising under
federal or state securities laws, the Indemnification Representative may
effect a sale of any or all Escrow Shares by written direction given to the
Escrow Agent provided that: (A) the Indemnification Representative shall
certify to the Escrow Agent that the Permitted Sale Date has passed, (B)
the Indemnification Representative shall certify to the Escrow Agent that
the written directions given by it to the Escrow Agent (pursuant to Section
2(b)(iv) below) shall effectuate a sale, (C) the written directions given
to the Escrow Agent by the Indemnification Representative shall be subject
to Section 2(b)(v) below, and (D) the net proceeds of such sale of Escrow
Shares shall be paid to the Escrow Agent and deposited into the Escrow
Account and become part of the Escrow Property. All related transaction
charges and out-of-pocket expenses (or a reasonably estimated allocable
portion thereof) directly associated with a sale of Escrow Shares shall be
paid from the proceeds of the sale. The Indemnification Representative may
direct the sales of Escrow Shares pursuant to this Section 2(b)(ii) at any
time or times after the Permitted Sale Date.
(iii) Net proceeds of the sale of any Escrow Shares deposited
into the Escrow Account pursuant to Section 2(b)(i) shall be invested in
the Escrow Agent's insured money market account. The interest earnings
received (and any losses incurred) from such investment shall be deposited
in the Escrow Account and shall become part of the Escrow Property (and
shall be reinvested pursuant to the terms of this paragraph).
(iv) Any sale direction given by the Indemnification
Representative pursuant to Section 2(b)(ii) above shall: (A) specify the
number of Escrow Shares to be sold, (B) identify the brokerage firm the
Indemnification Representative requests the Escrow Agent to use (or shall
instruct the Escrow Agent to use its affiliated brokerage service), and (C)
set forth all necessary instructions (including stop loss or minimum price
per share instructions) as necessary to satisfy the required net proceeds
per share requirements set forth in clause (B) of Section 2(b)(ii) above,
together with any other instruction as the Escrow Agent reasonably may
require in order to carry out the sale. The Escrow Agent shall be entitled
to rely conclusively, in good faith, upon such direction and shall be under
no obligation to evaluate or exercise any judgment with respect to any such
instruction received from the Indemnification Representative.
(v) The Escrow Agent shall have no responsibility in connection
with a sale other than to make delivery of the Escrow Shares to the
brokerage firm, to make delivery of related instruction to the brokerage
firm in
-3-
<PAGE>
accordance with the instructions received from the Indemnification
Representative and to deposit into the Escrow Account the net sale proceeds
received from the sale. The Escrow Agent shall have no liability for any
actions or omissions of any such brokerage firm, and shall have no
liability for the price or execution achieved. Without limiting the
foregoing, the Indemnification Representative (for itself and on behalf of
the Indemnifying Stockholders), acknowledges that (A) the Escrow Shares may
need to be sent to a transfer agent to be reissued in saleable form, (B)
the Escrow Shares may contain or be subject to transfer restrictions that
may limit their marketability and impose restrictions upon the number or
types of purchasers to whom they can be offered or sold, (C) the Escrow
Agent shall have no liability for any failure or delay (or any price change
during any such delay) on the part of the Indemnification Representative or
any transfer agent, or caused by any necessary registration or delivery
procedures, or compliance with any applicable transfer restrictions, in
connection with the transfer of such Escrow Shares, and (D) the Escrow
Agent shall have no liability if the actual net proceeds received per share
are less than the Value.
(vi) In any agreement entered into by the Escrow Agent with any
brokerage firm (which may be affiliated with the Escrow Agent, as selected
by the Escrow Agent without liability on its part, taking into
consideration the brokerage firm requested by the Indemnification
Representative as provided above), pursuant to Sections 2(b)(iv) and (v),
the Escrow Agent shall be entitled to enter into such agreement on terms
providing that the brokerage firm shall use its "best efforts" to effect a
sale. The Escrow Agent shall be indemnified by the Indemnifying
Stockholders hereunder for any costs, expenses and risks associated
therewith or arising thereunder (other than resulting from its own gross
negligence or willful misconduct).
(vii) In addition to any applicable fees set forth on the fee
schedule attached hereto as Attachment B, the net sale proceeds of any sale
------------
of Escrow Shares received by the Escrow Agent shall be subject to a $500.00
(per sale order) fee for the proration of the net sales price, individual
1099-B reporting and related administration (the "Sales Administration
Fee"). The Sales Administration Fee shall be borne by the Indemnifying
Stockholders.
(viii) Any liquidation of Escrow Shares pursuant to this
Section 2(b), shall not alter the Percentage Interests of the respective
Indemnifying Stockholders with respect to the remaining Escrow Shares (if
any), and they shall be deemed likewise to have the same respective
Percentage Interests in any cash proceeds received from a sale of Escrow
Shares (and any investment earnings thereon) held in the Escrow Account
from time to time.
-4-
<PAGE>
(ix) Notwithstanding any term hereof to the contrary, and
whether or not expressly stated herein, whenever any provision of this
Agreement provides for the distribution or application of the Escrow
Property, such distribution or application shall first be made or taken
from any cash, including investment earnings thereon, then held in the
Escrow Account received from the proceeds of the sale of Escrow Shares as
having a Value (as defined in Section 4 below) equal to such distribution
or application, and thereafter from any remaining Escrow Shares having a
value equal to such distribution or application.
(x) With respect to any cash proceeds held in the Escrow Account
from time to time (and the investment thereof, as provided above):
(A) Tax Reporting. For tax reporting purposes, all interest or other
-------------
income earned from the investment of the Escrow Property in any tax
year shall be reported as allocable to the Indemnifying Stockholders
on a pro rata basis according to their Percentage Interests;
(B) Certification of Taxpayer Identification Number. The Indemnifying
-----------------------------------------------
Stockholders shall provide a certified tax identification number by
signing and returning a Form W-9 (or Form W-8, in case of non-U.S.
persons) to the Escrow Agent prior to the earlier of 30 days after the
date of this Agreement or the date on which any income earned on the
investment of any sale proceeds held as part of the Escrow Property is
credited to the Escrow Account. The Indemnifying Stockholders
understand that, in the event their tax identification numbers are not
certified to the Escrow Agent, the Internal Revenue Code, as amended
from time to time, may require the withholding of a portion of any
interest or other income earned on the investment of the Escrow
Property.
(C) Tax Indemnification. The Indemnifying Stockholders agree, jointly
-------------------
and severally, (1) to assume any and all obligations imposed now or
hereafter by any applicable tax law with respect to any payment or
distribution of the Escrow Property or performance of other activities
under this Agreement, withholding and other taxes, assessments or
other governmental reporting that may be required under any laws or
regulations that may be applicable in connection with its acting as
Escrow Agent under this Agreement, (2) to instruct the Escrow Agent in
writing with respect to the Escrow Agent's responsibility for
withholding and other taxes, assessments or other governmental
charges, and to instruct the Escrow Agent with respect to any
certifications and governmental reporting that may be required under
any laws or regulations that may be applicable in connection with its
acting as Escrow Agent under this Agreement and (3) to indemnify and
hold the Escrow Agent harmless from any liability or obligation on
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<PAGE>
account of taxes, assessments, additions for late payment, interest,
penalties, expenses and other governmental charges that may be
assessed or asserted against the Escrow Agent in connection with or
relating to any payment made or other activities performed under the
terms of this Agreement, including without limitation any liability
for the withholding or deduction of (or the failure to withhold or
deduct) the same, and any liability for failure to obtain proper
certifications or to report properly to governmental authorities in
connection with this Agreement, including costs and expenses
(including reasonable legal fees and expenses), interest and
penalties. The foregoing indemnification and agreement to hold
harmless shall survive the termination of this Agreement.
(c) Indemnification. The Indemnifying Stockholders have agreed in
---------------
Article VI of the Merger Agreement to indemnify and hold harmless the Buyer from
and against specified Damages (as defined in Section 6.1 of the Merger
Agreement). The Escrow Property shall be security for such indemnity obligation
of the Indemnifying Stockholders, subject to the limitations, and in the manner
provided, in this Agreement.
(d) Voting of Shares. Each Indemnifying Stockholder shall have the
----------------
right to direct the Escrow Agent in writing as to the exercise of any voting
rights pertaining to such Indemnifying Stockholder's Percentage Interest, as it
may be amended pursuant to Section 2(b)(i), unless and until such Escrow Shares
are sold pursuant to Section 2(b)(ii), and the Escrow Agent shall comply with
any such written instructions (and the Escrow Agent shall have no liability for
any action so taken). In the absence of such instructions, the Escrow Agent
shall not vote any of the Escrow Shares and the Escrow Agent shall otherwise be
under no obligation to preserve, protect, exercise or enforce rights in the
Escrow Shares. Neither the Escrow Agent nor the Indemnification Representative
shall be under any obligation to solicit consents or proxies from the
Indemnifying Stockholders for purposes of any such vote.
(e) Transferability. The respective interests of the Indemnifying
---------------
Stockholders in the Escrow Property shall not be assignable or transferable,
other than (i) by operation of law or (ii) in connection with the assignment or
transfer to a partner, stockholder, member or affiliate of the Indemnifying
Stockholder, provided each such transferee agrees in a written instrument
delivered to the Escrow Agent and the Buyer to be bound by the provisions of
this Agreement as an Indemnifying Stockholder. Notice of any assignment or
transfer shall be given to the Escrow Agent and the Buyer, and no assignment or
transfer shall be valid until such notice is given.
-6-
<PAGE>
3. Distribution of Escrow Property.
-------------------------------
(a) The Escrow Agent shall distribute the Escrow Property only in
accordance with (i) a written instrument delivered to the Escrow Agent that is
executed by both the Buyer and the Indemnification Representative and that
instructs the Escrow Agent as to the distribution of some or all of the Escrow
Property, (ii) an order of a court of competent jurisdiction, a copy of which is
delivered to the Escrow Agent by either the Buyer or the Indemnification
Representative, that instructs the Escrow Agent as to the distribution of some
or all of the Escrow Property, or (iii) the provisions of Section 3(b) below.
(b) Subject to the provisions of this Section 3(b) and Section 3(c)
below, within five business days after the first anniversary of the date of this
Agreement (the "Termination Date"), the Escrow Agent shall distribute to the
Indemnifying Stockholders (pro rata, as nearly as practicable, according to
their respective Percentage Interests) all of the Escrow Property, including the
Escrow Shares then held in escrow by, (x) in the case of any cash (from the
proceeds of the sale of any Escrow Shares or investment earnings thereon),
payment to the Indemnifying Stockholders according to Attachment A, or (y) in
the case of Escrow Shares, making delivery of the Escrow Shares then held by the
Escrow Agent to the transfer agent of the Buyer duly endorsed for transfer (or
accompanied by an appropriate executed transfer instrument) with written
instruction to the transfer agent of the Buyer to transfer and re-issue such
Escrow Shares to and among the Indemnifying Stockholders (according to their
respective Percentage Interests) and to make delivery thereof to them at their
addresses (as provided in Section 10), or as any such Indemnifying Stockholder
otherwise may instruct. Notwithstanding the foregoing, if (i) prior to the
Termination Date the Buyer has delivered to the Escrow Agent a written notice of
a claim (a "Claim Notice"), which states that it is made pursuant to Article VI
of the Merger Agreement and sets forth a specified dollar amount with regard to
the claim covered thereby, and by the time it is to make a distribution to the
Indemnifying Stockholders pursuant to this paragraph the Escrow Agent has not
received from the Buyer written notice of the resolution of the claim covered
thereby, or (ii) prior to the Termination Date the Buyer has delivered to the
Escrow Agent a written notice of an expected claim (an "Expected Claim Notice"),
which states that it is made pursuant to Article VI of the Merger Agreement and
sets forth a specified dollar amount with regard to the estimated amount of
damages covered thereby, and by the time it is to make a distribution to the
Indemnifying Stockholders pursuant to this paragraph the Escrow Agent has not
received from the Buyer written notice of the resolution of the anticipated
claim covered thereby, the Escrow Agent shall retain in escrow after the
Termination Date (A) the amount of all cash received, including investment
earnings thereon, from the proceeds of the sale of that number of Escrow Shares
having a Value, (B) the number of Escrow Shares as having a Value, or (C) any
combination thereof, equal to the aggregate amount of the claims set forth in
each Claim Notice and estimated damages set forth in each Expected Claim Notice
(such aggregate amount, as set forth therein, the "Claimed Amount"),
-7-
<PAGE>
up to the total number of the Escrow Shares and/or the total amount of other
Escrow Property then held hereuner. Any Escrow Property so retained in escrow
shall be distributed only in accordance with the terms of clauses (i) or (ii) of
Section 3(a) above.
(c) Any distribution of all or a portion of the Escrow Shares to the
Indemnifying Stockholders shall be made by delivery of stock certificates to the
transfer agent of the Buyer duly endorsed and with instruction for transfer and
delivery, as provided in the first sentence of Section 3(b) above, and any
distribution of other Escrow Property shall be to the Indemnifying Stockholders
at their respective addresses provided in Section 10 hereof, in each case in
accordance with (as nearly as practicable) their respective Percentage
Interests; provided, however, that the Escrow Agent shall withhold the
-------- -------
distribution of the portion of the Escrow Property otherwise distributable
pursuant to Section 3(b) above to an Indemnifying Stockholder who has not,
according to a written notice provided by the Buyer to the Escrow Agent, prior
to such distribution, surrendered pursuant to the terms of the Merger Agreement
his, her or its stock certificates formerly representing shares of stock of the
Company; and provided further that Attachment A shall be appropriately revised
-------- -------
by the Buyer by written notice to the Escrow Agent in the event the Buyer
deposits Additional Shares with the Escrow Agent following the date of this
Agreement. Any withheld Escrow Property shall be delivered to the Buyer or the
transfer agent of the Buyer, as the case may be, promptly after the Termination
Date, and shall be delivered by the Buyer or the transfer agent of the Buyer, as
the case may be, to the Indemnifying Stockholders to whom such cash or shares
would have otherwise been distributed upon surrender of their Company stock
certificates. Upon receipt of Escrow Shares endorsed for transfer and with
instructions from the Escrow Agent for distribution to Indemnifying Stockholders
so provided above, the transfer agent of the Buyer shall make such distributions
to the Indemnifying Stockholders by mailing stock certificates to such holders
at their respective addresses shown on Attachment A (or such other address as
------------
may be provided in writing to the transfer agent of the Buyer by the Escrow
Agent or by any such holder). No fractional Escrow Shares shall be distributed
to Indemnifying Stockholders pursuant to this Agreement. Instead, the number of
shares that each Indemnifying Stockholder shall receive shall be rounded up or
down to the nearest whole number (provided that the Indemnification
Representative shall have the authority to effect the rounding in such a manner
that the total number of whole Escrow Shares to be distributed equals the number
of Escrow Shares then held in the Escrow Account).
4. Valuation of Escrow Shares. For purposes of this Agreement, the
--------------------------
"Value" of any Escrow Shares shall be $_____ per share [the average of the last
reported sale prices per share of common stock of the Buyer Common Stock on the
Nasdaq National Market over the five consecutive trading days ending on the date
of this Agreement], multiplied by the number of such Escrow Shares.
-8-
<PAGE>
5. Fees and Expenses of Escrow Agent.
---------------------------------
(a) The Buyer agrees (i) to pay or reimburse the Escrow Agent for its
attorney's fees and expenses incurred in connection with the preparation of this
Agreement and (ii) to pay the Escrow Agent's acceptance fee and up to $3,500 per
year of the annual escrow fee in accordance with the fee schedule set forth on
Attachment B, which may be subject to change hereafter on an annual basis.
- ------------
(b) The Indemnifying Stockholders agree, jointly and severally, to pay
or reimburse the Escrow Agent on demand for any portion of the annual escrow fee
not required to be paid by the Buyer (including the $35 per Indemnifying
Stockholder per year), the wire transfer fees, extraordinary administrative
expenses and out of pocket expenses in accordance with the fee schedule set
forth on Attachment B.
------------
(c) Each of the Buyer and the Indemnifying Stockholders (collectively,
the "Interested Parties") agrees, jointly and severally, to pay any legal fees
and expenses incurred by the Escrow Agent in connection with resolution of any
claim by any party hereunder. Without altering or limiting the joint and
several liability of any of the Interested Parties to the Escrow Agent under
this Section 5(c), each of the Interested Parties agrees as between themselves
that they shall share, one-half to be borne by the Buyer and one-half to be
borne by the Indemnifying Stockholders (and, as among them, according to their
Percentage Interests) all amounts payable to the Escrow Agent pursuant to this
Section 5(c).
6. Limitation of Escrow Agent's Liability.
--------------------------------------
(a) The Escrow Agent shall incur no liability with respect to any
action taken or suffered by it in reliance upon any notice, direction,
instruction (including without limitation wire transfer instructions), consent,
statement or other documents believed by it to be genuine and duly authorized,
nor for other action or inaction except its own willful misconduct or gross
negligence. The Escrow Agent shall not be responsible for the validity or
sufficiency of this Agreement. In all questions arising under the Escrow
Agreement, the Escrow Agent may rely on the advice of counsel (which may include
in-house counsel), and the Escrow Agent shall not be liable to anyone for
anything done, omitted or suffered in good faith by the Escrow Agent based on
such advice. The Escrow Agent shall not be required to take any action
hereunder involving any expense unless the payment of such expense is made or
provided for in a manner reasonably satisfactory to it. In no event shall the
Escrow Agent be liable for indirect, punitive, special or consequential damages.
(b) The Interested Parties agree, jointly and severally, to indemnify
the Escrow Agent for, and hold it harmless against, any loss, liability or
expense (including, without limitation, attorneys fees and expenses) incurred
without gross
-9-
<PAGE>
negligence or willful misconduct on the part of Escrow Agent, arising out of or
in connection with its appointment hereunder on the carrying out of its duties
hereunder. As among themselves, Interested Parties agree that the Buyer, on the
one hand, and the Indemnifying Stockholders, on the other hand, shall each be
liable for one-half of such amounts. The foregoing indemnification and
agreements to hold harmless shall survive the termination of this Agreement.
(c) Each of the Interested Parties acknowledges and agrees that the
Escrow Agent (i) shall not be responsible for any of the agreements referred to
or described herein (including without limitation the Merger Agreement), or for
determining or compelling compliance therewith, and shall not otherwise be bound
thereby, (ii) shall be obligated only for the performance of such duties as are
expressly and specifically set forth in this Escrow Agreement on its part to be
performed, each of which are ministerial (and shall not be construed to be
fiduciary) in nature, and no implied duties or obligations of any kind shall be
read into this Agreement against or on the part of the Escrow Agent, (iii) shall
have no liability for the actions or omissions of (or any delay by) any transfer
agent of the Buyer in connection with the transfer, issuance or delivery of any
Escrow Shares delivered to it pursuant to the terms hereof for re-issuance to
the Indemnifying Stockholders, and (iv) shall be under no obligation to invest
any cash dividends it may receive from the Escrow Shares at any time hereunder
(provided, however, that the net proceeds received from the sale of any Escrow
Shares pursuant to Section 2(b) shall be invested pursuant to Section
2(b)(iii)).
7. Liability and Authority of Indemnification Representative; Successors
---------------------------------------------------------------------
and Assignees.
- -------------
(a) The Indemnification Representative shall incur no liability to the
Indemnifying Stockholders with respect to any action taken or suffered by them
in reliance upon any note, direction, instruction, consent, statement or other
documents believed by them to be genuinely and duly authorized, nor for other
action or inaction except their own willful misconduct or gross negligence. The
Indemnification Representative may, in all questions arising under the Escrow
Agreement, rely on the advice of counsel and the Indemnification Representative
shall not be liable to the Indemnifying Stockholders for anything done, omitted
or suffered in good faith by the Indemnification Representative based on such
advice.
(b) In the event of the death or permanent disability of the
Indemnification Representative, or his resignation as the Indemnification
Representative, the initial successor Indemnification Representative shall be
Barry Fidelman (the "Successor Indemnification Representative") currently
residing (and having a notice address for purposes of Section 10 hereof) at
_____________________. In the event of the death or permanent disability of the
Successor Indemnification Representative, or his resignation or inability to
serve as the Successor Indemnification Representative, another Successor
-10-
<PAGE>
Indemnification Representative shall be elected by a majority vote of the
Indemnifying Stockholders, with each such Indemnifying Stockholder (or his, her
or its successors or assigns) to be given a vote equal to the number of votes
represented by the shares of stock of the Company held by such Indemnifying
Stockholder immediately prior to the effective time of the Merger. Each
successor to the Indemnification Representative shall have all of the power,
authority, rights and privileges conferred by this Agreement upon the original
Indemnification Representative, and the term "Indemnification Representative" as
used herein shall be deemed to include any successor Indemnification
Representative.
(c) The Indemnification Representative shall have full power and
authority to represent the Indemnifying Stockholders, and their successors, with
respect to all matters arising under this Agreement and all actions taken by any
Indemnification Representative hereunder shall be binding upon the Indemnifying
Stockholders, and their successors, as if expressly confirmed and ratified in
writing by each of them. Without limiting the generality of the foregoing, the
Indemnification Representative shall have full power and authority to interpret
all of the terms and provisions of this Agreement, to compromise any claims
asserted hereunder and to authorize any release of the Escrow Property to be
made with respect thereto, on behalf of the Indemnifying Stockholders and their
successors.
(d) Except as set forth in Section 2(d) hereof, the Escrow Agent may
rely on the Indemnification Representative as the exclusive agent of the
Indemnifying Stockholders under this Agreement and shall incur no liability to
any party with respect to any action taken or suffered by it in reliance
thereon.
(e) Set forth on Attachment A, attached hereto and made a part hereof
------------
(subject to amendment from time to time pursuant to Section 3(c)) is the correct
name, address, federal taxpayer identification number and Percentage Interest
for each Indemnifying Stockholder.
8. Amounts Payable by Indemnifying Stockholders. The amounts payable by
--------------------------------------------
the Indemnifying Stockholders under this Agreement (i.e., the fees or expenses
of the Escrow Agent payable pursuant to Section 5 and the indemnification
obligations pursuant to Section 6(b)) shall be payable solely as follows. The
Escrow Agent shall first be entitled to apply any and all cash held in or
credited to the Escrow Account in payment of such amounts. If available cash
held in the Escrow Account is not sufficient to pay such amount, the Escrow
Agent shall promptly notify the Indemnification Representative of any such
amount payable by the Indemnifying Stockholders and remaining unpaid, with a
copy of such notice to the Buyer. On the sixth business day after the delivery
of such notice, the Escrow Agent shall use the Escrow Property or undertake
reasonable efforts to sell such number of Escrow Shares (up to the number of
Escrow Shares then available in the Escrow Account), subject to compliance with
all applicable securities laws, as is necessary to raise such
-11-
<PAGE>
amount, and shall be entitled to apply the Escrow Property and/or the proceeds
of the sale of Escrow Shares in satisfaction of such payment or indemnification
obligations of the Indemnifying Stockholders; provided that if the
Indemnification Representative delivers to the Escrow Agent (with a copy to the
Buyer), within five business days after delivery of such notice to the
Indemnification Representative, a written notice contesting the legitimacy or
reasonableness of such amount, then the Escrow Agent shall not sell Escrow
Shares to raise the disputed portion of such claimed amount except in accordance
with the terms of clauses (i) or (ii) of Section 3(a). Nothing herein shall
impose or imply any limitation on the joint and several liability of any of the
Interested Parties in respect of such amounts payable pursuant to Section 5 or
Section 6(b) to the extent provided in such sections; provided, however, that
-------- -------
notwithstanding any term hereof to the contrary, in the event the Buyer or any
Indemnifying Stockholder shall thereafter become entitled to a release of Escrow
Shares under the terms of this Agreement, the Escrow Agent may withhold such
distribution until such disputed amounts are paid or otherwise resolved.
9. Termination. This Agreement shall terminate upon the distribution by
-----------
the Escrow Agent of all of the Escrow Property in accordance with this
Agreement; provided that the provisions of Sections 6 and 7 shall survive such
termination.
10. Notices. All notices, instructions and other communications given
-------
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) via a reputable
nationwide overnight courier service, in each case to the address set forth
below. Any such notice, instruction or communication shall be deemed to have
been delivered two business days after it is sent by registered or certified
mail, return receipt requested, postage prepaid, or one business day after it is
sent via a reputable nationwide overnight courier service; provided, however,
that in no event shall any notice, instruction or communication be deemed to
have been received by the Escrow Agent unless and until actually received by it.
If to the Buyer:
Open Market, Inc.
One Wayside Road
Burlington, MA 01803
Attn: Gary Eichhorn and Paul Esdale
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attn: Jeffrey N. Carp, Esq.
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<PAGE>
If to the Indemnification Representative:
Jarrett Collins
___________________________
___________________________
with a copy to:
___________________________
___________________________
___________________________
Attn: _____________________
If to the Escrow Agent:
State Street Bank and Trust Company
Global Investor Services Group
Corporate Trust
2 Avenue de Lafayette
Boston, MA 02111-1724
Attn: Open Market/FutureTense Escrow
If to any Indemnifying Stockholder: to the address set forth on Attachment
A, attached hereto.
Any party may give any notice, instruction or communication in connection
with this Agreement using any other means (including personal delivery, telecopy
or ordinary mail), but no such notice, instruction or communication shall be
deemed to have been delivered unless and until it is actually received by the
party to whom it was sent. Any party may change the address to which notices,
instructions or communications are to be delivered by giving the other parties
to this Agreement notice thereof in the manner set forth in this Section 10.
11. Successor Escrow Agent. In the event the Escrow Agent becomes
----------------------
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by
delivering a resignation to the parties to this Escrow Agreement, not less than
60 days prior to the date when such resignation shall take effect. The Buyer
may appoint a successor Escrow Agent without the consent of the Indemnification
Representative so long as such successor is a bank with assets of at least $500
million, and may appoint any
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<PAGE>
other successor Escrow Agent with the consent of the Indemnification
Representative, which shall not be unreasonably withheld. If, within such notice
period, the Buyer provides to the Escrow Agent written instructions with respect
to the appointment of a successor Escrow Agent and directions for the transfer
of any Escrow Property then held by the Escrow Agent to such successor, the
Escrow Agent shall act in accordance with such instructions and promptly
transfer such Escrow Property to such designated successor. If no successor
Escrow Agent is named as provided in this Section 11 prior to the date on which
the resignation of the Escrow Agent is to properly take effect, the Escrow Agent
may apply to a court of competent jurisdiction for appointment of a successor
Escrow Agent.
12. General.
-------
(a) Governing Law; Assigns. This Agreement shall be governed by and
----------------------
construed in accordance with the internal laws of the Commonwealth of
Massachusetts without regard to conflict-of-law principles and shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors and assigns.
(b) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(c) Entire Agreement. Except for those provisions of the Merger
----------------
Agreement referenced herein, this Agreement constitutes the entire understanding
and agreement of the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements or understandings, written or
oral, between the parties with respect to the subject matter hereof.
(d) Waivers. No waiver by any party hereto of any condition or of any
-------
breach of any provision of this Escrow Agreement shall be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, shall be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
(e) Amendment. This Agreement may be amended only with the written
---------
consent of the Buyer, the Escrow Agent and the Indemnification Representative.
(f) Consent to Jurisdiction and Service. The parties hereby
-----------------------------------
absolutely and irrevocably consent and submit to the jurisdiction of the courts
in the Commonwealth of Massachusetts and of any Federal court located in said
Commonwealth in connection with any actions or proceedings brought against any
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<PAGE>
party hereto by the Escrow Agent arising out of or relating to this Escrow
Agreement. In any such action or proceeding, the parties hereby absolutely and
irrevocably waive personal service of any summons, complaint, declaration or
other process and hereby absolutely and irrevocably agree that the service
thereof may be made by certified or registered first-class mail directed to such
party, at their respective addresses in accordance with Section 10 hereof.
(g) Dispute Resolution. It is understood and agreed that should any
------------------
dispute arise with respect to the delivery, ownership, right of possession,
and/or disposition of the Escrow Property, or should any claim be made upon the
Escrow Agent or the Escrow Property by a third party, the Escrow Agent upon
receipt of notice of such dispute or claim is authorized and shall be entitled
(at its sole option and election) to retain in its possession without liability
to anyone, all or any of the Escrow Property until such dispute shall have been
settled either by the mutual written agreement of the parties involved or by a
final order, decree or judgment of a court in the United States of America, the
time for perfection of an appeal of such order, decree or judgment having
expired. The Escrow Agent may, but shall be under no duty whatsoever to,
institute or defend any legal proceedings which relate to Escrow Property.
(h) Force Majeure. The Escrow Agent shall not be responsible for
-------------
delays or failures in performance resulting from acts beyond its control. Such
acts shall include but not be limited to acts of God, strikes, lockouts, riots,
acts of war, epidemics, governmental regulations superimposed after the fact,
fire, communication line failures, computer viruses, power failures, earthquakes
or other disasters.
(i) Binding Effect. This Agreement shall be binding upon the
--------------
respective parties hereto and their heirs, executors, successors and assigns.
(j) Reproduction of Documents. This Agreement and all documents relating
-------------------------
thereto, including without limitation, (a) consents, waivers and modifications
which may hereafter be executed, and (b) certificates and other information
previously or hereafter furnished, may be reproduced by any photographic,
photostatic, microfilm, optical disk, micro-card, miniature photographic or
other similar process. The parties agree that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
[Remainder of page intentionally left blank]
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<PAGE>
ATTACHMENT A
------------
- --------------------------------------------------------------------------------
INDEMNIFYING FEDERAL TAXPAYER
STOCKHOLDER ADDRESS I.D NUMBER PERCENTAGE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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<PAGE>
ATTACHMENT B
------------
FEE SCHEDULE
------------
Acceptance Fee
- --------------
An acceptance fee in the amount of $1,000 shall be payable to the Escrow
Agent upon acceptance of its appointments under the Agreement.
Annual Escrow Fee
- -----------------
An annual fee for ordinary services shall be payable in an amount equal to
the sum of (i) $3,500 per year or any part of a year, plus (ii) $35 per
Indemnifying Stockholder per year or any part of a year (the "Annual Fee"). The
Annual Fee shall be due and payable in advance, upon signing of the Escrow
Agreement; thereafter upon each anniversary date. The Annual Fee shall be
subject to adjustment by the Escrow Agent annually, upon notice.
Wire Transfer Fees
- ------------------
A wire transfer fee of $20.00 per wire shall be charged for each outgoing
wire transfer.
Extraordinary Administrative Expenses
- -------------------------------------
In addition to the Annual Fee, fees for extraordinary services will be
determined and charged by appraisal. Such services may include, but are not
limited to, additional responsibilities and services incurred in case of
default, or dispute or third party claim upon the escrow fund.
Out of Pocket Expenses
- ----------------------
Out of pocket expenses, such as but not limited to counsel fees and
expenses, telephone, postage, insurance, shipping charges, outside investment
charges and supplies, will be charged at cost.
-17-
<PAGE>
Exhibit 3.1
-----------
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
OPEN MARKET, INC.
Pursuant to Sections 242 and 245
of the General Corporation Law
of the State of Delaware
OPEN MARKET, INC., (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "General Corporation Law"), hereby certifies as follows:
1. The name of the corporation is Open Market, Inc. The corporation was
originally incorporated on December 6, 1993.
2. This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the Certificate of Incorporation of the
Corporation, was duly adopted in accordance with the provisions of Sections 242
and 245 of the General Corporation Law, and was approved by written consent of
the stockholders of the Corporation given in accordance with the provisions of
Section 228 of the General Corporation Law (prompt notice of such action having
been given to those stockholders who did not consent in writing). The
resolution setting forth the Amended and Restated Certificate of Incorporation
is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, as amended,
- --------
be and hereby is amended and restated in its entirety so that the same shall
read as follows:
FIRST. The name of the Corporation is:
Open Market, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
<PAGE>
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 102,000,000 shares, consisting of
(i) 100,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 2,000,000 shares of Preferred Stock, $.10 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
1. General. The voting, dividend and liquidation rights of the holders of
-------
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
------
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock from
---------
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of
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<PAGE>
the Corporation as hereinafter provided. Any shares of Preferred Stock which may
be redeemed, purchased or acquired by the Corporation may be reissued except as
otherwise provided by law or this Certificate of Incorporation. Different series
of Preferred Stock shall not be construed to constitute different classes of
shares for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without
limiting the generality of the foregoing, the resolutions providing for issuance
of any series of Preferred Stock may provide that such series shall be superior
or rank equally or be junior to the Preferred Stock of any other series to the
extent permitted by law and this Certificate of Incorporation. Except as
otherwise provided in this Certificate of Incorporation, no vote of the holders
of the Preferred Stock or Common Stock shall be a prerequisite to the
designation or issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions of this Certificate of
Incorporation, the right to have such vote being expressly waived by all present
and future holders of the capital stock of the Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section
-3-
<PAGE>
279 of Title 8 of the Delaware Code order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
EIGHTH. Except to the extent that the General Corporation Law of the State
of Delaware prohibits the elimination or limitation of liability of directors
for breaches of fiduciary duty, no director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
NINTH. 1. Action, Suits and Proceedings Other than by or in the Right of
--------------------------------------------------------------
the Corporation. The Corporation shall indemnify each person who was or is a
- ---------------
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
---- ----------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in
-4-
<PAGE>
Section 6 below, the Corporation shall not indemnify an Indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
the Indemnitee unless the initiation thereof was approved by the Board of
Directors of the Corporation.
2. Actions or Suits by or in the Right of the Corporation. The
------------------------------------------------------
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware or such other court shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding the
------------------------------------------------
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
---- ----------
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
-5-
<PAGE>
4. Notification and Defense of Claim. As a condition precedent to his
---------------------------------
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 below, in
-------------------
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter; provided,
--------
however, that the payment of such expense incurred by an Indemnitee in advance
- -------
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking may be accepted without reference to the financial ability of
the Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
-6-
<PAGE>
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines, by clear and convincing evidence, within such 60-day
period that the Indemnitee did not meet the applicable standard of conduct set
forth in Section 1 or 2, as the case may be. Such determination shall be made
in each instance by (a) a majority vote of a quorum of the directors of the
Corporation consisting of persons who are not at that time parties to the
action, suit or proceeding in question ("disinterested directors"), (b) if no
such quorum is obtainable, a majority vote of a committee of two or more
disinterested directors, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the action, suit or proceeding in question, (d) independent
legal counsel (who may be regular legal counsel to the Corporation), or (e) a
court of competent jurisdiction.
7. Remedies. The right to indemnification or advances as granted by this
--------
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advance of expenses under this
Article shall be on the Corporation. Neither the failure of the Corporation to
have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
--------------------
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses provided
------------
by this Article shall not be deemed exclusive of any other rights to which
-7-
<PAGE>
an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in any other capacity while holding office
for the Corporation, and shall continue as to an Indemnitee who has ceased
to be a director or officer, and shall inure to the benefit of the estate,
heirs, executors and administrators of the Indemnitee. Nothing contained
in this Article shall be deemed to prohibit, and the Corporation is
specifically authorized to enter into, agreements with officers and directors
providing indemnification rights and procedures different from those set forth
in this Article. In addition, the Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights
to other employees or agents of the Corporation or other persons serving
the Corporation and such rights may be equivalent to, or greater or less
than, those set forth in this Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal,
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at
---------
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law of Delaware.
12. Merger or Consolidation. If the Corporation is merged into or
-----------------------
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including
-8-
<PAGE>
an action by or in the right of the Corporation, to the fullest extent permitted
by any applicable portion of this Article that shall not have been invalidated
and to the fullest extent permitted by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
-----------
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware is
----------------------
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and this
Amended and Restated Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ELEVENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
1. Number of Directors, The number of directors of the Corporation shall
-------------------
not be less than three. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time by, or in
the manner provided in, the Corporation's By-Laws.
2. Classes of Directors. The Board of Directors shall be and is divided
--------------------
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
3. Election of Directors. Elections of directors need not be by written
---------------------
ballot except as and to the extent provided in the By-Laws of the Corporation.
4. Terms of Office. Each director shall serve for a term ending on the
---------------
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
--------
serve for a term ending on the date of the annual meeting in 1997; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 1998; and each initial director in
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<PAGE>
Class III shall serve for a term ending on the date of the annual meeting in
1999; and provided further, that the term of each director shall be subject to
----------------
the election and qualification of his successor and to his earlier death,
resignation or removal.
5. Allocation of Directors Among Classes in the Event of Increases or
------------------------------------------------------------------
Decreases in the Number of Directors. In the event of any increase or decrease
- ------------------------------------
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with
the foregoing rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. Quorum; Action at Meeting. A majority of the directors at any time in
-------------------------
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number of directors
fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a quorum, a majority of those
present may adjourn the meeting from time to time. Every act or decision done
or made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors unless
a greater number is required by law, by the By-Laws of the Corporation or by
this Amended and Restated Certificate of Incorporation.
7. Removal. Directors of the Corporation may be removed only for cause by
-------
the affirmative vote of the holders of at least two-thirds of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote.
8. Vacancies. Any vacancy in the Board of Directors, however occurring,
---------
including a vacancy resulting from an enlargement of the board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
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<PAGE>
9. Stockholder Nominations and Introduction of Business, Etc. Advance
----------------------------------------------------------
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
10. Amendments to Article. Notwithstanding any other provisions of law,
---------------------
this Amended and Restated Certificate of Incorporation or the By-Laws of the
Corporation, each as amended, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least seventy-five percent (75%) of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
ELEVENTH.
TWELFTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, the Amended and Restated Certificate of Incorporation or the By-Laws of the
Corporation, each as amended, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least seventy-five percent (75%) of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
TWELFTH.
THIRTEENTH. Special meetings of stockholders may be called at any time by
only the Chairman of the Board of Directors, the Chief Executive Officer (or if
there is no Chief Executive Officer, the President) or the Board of Directors.
Business transacted at any special meeting of stockholders shall be limited to
matters relating to the purpose or purposes stated in the notice of meeting.
Notwithstanding any other provision of law, this Amended and Restated
Certificate of Incorporation or the By-Laws of the Corporation, each as amended,
and notwithstanding the fact that a lesser percentage may be specified by law,
the affirmative vote of the holders of at least seventy-five percent (75%) of
the shares of capital stock of the Corporation issued and outstanding and
entitled to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article THIRTEENTH.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Amended and Restated Certificate of Incorporation to be
signed by its Chief Executive Officer this 28th day of May, 1996.
OPEN MARKET, INC.
By: /s/ Gary B. Eichhorn
-----------------------------------------
Gary B. Eichhorn
Chief Executive Officer
-12-
<PAGE>
CERTIFICATE OF DESIGNATIONS
of
OPEN MARKET, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
______________________________
Open Market, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (hereinafter called the "Corporation"),
hereby certifies that the following resolution was adopted by the Board of
Directors of the Corporation as required by Section 151 of the General
Corporation Law at a meeting duly called and held on January 23, 1998:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation (hereinafter called the "Board of Directors" or
the "Board") in accordance with the provisions of the Certificate of
Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, $.10 par value (the "Preferred Stock"), of the Corporation and hereby
states the designation and number of shares, and fixes the relative rights,
preferences and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 40,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
--------
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the rights of the holders of any shares of
any series of Preferred Stock (or any similar stock) ranking prior and superior
to the Series A Preferred Stock with respect to dividends, the holders of shares
of Series A Preferred Stock, in preference to the holders of Common Stock, par
value $.01 per share (the "Common Stock"), of the Corporation, and of any other
junior stock, shall
<PAGE>
be entitled to receive, when, as and if declared by the Board of Directors out
of funds of the Corporation legally available for the payment of dividends,
quarterly dividends payable in cash on March 31, June 30, September 30 and
December 31 in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $100 or (b) subject to the provision for adjustment
hereinafter set forth, 1,000 times the aggregate per share amount of all cash
dividends, and 1,000 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision, combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event. In the event the Corporation shall at any time declare or pay any
dividend on the Series A Preferred Stock payable in shares of Series A Preferred
Stock, or effect a subdivision, combination or consolidation of the outstanding
shares of Series A Preferred Stock (by reclassification or otherwise than by
payment of a dividend in shares of Series A Preferred Stock) into a greater or
lesser number of shares of Series A Preferred Stock, then in each such case the
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b) of the first sentence of this
Section 2(A) shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Series A Preferred Stock that were
outstanding immediately prior to such event and the denominator of which is the
number of shares of Series A Preferred Stock outstanding immediately after such
event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock) and the Corporation
shall pay such dividend or distribution on the Series A Preferred Stock before
the dividend or distribution declared on the Common Stock is paid or set apart;
provided that, in the
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<PAGE>
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $100 per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
-------------
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 1,000 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision, combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the number of votes per share to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. In the event the Corporation shall
at any time declare or pay any dividend on the Series A Preferred Stock payable
in shares of Series A Preferred Stock, or effect a subdivision, combination or
consolidation of the outstanding shares
-3-
<PAGE>
of Series A Preferred Stock (by reclassification or otherwise than by payment of
a dividend in shares of Series A Preferred Stock) into a greater or lesser
number of shares of Series A Preferred Stock, then in each such case the number
of votes per share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Series A
Preferred Stock that were outstanding immediately prior to such event and the
denominator of which is the number of shares of Series A Preferred Stock
outstanding immediately after such event.
(B) Except as otherwise provided herein, in the Certificate of
Incorporation or by law, the holders of shares of Series A Preferred Stock and
the holders of shares of Common Stock and any other capital stock of the
Corporation having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C)(i) If at any time dividends on any Series A Preferred Stock shall
be in arrears in an amount equal to six quarterly dividends thereon, the holders
of the Series A Preferred Stock, voting as a separate series from all other
series of Preferred Stock and classes of capital stock, shall be entitled to
elect two members of the Board of Directors in addition to any Directors elected
by any other series, class or classes of securities and the authorized number of
Directors will automatically be increased by two. Promptly thereafter, the
Board of Directors of this Corporation shall, as soon as may be practicable,
call a special meeting of holders of Series A Preferred Stock for the purpose of
electing such members of the Board of Directors. Said special meeting shall in
any event be held within 45 days of the occurrence of such arrearage.
(ii) During any period when the holders of Series A Preferred Stock,
voting as a separate series, shall be entitled and shall have exercised their
right to elect two Directors, then and during such time as such right continues
(a) the then authorized number of Directors shall be increased by two, and the
holders of Series A Preferred Stock, voting as a separate series, shall be
entitled to elect the additional Directors so provided for, and (b) each such
additional Director shall not be a member of any existing class of the Board of
Directors, but shall serve until the next annual meeting of stockholders for the
election of Directors, or until his successor shall be elected and shall
qualify, or until his right to hold such office terminates pursuant to the
provisions of this Section 3(C).
(iii) A Director elected pursuant to the terms hereof may be removed
with or without cause by the holders of Series A Preferred Stock entitled to
vote in an election of such Director.
-4-
<PAGE>
(iv) If, during any interval between annual meetings of
stockholders for the election of Directors and while the holders of Series A
Preferred Stock shall be entitled to elect two Directors, there is no such
Director in office by reason of resignation, death or removal, then, promptly
thereafter, the Board of Directors shall call a special meeting of the holders
of Series A Preferred Stock for the purpose of filling such vacancy and such
vacancy shall be filled at such special meeting. Such special meeting shall in
any event be held within 45 days of the occurrence of such vacancy.
(v) At such time as the arrearage is fully cured, and all
dividends accumulated and unpaid on any shares of Series A Preferred Stock
outstanding are paid, and, in addition thereto, at least one regular dividend
has been paid subsequent to curing such arrearage, the term of office of any
Director elected pursuant to this Section 3(C), or his successor, shall
automatically terminate, and the authorized number of Directors shall
automatically decrease by two, the rights of the holders of the shares of the
Series A Preferred Stock to vote as provided in this Section 3(C) shall cease,
subject to renewal from time to time upon the same terms and conditions, and the
holders of shares of the Series A Preferred Stock shall have only the limited
voting rights elsewhere herein set forth.
(D) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
--------------------
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
-5-
<PAGE>
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
-----------------
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up.
--------------------------------------
(A) Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock unless, prior thereto, the holders
of shares of Series A Preferred Stock shall have received $100 per share, plus
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, provided that the holders
of shares of Series A Preferred Stock shall be entitled to receive an aggregate
amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 1,000 times the aggregate amount to be distributed per share to holders
of shares of Common Stock, or (2) to the holders of
-6-
<PAGE>
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except
distributions made ratably on the Series A Preferred Stock and all such parity
stock in proportion to the total amounts to which the holders of all such shares
are entitled upon such liquidation, dissolution or winding up.
(B) Neither the consolidation, merger or other business combination of
the Corporation with or into any other corporation nor the sale, lease, exchange
or conveyance of all or any part of the property, assets or business of the
Corporation shall be deemed to be a liquidation, dissolution or winding up of
the Corporation for purposes of this Section 6.
(C) In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision, combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under the proviso
in clause (1) of paragraph (A) of this Section 6 shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. In the event the Corporation shall
at any time declare or pay any dividend on the Series A Preferred Stock payable
in shares of Series A Preferred Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Series A Preferred Stock (by
reclassification or otherwise than by payment of a dividend in shares of Series
A Preferred Stock) into a greater or lesser number of shares of Series A
Preferred Stock, then in each such case the aggregate amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
under the proviso in clause (1) of paragraph (A) of this Section 4 shall be
adjusted by multiplying such amount by a fraction, the numerator of which is the
number of shares of Series A Preferred Stock that were outstanding immediately
prior to such event and the denominator of which is the number of shares of
Series A Preferred Stock outstanding immediately after such event.
Section 7. Consolidation, Merger, etc. Notwithstanding anything to the
---------------------------
contrary contained herein, in case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case each share of Series A
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 1,000 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the
-7-
<PAGE>
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision, combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Preferred Stock shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. In the event the Corporation shall
at any time declare or pay any dividend on the Series A Preferred Stock payable
in shares of Series A Preferred Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Series A Preferred Stock (by
reclassification or otherwise than by payment of a dividend in shares of Series
A Preferred Stock) into a greater or lesser number of shares of Series A
Preferred Stock, then in each such case the amount set forth in the first
sentence of this Section 7 with respect to the exchange or change of shares of
Series A Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Series A Preferred
Stock that were outstanding immediately prior to such event and the denominator
of which is the number of shares of Series A Preferred Stock outstanding
immediately after such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall
-------------
not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect to
----
the payment of dividends and the distribution of assets, junior to all series of
any other class of the Preferred Stock issued either before or after the
issuance of the Series A Preferred Stock, unless the terms of any such series
shall provide otherwise.
Section 10. Amendment. The Certificate of Incorporation of the
---------
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
Section 11. Fractional Shares. Series A Preferred Stock may be issued in
-----------------
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and have the benefit of all other rights of holders
of Series A Preferred Stock.
-8-
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation by its Chairman of the Board and Chief Executive Officer this
23rd day of January, 1998.
OPEN MARKET, INC.
/s/ Gary B. Eichhorn
--------------------------------------------
Gary B. Eichhorn
President and Chief Executive Officer
-9-
<PAGE>
Exhibit 5.1
-----------
[LETTERHEAD OF HALE AND DORR LLP APPEARS HERE]
__________, 1999
Open Market, Inc.
One Wayside Road
Burlington, MA 01803
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-4 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), for the registration of up to 7,700,000 shares
of Common Stock, $.001 par value per share (the "Shares"), of Open Market, Inc.,
a Delaware corporation (the "Company"), issuable pursuant to the Agreement and
Plan of Merger, dated as of July 14, 1999, by and among the Company, OM/SA
Acquisition Corporation and FutureTense, Inc. (the "Merger Agreement").
We are acting as counsel for the Company in connection with the issuance by
the Company of the Shares. We have examined signed copies of the Registration
Statement as filed with the Commission. We have also examined and relied upon
the Merger Agreement, minutes of meetings of the Board of Directors of the
Company as provided to us by the Company, record books of the Company as
provided to us by the Company, the Certificate of Incorporation and Bylaws of
the Company, each as restated and/or amended to date, and such other documents
as we have deemed necessary for purposes of rendering the opinions hereinafter
set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
We assume that the appropriate action will be taken, prior to the issuance
of the Shares in accordance with the Merger Agreement, to register and qualify
the Shares for sale under all applicable state securities or "blue sky" laws.
<PAGE>
Open Market, Inc.
________, 1999
Page 2
We express no opinion herein as to the laws of any state or jurisdiction
other that the state laws of the Commonwealth of Massachusetts, the Delaware
General Corporation Law statute and the federal laws of the United States of
America. To the extent that any other laws govern the matters as to which we are
opining herein, we have assumed that such laws are identical to the state laws
of the Commonwealth of Massachusetts, and we are expressing no opinion herein as
to whether such assumption is reasonable or correct.
Based upon and subject to the foregoing, we are of the opinion that the
Shares to be issued by the Company have been duly authorized for issuance and,
when such Shares are issued in accordance with the terms and conditions of the
Merger Agreement, such Shares will be validly issued, fully paid and
nonassessable.
It is understood that this opinion is to be used only in connection with
the issuance of the Shares while the Registration Statement is in effect.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters. This opinion
is based upon currently existing statutes, rules, regulations and judicial
decisions, and we disclaim any obligation to advise you of any change in any of
these sources of law or subsequent legal or factual developments which might
affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters." In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
HALE AND DORR LLP
<PAGE>
Hale and Dorr LLP
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 fax 617-526-5000
Exhibit 8.1
-----------
______, 1999
Open Market, Inc.
1 Wayside Road
Burlington, MA 01803
Re: Merger pursuant to Agreement and Plan of Merger among
Open Market, Inc., OM/SA Acquisition and FutureTense, Inc.
----------------------------------------------------------
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement (the "Registration Statement") on Form S-4, which
includes the Joint Proxy Statement and Prospectus relating to the Agreement and
Plan of Merger dated as of July 14, 1999 (the "Merger Agreement"), by and among
Open Market, Inc., a Delaware corporation ("Parent"), OM/SA Acquisition
Corporation, a Delaware corporation and wholly owned subsidiary of Parent
("Sub"), and FutureTense, Inc., a Delaware corporation ("Target"). Pursuant to
the Merger Agreement, Sub will merge with and into Target (the "Merger").
Except as otherwise provided, capitalized terms not defined herein have the
meanings set forth in the Merger Agreement and the exhibits thereto or in the
letters delivered to Hale and Dorr LLP by Parent and Target containing certain
representations of Parent and Target relevant to this opinion (the
"Representation Letters"). All section references, unless otherwise indicated,
are to the United States Internal Revenue Code of 1986, as amended (the "Code").
In our capacity as counsel to Parent in the Merger, and for purposes of
rendering this opinion, we have examined and relied upon the Registration
Statement, the Merger Agreement and the exhibits thereto, the Representation
Letters, and such other documents as we considered relevant to our analysis. In
our examination of documents, we have assumed the authenticity of original
documents, the accuracy of copies, the genuineness of signatures, and the legal
capacity of signatories.
We have assumed that all parties to the Merger Agreement and to any other
documents examined by us have acted, and will act, in accordance with the terms
of such Merger Agreement and documents and that the Merger will be consummated
at
<PAGE>
Open Market, Inc.
, 1999
- -------------
Page 2
the Effective Time pursuant to the terms and conditions set forth in the
Merger Agreement without the waiver or modification of any such terms and
conditions. Furthermore, we have assumed that all representations contained in
the Merger Agreement, as well as those representations contained in the
Representation Letters, are, and at the Effective Time will be, true and
complete in all material respects, and that any representation made in any of
the documents referred to herein "to the best of the knowledge and belief" (or
similar qualification) of any person or party is correct without such
qualification. We have also assumed that as to all matters for which a person
or entity has represented that such person or entity is not a party to, does not
have, or is not aware of, any plan, intention, understanding, or agreement,
there is no such plan, intention, understanding, or agreement. We have not
attempted to verify independently such representations, but in the course of our
representation, nothing has come to our attention that would cause us to
question the accuracy thereof.
The conclusions expressed herein represent our judgment as to the proper
treatment of certain aspects of the Merger under the income tax laws of the
United States based upon the Code, Treasury Regulations, case law, and rulings
and other pronouncements of the Internal Revenue Service (the "IRS") as in
effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at any
other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you of any
developments after the Effective Time in the application or interpretation of
the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or rejected by a
court.
This opinion addresses only the specific United States federal income tax
consequences of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use, or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger). We
express no opinion regarding the tax consequences of the Merger to shareholders
of Target that are subject to special tax rules, and we express no opinion
regarding the tax consequences of the Merger arising in connection with the
ownership of options or warrants for Target stock.
On the basis of, and subject to, the foregoing, and in reliance upon the
representations and assumptions described above, we are of the following
opinions:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a) and
<PAGE>
Open Market, Inc.
, 1999
- -------------
Page 3
2. The discussion under the section "Material United States Federal
Income Tax Consequences" in the Registration Statement accurately describes the
material federal income tax considerations relevant to Target stockholders
receiving Parent Common Stock in the Merger.
In rendering this opinion, we have assumed that Testa, Hurwitz & Thibeault,
LLP has delivered, and has not withdrawn, an opinion that is substantially
similar to this one. No opinion is expressed as to any federal income tax
consequence of the Merger except as specifically set forth herein, and this
opinion may not be relied upon except with respect to the consequences
specifically discussed herein.
This opinion is intended solely for the purpose of inclusion as an exhibit
to the Registration Statement. It may not be relied upon for any other purpose
or by any other person or entity, and may not be made available to any other
person or entity without our prior written consent. We hereby consent to the
filing of this opinion as an exhibit to the Registration Statement and further
consent to the use of our name in the Registration Statement in connection with
references to this opinion and the tax consequences of the Merger. In giving
this consent, however, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended.
Very truly yours,
Hale and Dorr LLP
<PAGE>
Exhibit 8.2
-----------
_______, 1999
FutureTense, Inc.
43 Nagog Park
Acton, MA 01720
Re: Merger pursuant to Agreement and Plan of Merger among
Open Market, Inc., OM/SA Acquisition Corporation and FutureTense, Inc.
----------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for FutureTense, Inc., a Delaware corporation
("Target"), in connection with the preparation and execution of the Agreement
and Plan of Merger dated as of July 14, 1999 (the "Agreement") by and among
Target, Open Market, Inc., a Delaware corporation ("Parent"), and OM/SA
Acquisition Corporation, a Delaware corporation wholly-owned by Parent ("Merger
Sub"). Pursuant to the Agreement, Merger Sub will merge with and into Target
(the "Merger"), and Target will become a wholly-owned subsidiary of Parent.
Unless otherwise defined, capitalized terms referred to herein have the meanings
set forth in the Agreement. All section references, unless otherwise indicated,
are to the Internal Revenue Code of 1986, as amended (the "Code").
This opinion is being delivered to you in connection with the filing of a
registration statement (the "Registration Statement") on Form S-4, which
includes the Joint Proxy Statement and Prospectus relating to the Agreement. In
delivering this opinion, we have reviewed and are relying upon (without any
independent investigation or examination thereof) the truth and accuracy, at all
relevant times, of the facts, statements, descriptions, covenants,
representations and warranties set forth in the Registration Statement, the
Agreement (including exhibits), and representations by Target, Parent and Merger
Sub, respectively (the "Corporate Representations"). We have assumed that all
parties to the Agreement and to any other documents examined by us have acted,
and will act, in accordance with the terms of such Agreement and documents and
that the Merger and related transactions will be consummated at the Effective
Time pursuant to the terms and conditions set forth in the Agreement and related
documents without the waiver or modification of any such terms and conditions.
<PAGE>
FutureTense, Inc.
Page 2
, 1999
- ----------
In connection with rendering this opinion, we have also assumed or obtained
representations (and are relying thereon, without any independent investigation
or examination thereof) that:
1. Any statement made in any of the documents referred to herein "to the
knowledge of" or "to the best of the knowledge of" any person or party or
similarly qualified is correct without such qualification;
2. All facts, statements, descriptions, covenants, representations and
warranties contained in any of the documents referred to herein or otherwise
made to us (including, without limitation, the aforementioned Corporate
Representations) are true and correct in all respects at all relevant times and
no actions have been (or will be) taken which are inconsistent with such
positions;
3. As to all matters for which a person or entity has represented that
such person or entity is not a party to, does not have or is not aware of any
plan, intention, understanding or agreement to take an action, there is in fact
no such plan, intention, understanding or agreement and such action will not be
taken;
4. At all relevant times, including the Effective Time: (i) no
outstanding indebtedness of Parent or Target has or will represent equity for
federal income tax purposes; and (ii) no outstanding equity of Parent or Target
has or will represent indebtedness for federal income tax purposes;
5. Target will hold "substantially all" of its and Merger Sub's assets
following the Merger, within the meaning of Section 368(a)(2)(E) of the Code;
and
6. The Merger will be reported by Parent and Target on their respective
federal income tax returns in a manner consistent with the opinion set forth
below.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the following opinions:
1. For federal income tax purposes, the Merger will qualify as a
"reorganization" as defined in Section 368(a) of the Code, and
2. The discussion under the section "Material United States Federal
Income Tax Consequences" in the Registration Statement accurately describes the
material federal income tax consequences to Target stockholders receiving Parent
common stock in the Merger.
This opinion represents and is based upon our best judgment regarding the
application of federal income tax laws including the Code, existing judicial
decisions, administrative
<PAGE>
FutureTense, Inc.
Page 3
, 1999
- ----------
regulations and published rulings and procedures. Our opinion is not binding
upon the Internal Revenue Service or the courts, and there is no assurance that
the Internal Revenue Service will not successfully assert a contrary position.
Furthermore, no assurance can be given that future legislative, judicial or
administrative changes, on either a prospective or retroactive basis, would not
adversely affect the accuracy of the conclusions stated herein. Nevertheless, we
undertake no responsibility to advise you of any new developments in the
application or interpretation of the federal income tax laws.
This opinion addresses only the specific United States federal income tax
consequences of the Merger set forth above and does not address any other
federal, state, local or foreign tax consequence that may result from the Merger
or any other transaction (including any transaction undertaken in connection
with or in contemplation of the Merger). In particular, we express no opinion
regarding (i) whether and the extent to which any Target stockholder who has
provided or will provide services to Target, Parent or Merger Sub will have
compensation income under any provision of the Code; (ii) the effects of any
such compensation income, including but not limited to the effect upon the basis
and holding period of the Parent common stock received by any such stockholder;
(iii) the potential application of the "golden parachute" provisions (Sections
280G, 3121(v)(2) and 4999) of the Code, or the regulations promulgated
thereunder; (iv) the survival and/or availability, after the Merger, of any of
the federal income tax attributes or elections of Target, after application of
any provision of the Code, as well as the regulations promulgated thereunder and
judicial interpretations thereof; (v) the tax consequences of the Merger as
applied to specific shareholders of Target or that may be relevant to particular
classes of Target shareholders such as dealers in securities, foreign persons
and holders of shares acquired upon exercise of stock options or in other
compensatory transactions; (vi) the basis of any equity interest in Target
acquired by Parent in the Merger; (vii) the tax consequences of any transaction
in which a right to acquire Target stock or Parent stock was or will be
received, or the effect of the Merger upon such tax consequences; (viii) the tax
consequences of the Merger to holders of options, warrants or other rights to
acquire Target stock; or (ix) any state, local or foreign tax consequences of
the Merger.
No opinion is expressed as to any transaction other than the Merger as
described in the Agreement (whether or not undertaken in connection with or in
contemplation of the Merger) or as to any transaction whatsoever, including the
Merger, if all the transactions described in the Agreement are not consummated
in accordance with the terms of the Agreement and without waiver or breach of
any material provision thereof or if any of the facts, statements, descriptions,
covenants, representations, warranties or assumptions upon which we relied
(including, without limitation, the aforementioned Corporate Representations)
are not true and accurate at all relevant times. In the event any one of the
facts, statements, descriptions, covenants, representations, warranties or
assumptions upon which we have relied to issue this opinion is incorrect, our
opinion might be adversely affected and may not be relied upon.
<PAGE>
FutureTense, Inc.
Page 4
, 1999
- ----------
In rendering this opinion, we have assumed that Hale and Dorr LLP has
delivered, and has not withdrawn, an opinion that is substantially similar to
this one. This opinion is intended solely for the purpose of inclusion as an
exhibit to the Registration Statement. It may not be relied upon for any other
purpose or by any other person or entity, and may not be made available to any
other person or entity without our prior written consent. We hereby consent to
the filing of this opinion as an exhibit to the Registration Statement and
further consent to the use of our name in the Registration Statement in
connection with references to this opinion and the tax consequences of the
Merger. In giving this consent, however, we do not hereby admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
TESTA, HURWITZ & THIBEAULT, LLP
<PAGE>
Exhibit 23.2
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated February 2, 1999
included in Open Market, Inc.'s Form 10-K/A for the year ended December 31, 1998
and to all references to our Firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 6, 1999
<PAGE>
Exhibit 23.3
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this registration statement on Form S-4 of Open
Market, Inc. of our report dated March 10, 1999 relating to the financial
statements of FutureTense, Inc., which appears in such registration statement.
We also consent to the references to us under the headings "Experts," "Selected
Historical Consolidated and Unaudited Pro Forma Combined Financial Information"
and "Unaudited Pro Forma Condensed Combined Financial Statements" in such
registration statement.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 6, 1999
<PAGE>
Exhibit 99.2
------------
PROXY PROXY
- ----- -----
OPEN MARKET, INC.
One Wayside Road
Burlington, Massachusetts 01803
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD __________, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Gary B. Eichhorn, Betty J. Savage, Paul
Esdale and Eric J. Pyenson 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.,
a Delaware corporation (the "Corporation"), which the undersigned is entitled to
vote at a Special Meeting of Stockholders of the Corporation to be held on
______________, 1999, 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 reverse side)
SEE REVERSE SIDE SEE REVERSE SIDE
<PAGE>
[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 approve the issuance of up to an estimated maximum of 7,700,000
shares of common stock of the Corporation to stockholders of
FutureTense, Inc., a Delaware corporation ("FutureTense"), as
contemplated by the Agreement and Plan of Merger, dated as of July 14,
1999, by and among the Corporation, OM/SA Acquisition Corporation, a
Delaware corporation and a wholly owned subsidiary of Open Market, and
FutureTense, pursuant to which OM/SA Acquisition Corporation will be
merged with and into FutureTense, with FutureTense being the surviving
corporation (the "Merger").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To transact such other business as may properly come before the
Meeting or any adjournment or postponement of the Meeting, including
without limitation, potential adjournments or postponements of the
Meeting for the purposes of soliciting additional proxies in order to
approve the proposed issuance of the Corporation's common stock in
connection with the Merger.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
MARK HERE FOR ADDRESS CHANGE
OR COMMENT 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:
-------------------------------- ---------------------
Signature: Date:
-------------------------------- ---------------------
<PAGE>
Exhibit 99.3
------------
FUTURETENSE, INC.
Proxy for the Special Meeting of Stockholders to be held on ______________ 1999
The undersigned, having received notice of the Special Meeting of
Stockholders of FutureTense, Inc. (the "Company") and revoking all prior
proxies, hereby appoints Ronald Matros and Paul Hallee and each of them,
attorneys of the undersigned (with full power of substitution in them and each
of them) for and in the name of the undersigned to attend the Special Meeting of
Stockholders at Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High
Street, Boston, MA 02110, at 10:00 a.m., Boston time on _________, ________,
1999, and any adjournments of that meeting, and there to vote and act upon the
following matters in respect of all shares of stock of the Company of each and
every class which the undersigned is entitled to vote or act upon, with all
powers the undersigned would possess if personally present:
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR THE PROPOSALS SET FORTH IN ITEMS 1, 2 AND
---
3 AND DISCRETION TO VOTE FOR OR AGAINST ANY PROPOSALS UNDER ITEM 3 IS HEREBY
GRANTED.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSALS SET FORTH IN
ITEMS 1.
1. To approve and adopt the agreement and plan of merger dated as of July
14, 1999 among Open Market, Inc., OM/SA Acquisition Corporation, a
Delaware corporation and a wholly-owned subsidiary of Open Market, and
the Company, which will result in the Company becoming a wholly-owned
subsidiary of Open Market.
[_] FOR [_] AGAINST [_] ABSTAIN
2. To approve the appointment of Jarrett Collins, currently a director of
the Company, as the indemnification representative (and the appointment
of Barry Fidelman in the event Mr. Collins is unable to continue as the
indemnification representative) to act on behalf of the Company
stockholders in connection with the merger and the escrow agreement
referred to in the merger agreement.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Upon, or with regard to, any other matters which may properly come
before the meeting or any adjournments thereof.
* * * * *
Unless otherwise expressly provided hereon, this proxy shall be deemed to apply
to shares of each class and series which the undersigned has the right to vote
and shall be voted either as a separate class or series and/or with all other
classes or series of capital stock of the Company as provided for by the
Company's Certificate of Amendment of Certificate of Incorporation.
Attendance of the undersigned at the meeting or any adjournment of that
meeting will not be deemed to revoke this proxy unless the undersigned shall
affirmatively indicate at such meeting the intention of the undersigned to vote
his shares in person. If the undersigned holds any of the shares of the Company
in a joint capacity, this proxy is signed by the undersigned in such capacity,
as well as individually.
Dated: __________ __, 1999 ________________________________________________
________________________________________________
Signature(s)
________________________________________________
________________________________________________
Please print name(s) exactly as appearing on stock
certificate. Joint owners should each sign
personally
