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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-28436
OPEN MARKET, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3214536
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Wayside Road
Burlington, Massachusetts 01803
(Address of principal executive offices) (Zip Code)
(781) 359-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
As of July 30, 1999, there were 36,132,550 shares of the Registrant's Common
Stock outstanding.
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OPEN MARKET, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998... 3
Consolidated Statements of Operations for the three and six months ended
June 30, 1999 and 1998................................................. 4
Consolidated Statements of Cash Flows for the six months ended June 30,
1999 and 1998.......................................................... 5
Notes to Consolidated Financial Statements.............................. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 13
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk........ 35
PART II--OTHER INFORMATION
ITEM 1. Legal Proceedings................................................. 36
ITEM 2. Changes in Securities and Use of Proceeds......................... 36
ITEM 3. Defaults Upon Senior Securities................................... 36
ITEM 4. Submission of Matters to a Vote of Security Holders............... 36
ITEM 5. Other Information................................................. 36
ITEM 6. Exhibits and Reports on Form 8-K.................................. 36
SIGNATURES................................................................ 37
EXHIBIT INDEX............................................................. 38
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
OPEN MARKET, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 15,961 $ 19,921
Marketable securities............................... 14,694 14,958
Accounts receivable, net of allowances of $2,744 and
$2,523, respectively............................... 25,429 28,250
Prepaid expenses and other current assets........... 3,384 1,892
--------- ---------
Total current assets............................ 59,468 65,021
--------- ---------
Property, plant and equipment, at cost:
Computers and office equipment...................... 15,356 14,743
Leasehold improvements.............................. 5,377 5,421
Land & building..................................... 4,200 4,200
Furniture & fixtures................................ 2,136 2,157
--------- ---------
Total property and equipment.................... 27,069 26,521
Less: Accumulated depreciation and amortization....... 13,363 11,093
--------- ---------
Net property and equipment...................... 13,706 15,428
Long-term marketable securities....................... 353 1,510
Intangible assets, net................................ 10,186 11,627
Other assets.......................................... 1,372 1,372
--------- ---------
$ 85,085 $ 94,958
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations......... $ 78 $ 88
Line of credit...................................... 10,350 11,000
Note payable........................................ -- 5,000
Accounts payable.................................... 2,397 2,848
Accrued expenses.................................... 11,592 13,692
Deferred revenues................................... 5,215 4,548
--------- ---------
Total current liabilities....................... 29,632 37,176
--------- ---------
Long-term obligations, net of current maturities...... 2,720 2,789
Stockholders' equity:
Preferred stock, $.10 par value--
Authorized--2,000,000 shares; Issued and
outstanding none................................. -- --
Common stock, $.001 par value--
Authorized--100,000,000 shares; Issued and
outstanding 36,077,000 shares and 35,291,000
shares at June 30, 1999 and December 31, 1998,
respectively..................................... 36 35
Additional paid-in capital.......................... 188,979 186,074
Accumulated deficit................................. (136,282) (131,116)
--------- ---------
Total stockholders' equity...................... 52,733 54,993
--------- ---------
$ 85,085 $ 94,958
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
OPEN MARKET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months Ended
Ended June 30, June 30,
----------------- -----------------
1999 1998 1999 1998
------- -------- ------- --------
<S> <C> <C> <C> <C>
REVENUES:
Product revenues....................... $12,790 $ 12,157 $22,865 $ 23,430
Service revenues....................... 5,760 4,369 11,281 8,298
------- -------- ------- --------
Total revenues....................... 18,550 16,526 34,146 31,728
------- -------- ------- --------
COST OF REVENUES:
Product revenues....................... 844 742 1,479 1,342
Service revenues....................... 4,397 3,503 8,301 6,409
------- -------- ------- --------
Total cost of revenues............... 5,241 4,245 9,780 7,751
------- -------- ------- --------
Gross profit......................... 13,309 12,281 24,366 23,977
------- -------- ------- --------
OPERATING EXPENSES:
Selling and marketing.................. 7,895 8,007 15,306 15,883
Research and development............... 5,026 6,568 9,508 13,344
General and administrative............. 2,308 3,021 4,667 5,950
Acquired in-process research and
development........................... -- 5,700 -- 5,700
------- -------- ------- --------
Total operating expenses............. 15,229 23,296 29,481 40,877
------- -------- ------- --------
Loss from operations................. (1,920) (11,015) (5,115) (16,900)
OTHER INCOME (EXPENSE):
Interest income.......................... 273 291 557 609
Interest expense......................... (171) (296) (310) (536)
Other expense............................ (5) (62) (152) (72)
------- -------- ------- --------
Loss before provision for incomes taxes.. (1,823) (11,082) (5,020) (16,899)
------- -------- ------- --------
Provision for income taxes............... 102 33 145 65
------- -------- ------- --------
NET LOSS................................. $(1,925) $(11,115) $(5,165) $(16,964)
======= ======== ======= ========
NET LOSS PER SHARE BASIC AND DILUTED
(Note 2(e))............................. $ (0.05) $ (0.34) $ (0.14) $ (0.53)
======= ======== ======= ========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING--
BASIC AND DILUTED (Note 2(e))........... 35,959 32,742 35,637 32,255
======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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OPEN MARKET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------
1999 1998
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $(5,165) $(16,964)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 2,270 2,299
Amortization of intangible assets...................... 1,440 1,019
Charge associated with acquired in-process research &
development........................................... -- 5,700
Deferred Compensation.................................. -- 77
Changes in assets and liabilities:
Accounts receivable.................................... 2,821 (5,196)
Prepaid expenses and other current assets.............. (1,491) (795)
Accounts payable....................................... (451) 255
Accrued expenses....................................... (2,100) (1,631)
Deferred revenues...................................... 668 (31)
-------- ---------
Net cash used in operating activities................ (2,008) (15,267)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment.............. (548) (3,937)
Payment from founder on loan............................ -- 993
Sales (purchases) of marketable securities, net......... 1,421 (1,829)
Increase in other assets................................ -- (101)
Net cash used in the purchase of ICentral............... -- (1,420)
-------- ---------
Net cash provided by (used in) investing activities.. 873 (6,294)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) from line of credit................. (650) 3,981
Payments on note payable................................ (5,000) (1,818)
Proceeds from the factoring of accounts receivable...... -- 3,128
Payments on long-term obligations....................... (80) (47)
Proceeds from issuance of common stock.................. 2,905 7,074
-------- ---------
Net cash provided by (used in) financing activities.. (2,825) 12,318
-------- ---------
Net decrease in cash and cash equivalents................ (3,960) (9,243)
-------- ---------
Cash and cash equivalents, beginning of period........... 19,921 19,666
-------- ---------
Cash and cash equivalents, end of period................. $ 15,961 $ 10,423
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period......................... $ 162 $ 1,010
======== =========
Taxes paid during the period............................ $ 16 $ 41
======== =========
In connection with the acquisition of ICentral, the
following non-cash transaction occurred:
Fair value of assets acquired........................... $ -- $ 12,086
Liabilities assumed..................................... -- (666)
Issuance of common stock................................ -- (10,000)
-------- ---------
Cash paid for acquisition and acquisition costs......... $ -- $ 1,420
======== =========
In connection with the acquisition of Folio, the
following non-cash transaction occurred:
Issuance of common stock................................ $ -- $ 3,182
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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OPEN MARKET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(Unaudited)
1. Basis of Presentation
The consolidated financial statements of Open Market, Inc. (the Company)
presented herein have been prepared pursuant to the rules of the Securities
and Exchange Commission for quarterly reports on Form 10-Q and do not include
all of the information and note disclosures required by generally accepted
accounting principles. These statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended
December 31, 1998, included in the Company's Annual Report on Form 10-K/A
filed with the Securities and Exchange Commission on April 2, 1999.
The consolidated financial statements and notes herein are unaudited but, in
the opinion of management, include all adjustments (consisting of normal,
recurring adjustments) necessary to present fairly the consolidated financial
position, results of operations and cash flows of the Company and its
subsidiaries.
The results of operations for the interim periods shown herein are not
necessarily indicative of the results to be expected for any future interim
period or for the entire year.
2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the application
of certain accounting policies described in this and other notes to these
consolidated financial statements.
(a) Principles of Consolidation
The accompanying consolidated financial statements reflect the accounts of
the Company and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
(b) Revenue Recognition
The Company applies Statement of Position No. 97-2, Software Revenue
Recognition, which superseded Statement of Position 91-1. The Company
generates revenue from licensing the rights to use its software products to
end users and sublicense fees from resellers. The Company also generates
service revenues from the sale of postcontract customer support and the sale
of certain consulting and development services.
Revenues from software license agreements are recognized upon delivery of
the software if there is evidence of an agreement, there are no significant
post-delivery obligations, and the payment is fixed, determinable and
collection is probable. If an acceptance period is required, revenues are
recognized upon customer acceptance. The Company enters into reseller
arrangements for certain products that typically provide for sublicense fees
payable to the Company based on a percentage of the Company's list price.
Royalty and sublicense revenues from the Company's reseller arrangements are
recognized when earned, either on a per-unit basis as reported to the Company
by its licensees, or, with regards to guaranteed minimums, upon shipment of
the master copy of all software to which the guaranteed minimum sublicense
fees relate, if there are no significant post-delivery obligations. Revenues
for post-contract customer support are recognized ratably over the term of the
support period, which is typically one year. Service revenue, which includes
education, implementation and consulting services, is recognized in the period
services are provided, if customer acceptance is not required, there is
evidence of an agreement, the revenues are fixed and determinable and
collectibility is probable.
Cost of product revenues consists of costs to distribute the product,
including the cost of the media on which it is delivered and royalty payments
to third-party vendors. Cost of service revenues consists primarily of
consulting and support personnel salaries and related costs.
6
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OPEN MARKET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred revenues represent cash received from customers for products and
services in advance of revenue recognition.
(c) Cash, Cash Equivalents and Marketable Securities
The Company accounts for investments under Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Under SFAS No. 115, investments for which the Company has
the positive intent and ability to hold to maturity, consisting of cash
equivalents and marketable securities, are reported at amortized cost, which
approximates fair market value. Cash equivalents are highly liquid investments
with maturities of less than three months at the time of acquisition.
Marketable securities consist of investment grade commercial paper, corporate
notes, and obligations of certain municipalities as of June 30, 1999. These
instruments typically have maturities of greater than three months but less
than one year. The average maturity of the Company's marketable securities is
approximately thirteen months.
(d) Translation of Foreign Currencies
The accounts of the Company's foreign subsidiaries are translated in
accordance with SFAS No. 52, Foreign Currency Translation. In translating the
accounts of the foreign subsidiaries into U.S. dollars, assets and liabilities
are translated at the rate of exchange in effect at period-end, while
stockholders' equity is translated at historical rates. Revenue and expense
accounts are translated using the weighted average rate in effect during the
year. Foreign currency translation and transaction gains or losses for the
foreign subsidiaries are included in the accompanying consolidated statements
of operations since the functional currency of these subsidiaries is the U.S.
dollar. The Company had no sales denominated in foreign currencies in the
three months and six months ended June 30, 1999 and 1998.
(e) Net Loss Per Share
Effective December 31, 1997, the Company adopted SFAS No. 128 Earnings Per
Share. SFAS No. 128 establishes standards for computing and presenting
earnings per share and applies to entities with publicly held common stock or
potential common stock. The Company has applied the provisions of SFAS No. 128
and Staff Accounting Bulletin (SAB) No. 98 retroactively to all periods
presented. Diluted net loss per share for the three months and six months
ended June 30, 1999 and 1998 are the same as basic net loss per share as the
inclusion of potential common stock would be antidilutive.
For the six months ended June 30, 1999 and 1998, 6,405,000 and 6,202,000,
respectively, of anti-dilutive securities were not included in the calculation
of basic and diluted net loss per share.
(f) Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 SFAS 130, Reporting Comprehensive Income. SFAS
No. 130 establishes standards for reporting and display of comprehensive
income and its components in financial statements. Comprehensive income
includes all changes in equity during a period except those resulting from
investments by owners and distribution to owners. The comprehensive net loss
is the same as net loss for all periods presented.
(g) Disclosures about Segments of an Enterprise and Significant Customers
The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information in the fiscal year ended December 31, 1998.
SFAS No. 131 establishes standards for reporting information regarding
operating segments in annual financial statements and requires selected
information for
7
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OPEN MARKET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision making group, in making decisions how to allocate
resources and assess performance. The Company's chief decision-maker, as
defined under SFAS No. 131, is a combination of the Chief Executive Officer
and the Chief Financial Officer.
As a result of the ABSB L.C. license and distribution agreement (see Note 5)
the Company now has two reportable operating segments: (1) Commerce Products,
including the licensing of Transact, Live Commerce and Shopsite products and
(2) Publishing Products which include the Folio publishing product suite. The
Company evaluates performance of the operating segments based on gross profit.
During the three months ended June 30, 1999, one customer accounted for
approximately 16% of the Company's revenues or $3 million. The related
accounts receivable balance for this customer was $568 as of June 30, 1999.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- -----------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Commerce Product Revenues................. $ 10,542 $ 8,465 $18,367 $11,659
Commerce Service Revenues................. 5,091 3,359 9,894 6,234
--------- -------- ------- -------
Subtotal Commerce Revenues.............. 15,633 11,824 28,261 17,893
--------- -------- ------- -------
Publishing Product Revenues............... 2,248 3,692 4,498 11,771
Publishing Service Revenues............... 669 1,010 1,387 2,064
--------- -------- ------- -------
Subtotal Publishing Revenues............ 2,917 4,702 5,885 13,835
--------- -------- ------- -------
Total Revenues........................ 18,550 16,526 34,146 31,728
--------- -------- ------- -------
Commerce Cost of Product.................. 760 609 1,320 1,036
Commerce Cost of Service.................. 3,649 2,828 6,869 5,009
--------- -------- ------- -------
Subtotal Cost of Commerce Revenues...... 4,409 3,437 8,189 6,045
--------- -------- ------- -------
Publishing Cost of Product................ 84 133 159 306
Publishing Cost of Service................ 748 675 1,432 1,400
--------- -------- ------- -------
Subtotal Cost of Publishing Revenues.... 832 808 1,591 1,706
--------- -------- ------- -------
Total Cost of Revenues................ 5,241 4,245 9,780 7,751
--------- -------- ------- -------
Gross Profit--Commerce.................... 11,224 8,387 20,073 11,848
Gross Profit--Publishing.................. 2,085 3,894 4,294 12,129
--------- -------- ------- -------
Total Gross Profit.................... 13,309 12,281 24,366 23,977
========= ======== ======= =======
</TABLE>
8
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OPEN MARKET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents geographical revenues from sources in total and
as a percent of total revenues for the three and six months ended June 30,
1999:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North America............... $15,008 81% $12,273 74% $24,285 71% $23,406 74%
Europe/Africa............... 2,882 16% 2,869 18% 7,896 23% 5,409 17%
Asia/Pacific Rim............ 592 3% 1,153 7% 1,629 5% 2,514 8%
Other....................... 68 0% 231 1% 336 1% 399 1%
------- --- ------- --- ------- --- ------- ---
$18,550 100% $16,526 100% $34,146 100% $31,728 100%
======= === ======= === ======= === ======= ===
</TABLE>
3. Restructuring
In the fourth quarter of 1998, the Company implemented a restructuring plan
to better align its operating costs with its anticipated future revenue
stream. The major component of the restructuring charge relates to the
elimination of approximately 67 employees across the following functions:
Engineering (27), Marketing (17), General and Administrative (22) and Services
(1). In addition, 10 employees moved from Engineering to Consulting. Other
components related to the exitance of certain contractual arrangements for
porting and product integration that resulted from a change in product
strategy. Other charges included the write-off of unutilized software,
originally intended for use by the sales force but not implemented due to the
reduction in marketing personnel. The restructuring charge was comprised of
the following:
<TABLE>
<S> <C>
Employee severance, benefits and related costs.................... $1,260
Write-off of assets............................................... 294
Termination costs of certain contractual arrangements............. 488
------
Total............................................................. $2,042
======
</TABLE>
At June 30, 1999, approximately $562 of accrued restructuring charges
remained, which is comprised of approximately $185 of severance-related costs
and $377 of contractual costs. The total cash impact of the restructuring
amounted to approximately $1,748. The total cash paid as of June 30, 1999 was
approximately $1,153 and the remaining amount is expected to be paid during
1999.
4. Acquisitions
ICentral Incorporated
On April 30, 1998, the Company acquired all of the outstanding shares of
capital stock of ICentral, Incorporated (ICentral) based in Provo, Utah.
ICentral specializes in Internet store-building products geared to small and
medium-sized businesses. As payment of the purchase price, the Company (i)
issued an aggregate of 480,140 shares of common stock of the Company and (ii)
made a cash payment of $720 to the former stockholders of ICentral. The value
of the shares of the Company's common stock issued in connection with the
acquisition was approximately $10,000 based on a weighted average market
price, as defined. In addition, in connection with this acquisition, the
Company entered into employment agreements with certain key employees of
ICentral under which the Company agreed to pay bonuses in an aggregate amount
of $1,000, depending on certain future events, as defined. The employees
earned $570 under the employment agreements as of April 30, 1999 and 42,223
shares have been issued in connection with this transaction. For financial
statement purposes, this acquisition was accounted for as a purchase, and
accordingly, the results of operations of ICentral subsequent to April 30,
1998 are included in the Company's consolidated statements of operations. All
of the
9
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OPEN MARKET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
shares of common stock issued to the former stockholders of ICentral have been
registered for resale pursuant to a registration statement on Form S-3,
declared effective by the Securities and Exchange Commission on November 3,
1998.
The aggregate purchase price of $12,086 consisted of the following:
<TABLE>
<CAPTION>
Description Amount
------------------------------------------------------------------ -------
<S> <C>
Common stock...................................................... $10,000
Cash.............................................................. 720
Assumed liabilities............................................... 666
Acquisition costs................................................. 700
-------
Total purchase price:........................................... $12,086
=======
</TABLE>
The purchase price was allocated based upon the fair value of the tangible
and intangible assets acquired. These allocations represent the fair values
determined by an appraisal. The appraisal incorporated proven valuation
procedures and techniques in determining the fair value of each intangible
asset. The purchase price has preliminarily been allocated as follows:
<TABLE>
<CAPTION>
Description Amount
----------------------------------------------------------------- -------
<S> <C>
Current assets................................................... $ 86
Other acquired intangible assets................................. 6,300
In-process research & development................................ 5,700
-------
Total assets acquired:......................................... $12,086
=======
</TABLE>
As of the acquisition date of ICentral in April 1998, ICentral had initiated
a research and development effort related to the third major revision of its
flagship ShopSite product suite, an Internet commerce product suite that
allows small to medium-sized web merchants to transact business on the
Internet. The elements of the product suite are as follows: (1) ShopSite
Express, a tool that allows web designers to add a shopping system to any
existing web site, (2) ShopSite Manager, which offers the shopping
functionality of ShopSite Express combined with an automated commerce site
management system, and (3) ShopSite Pro, which combines the features of
ShopSite Manager with an additional set of advanced commerce tools including
real-time payment processing. The in-process technology included significant
new modifications of the features and functionality of the current suite of
products, such as the addition of Cybercash as a payment option, quantity
discount interface capability to allow customers to purchase at quantity
discounts, tax modifications to allow the merchant to decide whether to
calculate tax before or after shipping is calculated, improved shipping
configuration of United Parcel Service shipping zones, and a mailing list
generator. It is expected that these modifications will further enhance the
product's ease of use in the marketplace. As of the acquisition date, the in-
process project was approximately 60% complete and it was estimated that the
in-process technology would have a seven-year life. The first product was
introduced during Q2, 1999.
The value of the acquired in-process technology was computed using a
discounted cash flow analysis on the anticipated income stream of the
estimated future product sales of the developed technology. This was
determined by estimating the costs of developing the purchased in-process
development project into commercially viable products, estimating the
resulting net cash flows from the project, adjusting the cash flow for the
percentage of completion and the core technology component of the required
technology and discounting the adjusted net cash flows to their present value.
The estimates used to value the future revenue benefits of the in-process
research and development were based on elements of relevant market sizes and
growth/risk factors, expected trends in technology, and the nature and
expected timing of new product introductions by the Company and its
competitors.
10
<PAGE>
OPEN MARKET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In the valuation analysis, aggregate revenues for ICentral products were
estimated to be approximately $3,300 for fiscal 1998 and increasing to
approximately $62,500 in 2007. Revenues for the in-process technology were
estimated to be approximately $2,300 for fiscal 1998 and increasing to
approximately $28,700 in fiscal 2002, representing a compound annual growth
rate of approximately 65%. The estimated revenues for the in-process
technologies were expected to peak within four years of the acquisition date.
The estimated overall life of the acquired developed technologies of ICentral
is five years.
Operating expenses used in the valuation of ICentral included selling,
general and administrative, and research and development expenses. Operating
expenses were estimated based on historical expense levels of similar
companies operating in similar industries. Selling, and general and
administrative expenses expressed as a percentage of revenue for the in-
process technologies were estimated to be 30% throughout the estimation
period. Research and development expenses, also expressed as a percentage of
estimated revenue, were estimated to be approximately 32% and 13% in 1998 and
1999, respectively, and stabilized at 20% for the remainder of the estimation
period. Cost of sales was estimated based on an analysis of historical
information for similar companies operating in similar industries. Cost of
sales for both the developed and in-process technologies was estimated to be
19% throughout the estimation period.
The discount rate selected for both the developed and in-process
technologies was 22% and was estimated by calculating a Weighted Average Cost
of Capital (WACC) based on publicly traded guideline companies. The WACC
represents the blended, after-tax costs of debt and equity. The cost of equity
was estimated using the Capital Asset Pricing Model (CAPM) and by reviewing
venture capital rates of return.
The valuation analysis was performed in accordance with the provisions of
Accounting Principles Board (APB) Opinions Nos. 16 and 17, wherein all
identifiable assets and intangible assets acquired were identified and
analyzed to determine their fair market values. In addition, to identify the
in-process research and development and determining if there were any
alternative future uses for these projects, these projects were evaluated in
the context of Interpretation 4 of Financial Accounting Standards Board
Statement No. 2 (SFAS 2) and SFAS No. 86: Accounting For Software Costs. Such
evaluation consisted of a specific review of the efforts and uniqueness of the
developments of these projects, and a determination of whether technological
feasibility had been achieved. Accordingly, the Company believed that the
foregoing assumptions used in the ICentral acquired in-process research and
development analysis were reasonable at the time of acquisition. However, no
assurance can be given that the underlying assumptions used to estimate
expected sales revenues, development costs, or profitability, or the events
associated with such projects will transpire, or have transpired, as
estimated. The Company believes that the ShopSite product suite requires
continual upgrading and refinement to remain competitive in the targeted
markets. Thus, the failure to complete the in-process projects as scheduled
may cause ShopSite revenue to fall off precipitously from forecasted levels.
The Company estimates that if the scheduled ShopSite product releases were not
achieved, the existing ShopSite product suite would remain commercially viable
for only the next 12 to 18 months. The Company recorded approximately $840 of
amortization expense relating to these intangible assets during 1998.
5. Exclusive Distribution Agreement
On June 9, 1999, the Company announced the formation of a strategic
partnership with ABSB, L.C., now known as NextPage. Under the terms of the
agreement, in exchange for exclusive worldwide marketing and distribution
rights for Folio publishing products, Open Market will receive a minimum of
$14,000 in guaranteed royalties over a three-year period commencing July 1,
1999. At the end of the three-year period, NextPage has an option to obtain
all rights, title and interests to the Folio products for fair-market value
consideration. In addition, Open Market will receive a minimum of $4,000 in
guaranteed royalties from NextPage in exchange for the non-exclusive worldwide
rights to market and distribute Open Market's Internet commerce software
products to the commercial publishing industry. In connection with this
distribution agreement, the Company recorded $3,000 in commerce product
revenue during the three months ended June 30, 1999.
11
<PAGE>
OPEN MARKET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Subsequent Event
On July 14, 1999, the Company announced that it had entered into a
definitive agreement to acquire FutureTense(R), Inc., a leading provider of
Internet content management software. Under the terms of the agreement, Open
Market estimates that it will issue approximately 7,226,000 shares of its
common stock to the holders of outstanding FutureTense stock. In addition,
Open Market will assume options to acquire FutureTense stock, which Open
Market estimates, will convert into options to acquire approximately 1,118,000
shares of Open Market common stock. A portion of these options will be
exercisable immediately upon the closing of the transaction. The exact number
of shares of Open Market common stock that will be issued and the exact number
of shares of common stock that will be subject to assumed options will be
determined by a formula and will not be known until immediately prior to the
closing of the Future Tense acquisition. As of the close of trading on July
13, 1999, 8,344,000 shares of Open Market common stock had an aggregate market
value of approximately $125 million. The companies expect that the transaction
will be accounted for as a pooling of interests. The transaction is subject to
stockholder approval and is expected to close in the fourth quarter of 1999.
12
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Overview
Open Market develops, markets, licenses and supports enterprise-class,
packaged application software products and professional services that allow
its customers to engage in business-to-business and business-to-consumer
Internet commerce, information commerce and commercial publishing. Open
Market's Internet commerce software includes a wide spectrum of functionality
required to effectively conduct business on the Internet, allowing companies
to attract customers to their Web site, engage customers in acting upon a
commercial offer, complete a secure transaction and service customers once a
transaction has been completed.
This section of the Quarterly Report may include historical information and
certain forward-looking statements. Please review the information contained
under the heading "Certain Factors That May Affect Future Operating Results"
that addresses certain risks and uncertainties that could cause the Company's
future operating results to differ from those indicated by any forward looking
statements made by the Company or others. The Company recommends that the
business and historical discussions put forth in this section be read together
with the discussion of such risks and uncertainties. In addition, the
following discussion should be read in conjunction with the consolidated
financial statements and the notes thereto, and the information included
elsewhere herein. All dollar amounts presented in the following discussion are
presented in thousands, except share and per share amounts and employee data,
if included. All comparisons to the three and six month periods ended June 30,
1998 are based on restated quarterly results for those periods.
On July 14, 1999, the Company announced that it had entered into a
definitive agreement to acquire FutureTense(R), Inc., a leading provider of
Internet content management software. Under the terms of the agreement, Open
Market estimates that it will issue approximately 7,226,000 shares of its
common stock to the holders of outstanding FutureTense stock. In addition,
Open Market will assume options to acquire FutureTense stock, which Open
Market estimates, will convert into options to acquire approximately 1,118,000
shares of Open Market common stock. A portion of these options will be
exercisable immediately upon the closing of the transaction. The exact number
of shares of Open Market common stock that will be issued and the exact number
of shares of common stock that will be subject to assumed options will be
determined by a formula and will not be known until immediately prior to the
closing of the Future Tense acquisition. As of the close of trading on July
13, 1999, 8,344,000 shares of Open Market common stock had an aggregate market
value of approximately $125 million. The companies expect that the transaction
will be accounted for as a pooling of interests. The transaction is subject to
stockholder approval and is expected to close in the fourth quarter of 1999.
Revenues
The following table summarizes product revenues by segment:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- ------------------
June 30, June 30, % Change From June 30, June 30, % Change From
1999 1998 Prior Year 1999 1998 Prior Year
--------- --------- ------------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Commerce product
revenues............... 10,542 8,465 25 % 18,367 11,659 58 %
Publishing product
revenues............... 2,248 3,692 (39)% 4,498 11,771 (62)%
--------- --------- --- ------ ------ ---
Total product revenues.. 12,790 12,157 5 % 22,865 23,430 (2)%
========= ========= === ====== ====== ===
</TABLE>
Product revenues increased to $12,790, or 69% of total revenues, for the
three months ended June 30, 1999, compared to $12,157, or 74% of total
revenues, for the same period of the prior year. Product revenues include: (1)
commerce product revenues, which include the licensing of Transact, the
Company's flagship product for Internet commerce, LiveCommerce, and ShopSite
products, and (2) publishing product revenues, which include the Folio
publishing product suite. The increase in product revenues was attributed
primarily to growth in the
13
<PAGE>
Company's core Internet commerce products segment. In the three months ended
June 30, 1999, Internet commerce product revenues grew to $10,542, or
approximately 25% over the comparable prior year period. The Company's systems
integrator partnerships were more effectively leveraged in generating new
business opportunities for the commerce product segment during the quarter.
Additionally, the Company experienced a shortening of the sales cycle for its
Internet commerce products. Management believes that the shorter sales cycle
is indicative of improvements in the Company's sales and marketing execution
as well as an overall positive trend in the general market environment for its
Internet commerce products. However, management acknowledges that the sales
cycle could lengthen in subsequent quarters as a result of unforeseen market
circumstances.
Product revenues decreased to $22,865, or 67% of total revenues, for the six
months ended June 30, 1999, compared to $23,430, or 74% of total revenues, for
the comparable prior year period. The Company attributes this decrease to its
Folio publishing products segment, which declined approximately 39% and 62%,
respectively, from the three and six months ended June 30, 1998, primarily due
to a decline in publisher royalties for use of the Folio publishing product
suite. The decrease in publisher royalties for the six months ended June 30,
1999, as compared to the prior year period, was attributed primarily to the
signing of three large multi-year publishing royalty contracts in the first
quarter of fiscal 1998. Product revenues declined as a percentage of total
revenues primarily due to a higher rate of growth in the Company's service
business.
On June 9, 1999, the Company announced the formation of a strategic
partnership with ABSB, L.C., now known as NextPage. Under the terms of the
agreement, in exchange for exclusive worldwide marketing and distribution
rights for Folio publishing products, Open Market will receive a minimum of
$14,000 in guaranteed royalties over a three-year period commencing July 1,
1999. At the end of the three-year period, NextPage has an option to obtain
all rights, title and interests to the Folio products for fair-market value
consideration. In addition, Open Market will receive a minimum of $4,000 in
guaranteed royalties from NextPage in exchange for the non-exclusive worldwide
rights to market and distribute Open Market's Internet commerce software
products to the commercial publishing industry. In connection with this
distribution agreement, the Company recorded $3,000 in commerce product
revenue, or 16% of total revenues, during the three months ended June 30,
1999. The Company expects to record the remaining guaranteed minimum $15,000
in product revenues in subsequent quarters. In addition, the Company expects
that total revenues from its publisher segment will decline from historical
quarterly levels as a result of this agreement.
The following table summarizes service revenues by segment:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ------------------
June 30, June 30, % Change From June 30, June 30, % Change From
1999 1998 Prior Year 1999 1998 Prior Year
--------- --------- ------------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Commerce service
revenues............... 5,091 3,359 52 % 9,894 6,234 59 %
Publishing service
revenues............... 669 1,010 (34)% 1,387 2,064 (33)%
--------- --------- --- ------ ----- ---
Total service revenues.. 5,760 4,369 32 % 11,281 8,298 36 %
========= ========= === ====== ===== ===
</TABLE>
Service revenues increased 32% to $5,760 for the three months ended June 30,
1999 from $4,369 for the three months ended June 30, 1998. Service revenues
increased 36% to $11,281 for the six months ended June 30, 1999, from $8,298
for the six months ended June 30, 1998. For the three and six months ended
June 30, 1999, service revenues comprised approximately 31% and 33% of total
revenues, respectively, as compared to 26% and 26% in the comparable prior
year periods. Of the total service revenues for the three and six months ended
June 30, 1999, 41% and 39%, respectively, was attributed to maintenance and
support services, which include customer service and technical support, and
59% and 61%, respectively, was attributed to professional services, which
include consulting, implementation, and education services. For the three and
six months ended June 30, 1999, commerce service revenues grew approximately
52% and 59%, respectively, as compared to the same periods of the prior year.
The Company's publishing services revenue for the three and six months ended
June 30, 1999, declined approximately 34% and 33%, respectively, as compared
to the same periods of the prior year. The decrease was attributed primarily
to the decrease in publishing product revenues for the periods
14
<PAGE>
presented. Generally, customers purchase maintenance and support and
professional services from the Company upon purchase of the Company's
products. In addition, recurring quarterly revenues are derived from the
ratable recognition of maintenance and support services as well as subsequent
purchases of professional services from existing customers. Accordingly, the
Company expects service revenues to grow in relative proportion to growth in
new product business. During the periods presented, management attributed
growth in the Company's service revenues to growth in both maintenance and
support and professional services revenues in the commerce services segment,
primarily as a result of growth in the Company's commerce product revenues
during the periods presented.
Cost of Revenues
The following table summarizes cost of revenues by segment:
<TABLE>
<CAPTION>
Three-Months Ended Six-Months Ended
------------------ -----------------
June 30, June 30, % Change From June 30, June 30, % Change From
1999 1998 Prior Year 1999 1998 Prior Year
--------- -------- ------------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Commerce cost of
product................ 760 609 25 % 1,320 1,036 27 %
Commerce cost of
service................ 3,649 2,828 29 % 6,869 5,009 37 %
Publishing cost of
product................ 84 133 (37)% 159 306 (48)%
Publishing cost of
service................ 748 675 11 % 1,432 1,400 2 %
------ ------- --- ------ ------ ---
Total cost of
revenues............. $5,241 $ 4,245 23 % $9,780 $7,751 26 %
====== ======= === ====== ====== ===
</TABLE>
Cost of product revenues increased to $844 and $1,479 for the three and six
months ended June 30, 1999, respectively, from $742 and $1,342 for the three
and six months ended June 30, 1998, representing increases of approximately
14% and 10%, respectively. The increase in commerce cost of product was
primarily due to increased costs for third party licensing royalties related
to the Company's Internet commerce products. Publishing cost of product
declined in proportion to the decline in publishing product revenues. Cost of
product revenues includes the costs to distribute products, costs of media on
which products are delivered, royalties for third-party technology that is
embedded into certain products of the Company, and royalties for the resale of
third-party software products. Management believes that these costs as a
percentage of product revenues will be in the range of 6% to 10% for the
foreseeable future as the Company incorporates more third-party technology
into its products and continues to resell third-party software products with
its Internet commerce solutions.
Cost of service revenues increased to $4,397 and $8,301 for the three and
six months ended June 30, 1999, respectively, from $3,503 and $6,409, for the
three and six months ended June 30, 1998, representing increases of
approximately 26% and 30%, respectively. Cost of service revenues consists
primarily of personnel and related costs incurred in providing development,
consulting, and other technical services to customers. Overall, the increase
in cost of service revenues was consistent with the approximate 32% and 36%
growth in service revenues for the three and six months ended June 30, 1999,
respectively. Commerce cost of service increased to $3,649 and $6,869 for the
three and six months ended June 30, 1999, respectively from $2,828 and $5,009
for the comparable prior year periods. The increase in commerce cost of
service was attributed primarily to higher costs related to the employment of
outside consultants and higher recruiting costs related to the hiring of new
consultants. Publishing cost of service increased to $748 and $1,432 for the
three and six months ended June 30, 1999, respectively, from $675 and $1,401
for the comparable prior year periods. Publishing cost of service increased as
a result of an increase in consulting headcount of approximately 13%.
Management believes that these costs will increase in proportion to growth in
service revenues, particularly anticipated growth in the Company's commerce
consulting business.
Gross Margin
Product revenue gross margin was approximately 93% for the three and six
months ended June 30, 1999, as compared to approximately 94% for the three and
six months ended June 30, 1998. Management expects that product revenue gross
margin will fluctuate based on the amount of third party technology that the
Company
15
<PAGE>
uses and resells to its customers with its Internet commerce solutions.
Additionally, management expects that product revenue gross margin will remain
in the range of 90% to 94% for the foreseeable future.
Service revenue gross margin increased to approximately 24% and 26% in the
three and six months ended June 30, 1999, respectively, from approximately 20%
and 23% in the comparable prior year periods. Overall, the increase was
attributed primarily to improved cost controls, higher resource utilization
rates, and higher efficiency in the delivery of consulting services from new
hires. Management expects that the service gross margin may fluctuate in
subsequent quarters depending upon such factors as resource utilization rates
and growth in the consulting business.
Operating Expenses
Selling and marketing expenses consisted primarily of the cost of sales and
marketing personnel and consultants, as well as the costs associated with
marketing programs, advertising costs, and literature. Selling and marketing
expenses decreased to $7,895 and $15,306 for the three and six months ended
June 30, 1999, respectively, from $8,007 and $15,883 for the three and six
months ended June 30, 1998, respectively. The decrease in these expenses of
approximately 1% and 4% for the three and six months ended June 30, 1999,
respectively, was attributed primarily to a decrease in employee and travel-
related expenses due to a decrease in headcount of approximately 9% from the
comparable prior year periods.
Research and development expenses consisted primarily of the cost of
research and development personnel and independent contractors, as well as
equipment and facilities costs related to such activities. For the three and
six months ended June 30, 1999, these expenses decreased to $5,026 and $9,508,
respectively, from $6,568 and $13,344 for the three and six months ended June
30, 1998, respectively. The decrease in expenses of approximately 23% and 29%
for the three and six months ended June 30, 1999, respectively, was attributed
primarily to a reduction in employee related expenses as a result of a 17%
reduction in research and development headcount from the prior year periods.
This headcount reduction was primarily the result of the completion of certain
development projects related to the Company's next-generation group of
products that occurred during the six months ended June 30, 1998. In addition,
improvements in general cost control contributed to the decrease.
Qualifying capitalized software development costs were immaterial in both
periods. Accordingly, the Company has charged all such expenses to research
and development in the period incurred. The Company believes that significant
investments in research and development are required to remain competitive in
the software industry. Certain research and development expenditures are
incurred substantially in advance of the related revenues and, in some cases,
do not generate revenues.
General and administrative expenses consisted primarily of the cost of
finance, management, and administrative personnel, as well as legal and other
professional fees. These expenses decreased for the three and six months ended
June 30, 1999, to $2,308 and $4,667, respectively, from $3,021 and $5,950 for
the three and six months ended June 30, 1998, respectively. These amounts
represent decreases of approximately 24% and 22%, respectively, for the three
and six months ended June 30, 1999 from the comparable prior year periods. The
decrease was attributed primarily to a decrease in employee-related expenses
as a result of a 21% decrease in headcount from the comparable prior year
periods.
Overall, management attributed lower operating expenses to general
improvement in the Company's cost structure that resulted from lower employee
headcount and improved cost controls across the Company's internal
organizations. The Company continued to experience cost efficiencies as a
result of the restructuring plan implemented in the fourth quarter of 1998.
Acquired In-Process Research and Development
Acquired in-process research and development expenses consisted of $5,700
relating to the ICentral acquisition in the second quarter of fiscal 1998.
These costs were expensed as of the acquisition dates and are
16
<PAGE>
included in the accompanying consolidated statements of operations for the
respective periods. The amount allocated to acquired in-process research and
development relates to projects that have not yet reached technological
feasibility and that, until completion of development, have no alternative
future use.
As of the acquisition date of ICentral in April 1998, ICentral had initiated
a research and development effort related to the third major revision of its
flagship ShopSite product suite, an Internet commerce product suite that
allows small to medium-sized web merchants to transact business on the
Internet. The elements of the product suite are as follows: (1) ShopSite
Express, a tool that allows web designers to add a shopping system to any
existing web site, (2) ShopSite Manager, which offers the shopping
functionality of ShopSite Express combined with an automated commerce site
management system, and (3) ShopSite Pro, which combines the features of
ShopSite Manager with an additional set of advanced commerce tools including
real-time payment processing. The in-process technology included significant
new modifications of the features and functionality of the current suite of
products, such as the addition of Cybercash as a payment option, quantity
discount interface capability to allow customers to purchase at quantity
discounts, tax modifications to allow the merchant to decide whether to
calculate tax before or after shipping is calculated, improved shipping
configuration of United Parcel Service shipping zones, and a mailing list
generator. It is expected that these modifications will further enhance the
product's ease of use in the marketplace. As of the acquisition date, the in-
process project was approximately 60% complete and it was estimated that the
in-process technology would have a 7-year life and that the first product(s)
were introduced during the second quarter of fiscal 1999.
The value of the acquired in-process technology was computed using a
discounted cash flow analysis on the anticipated income stream of the
estimated future product sales of the developed technology. This was
determined by estimating the costs of developing the purchased in-process
development project into commercially viable products, estimating the
resulting net cash flows from the project adjusting the cash flow for
percentage of completion and the core technology component of the acquired
technology and discounting adjusted the net cash flows to their present value.
The estimates used to value the future revenue benefits of the in-process
research and development were based on elements of relevant market sizes and
growth/risk factors, expected trends in technology, and the nature and
expected timing of new product introductions by the Company and its
competitors.
In the valuation analysis, aggregate revenues for ICentral products were
estimated to be approximately $3,300 for fiscal 1998 and increasing to
approximately $62,500 in 2007. Revenues for the in-process technology were
estimated to be approximately $2,300 for fiscal 1998 and increasing to
approximately $28,700 in fiscal 2002, representing a compound annual growth
rate of approximately 65%. The estimated revenues for the in-process
technologies were expected to peak within four years of the acquisition date.
The estimated overall life of the acquired developed technologies of ICentral
is five years.
Operating expenses used in the valuation of ICentral included selling,
general and administrative, and research and development expenses. Operating
expenses were estimated based on historical expense levels of similar
companies operating in similar industries. Selling, general and administrative
expenses expressed as a percentage of revenue for the in-process technologies
were estimated to be 30% throughout the estimation period. Research and
development expenses, also expressed as a percentage of estimated revenue,
were estimated to be approximately 32% and 13% in 1998 and 1999, respectively,
and stabilizing at 20% for the remainder of the estimation period. Cost of
sales was estimated based on an analysis of historical information for similar
companies operating in similar industries. Cost of sales for both the
developed and in-process technologies was estimated to be 19% throughout the
estimation period.
The discount rate selected for both the developed and in-process
technologies was 22% and was estimated by calculating a Weighted Average Cost
of Capital (WACC) based on publicly traded guideline companies. The WACC
represents the blended, after-tax costs of debt and equity. The cost of equity
was estimated using the Capital Asset Pricing Model (CAPM) and by reviewing
venture capital rates of return.
17
<PAGE>
The fair values of the assets acquired from ICentral were allocated between
the following:
<TABLE>
<CAPTION>
Fair
Market
Asset Value
----- -------
<S> <C>
In-process Research and Development.............................. $ 5,700
Developed Technology............................................. 2,110
Developed Technology............................................. 4,190
Acquired Assets.................................................. 86
-------
Total:......................................................... $12,086
=======
</TABLE>
The valuation analysis was performed in accordance with the provisions of
Accounting Principles Board (APB) Opinions Nos. 16 and 17, wherein all
identifiable assets and intangible assets acquired were identified and
analyzed to determine their fair market values. In addition, to identify the
in-process research and development and to determine if there were any
alternative future uses for these projects, these projects were evaluated in
the context of Interpretation 4 of Financial Accounting Standards Board
Statement No. 2 (SFAS 2) and SFAS 86: Accounting For Software Costs. Such
evaluation consisted of a specific review of the efforts and uniqueness of the
developments of these projects, and a determination of whether technological
feasibility had been achieved. Accordingly, the Company believed that the
foregoing assumptions used in the ICentral acquired in-process research and
development analysis were reasonable at the time of acquisition. However, no
assurance can be given that the underlying assumptions used to estimate
expected sales revenues, development costs, or profitability, or the events
associated with such projects will transpire, or have transpired, as
estimated.
The Company believes that the ShopSite product suite requires continual
upgrading and refinement to remain competitive in the targeted markets. Thus,
the failure to complete the in-process projects as scheduled may cause
ShopSite revenue to fall off precipitously from forecasted levels. The Company
estimates that if the scheduled ShopSite product releases were not achieved,
the existing ShopSite product suite would remain commercially viable for only
the next 12 to 18 months.
Interest income represents interest earned on cash, cash equivalents and
marketable securities. Interest income decreased to $273 and $557,
respectively, for the three and six months ended June 30, 1999, from
approximately $291 and $609 for the three and six months ended June 30, 1998,
respectively. The decrease was attributed primarily to lower average
investments in cash, cash equivalents and marketable securities during the
periods. Interest expense decreased to $171 and $310 for the three and six
months ended June 30, 1999, respectively, from $296 and $536 for the three and
six months ended June 30, 1998, respectively. The decrease in interest expense
was attributed primarily to the final payment made on the note payable issued
to Reed Elsevier in 1997 in connection with the Folio acquisition. Interest
expense relates to the accounts receivable line-of-credit (discussed below),
the Company's note payable issued in conjunction with the Folio acquisition,
the mortgage on the Company's Provo, Utah facility, as well as an obligation
under a license agreement. Other expense of $5 and $152 represents foreign
currency translation losses recorded during the three and six months ended
June 30, 1999, respectively, as compared to $62 and $72 of foreign currency
translation losses recorded during the three and six months ended June 30,
1998.
The Company recorded a provision for foreign income taxes of $102 and $145
for the three and six months ended June 30, 1999, respectively, compared to
$33 and $65 for the three and six months ended June 30, 1998, respectively.
This provision was recorded for estimated taxes due in foreign jurisdictions.
The Company has had losses for U.S. tax purposes for all periods to date and,
accordingly, there has been no provision for U.S. income taxes.
Liquidity and Capital Resources
At June 30, 1999, the Company had $30,655 in cash, cash equivalents, and
marketable securities, which represented a decrease of $4,224 from December
31, 1998.
18
<PAGE>
The Company's operating activities used cash and cash equivalents of
approximately $2,008 and $15,267 for the six months ended June 30, 1999 and
1998, respectively. The improvement in cash used in operating activities was
primarily the result of the lower net loss and lower investment in accounts
receivable. The Company's net loss decreased approximately 70% to $5,165 for
the six months ended June 30, 1999 from $16,964 for the comparable prior year
period. The level of accounts receivable improved primarily as a result of
strong collection efforts and shorter average payment terms in new contracts.
The Company's investing activities provided cash and cash equivalents of
approximately $519 for the six months ended June 30, 1999 and used
approximately $6,294 in the comparable prior year period. The principal
addition of cash from investing activities for the six months ended June 30,
1999 was $1,421 received for the net sale of certain marketable securities and
the principal use of cash for the period was $548 for purchases related to
office equipment. The improvement in cash from investing activities was
primarily due to decreased spending on equipment. In addition, $1,420 of net
cash was used in the ICentral acquisition (see Note 4) in the six months ended
June 30, 1998.
The Company's financing activities used cash and cash equivalents of
approximately $2,825 for the six months ended June 30, 1999 and provided
approximately $12,318 in the comparable prior year period. The principal use
of cash from financing activities was the final payment of $5,000 on the note
payable issued to Reed Elsevier in 1997 in connection with the Folio
acquisition. In addition, the Company received proceeds of $2,905 from the
exercise of stock options under the Company's 1994 Stock Incentive Plan and
stock purchases under the Company's Employee Stock Purchase Plan.
In July 1998, the Company entered into a $2,800 mortgage of its Provo, Utah,
building which bears interest at the fixed rate of 8.5%. The mortgage
principal payments are based upon a 20-year term with a balloon payment
required at the end of the fifth year.
The Company has an unsecured bank credit facility that provides up to
$15,000 in financing in the form of a demand line of credit. Borrowings under
this line are limited to 80% of eligible domestic accounts receivable and 90%
of eligible foreign accounts receivable, as defined, and bears interest at the
prime lending rate (7.75% at June 30, 1999). The Company is required to comply
with certain restrictive covenants under this agreement and the line is
collateralized by the Company's accounts receivable. The Company was in
compliance with all such convenants at June 30, 1999. During the six months
ended June 30, 1999, the Company decreased its borrowings under this facility
to $10,350 from $11,000 at December 31, 1998. At June 30, 1999, $4,650
remained available to the Company under this facility.
At December 31, 1998, the Company had net operating loss carryforwards for
income tax purposes of approximately $96,000. These losses are available to
reduce federal and state taxable income, if any, in future years. These losses
are subject to review and possible adjustment by the Internal Revenue Service
and may be limited in the event of certain cumulative changes in ownership
interests of significant stockholders over a three-year period that are in
excess of 50%. While the Company believes that it has experienced a change in
ownership in excess of 50%, it does not believe that this change in ownership
will significantly impact the Company's ability to utilize its net operating
loss carryforwards.
The Company believes that its existing capital resources are adequate to
meet its cash requirements for at least the next 12 months. There can be no
assurance, however, that changes in the Company's plans or other events
affecting the Company's operations will not result in accelerated or
unexpected expenditures.
Year 2000 Compliance
Background
The Company recognizes that it must ensure that its products and operations
will not be adversely impacted by Year 2000 software failures, which can arise
in date-sensitive software applications that utilize a field of two digits to
define the applicable year. In such applications, a date using "00" as the
year may be recognized as the year 1900 rather than the year 2000.
19
<PAGE>
State of Readiness
With respect to the Company's internal systems, 90% of the Company's mission
critical information technology systems are considered to be Year 2000
compliant, as defined by the criteria established by the British Standards
Institute. With respect to the Company's software products, the Company has
developed and implemented a detailed Year 2000 test procedure for the phase
review and software release process to ensure that its software products are
Year 2000 compliant. The execution of this test procedure began in October
1998 and management expects that such testing will continue throughout 1999.
Additionally, approximately 90% of the Company's embedded product vendors are
already considered to be Year 2000 compliant, based wholly on external and
internal testing of such embedded products. As a result, management expects
that the Company and its key vendors will be positioned to successfully meet
all Year 2000 compliance issues for the Company's products.
Related Costs
Management has assessed the related costs for Year 2000 compliance to be in
the range of $700-$1,000. To date, the Company has incurred costs of
approximately $700 for its Year 2000 projects. Such costs may include those
for research and development, capital equipment, outside software tools,
outside contractors, and other internal resources that may be assigned to the
project. Management acknowledges that these costs may be subject to
reassessment as testing of the Company's products and mission critical systems
is completed and compliance is fully achieved.
Perceived Risks
At the present time, management does not expect Year 2000 issues to have a
material adverse impact on the Company's business or future results of
operations. However, there can be no assurance that there will not be
interruptions of operations or other limitations of system or product
functionality, or that the Company will not incur significant costs to avoid
such interruptions or limitations. For example, such interruptions or
limitations may include disruptions in customer service and technical support
facilities, interruptions to customer access to on-line products and services,
information or other communications, delays in manufacturing and shipping of
products, and other interruptions or delays in the day-to-day operations of
the Company. In addition, even if the Company's products are Year 2000
compliant, other systems or software used by the Company's domestic and
international customers, including such software created through custom
development either by the Company, its customers, or other third party
developers, may not be Year 2000 compliant. The failure of any such non-
compliant third-party software or systems contained in such operating
environments may negatively affect the performance of the Company's products,
which may lead to increased costs associated with correcting technical
problems, lost sales, or other negative consequences resulting from customer
dissatisfaction, including litigation. Such failure may have a material
adverse effect on the Company's business, financial condition and operating
results.
Contingency Plans
In order to avoid such material adverse effects, the Company will continue
to seek business relationships only with those entities that are actively and
successfully addressing Year 2000 issues. If the inability of certain existing
vendors or customers to successfully address Year 2000 issues begins to
present adverse business effects for the Company, management may elect to
suspend such business relationships until such time that such vendors or
customers become fully compliant.
20
<PAGE>
Certain Factors That May Affect Future Results
Introduction
This Quarterly Report contains certain forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
generality of the foregoing, the words "believes", "anticipates", "plans",
"expects", and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by forward-
looking statements made in this Quarterly Report and presented elsewhere by
management from time to time. Some of the important risks and uncertainties
which may cause the Company's operating results to differ materially or
adversely are discussed below and in the Company's Annual Report on Form 10-
K/A for the fiscal year ended December 31, 1998 filed with the SEC.
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 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
21
<PAGE>
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 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.
22
<PAGE>
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;
. 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;
23
<PAGE>
. 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 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.
24
<PAGE>
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 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.
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.
25
<PAGE>
. 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.
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 Open Market and FutureTense will require, among
other things, integration of each company's sales and marketing groups and
coordination of each company's development efforts. The diversion of the
attention of each company's management and any difficulties encountered in the
process of combining both 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 both companies could negatively affect employee
morale and the ability of Open Market 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 both companies' 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 Open Market after the merger.
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'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 ratio 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. 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
26
<PAGE>
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 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 the merger is consummated 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.
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.
27
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Hedging. The accounts of the Company's foreign subsidiaries
are translated in accordance with SFAS No. 52, Foreign Currency Translation.
In translating the accounts of the foreign subsidiaries into U.S. dollars,
assets and liabilities are translated at the rate of exchange in effect at
quarter end, while stockholders' equity is translated at historical rates.
Revenue and expense accounts are translated using the weighted average
exchange rate in effect during the quarter. Foreign currency translation and
transaction gains or losses for the Company's subsidiaries are included in the
accompanying consolidated statements of operations since the functional
currency for the Company's subsidiaries is the U.S. dollar.
Investment Portfolio. The Company does not invest in derivative financial
instruments and other instruments that do not meet the high credit quality
standards, as specified in the Company's investment policy guidelines. The
Company's policy guidelines also limit the amount of credit exposure of any
one issue, issuer, and type of investment. See "Note 2--Summary of Significant
Accounting Policies" in the Notes to Consolidated Financial Statements.
28
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 12, 1999, the
following proposals were adopted by the vote specified below:
<TABLE>
<CAPTION>
Broker
Proposal For Against Abstain Non-Votes
--------------------------------- ---------- --------- ------- ---------
<C> <S> <C> <C> <C> <C>
(1) To elect two Class III Directors
for the ensuing three years:
Shikhar Ghosh.................... 25,897,425 648,113
Eugene Quinn..................... 26,042,839 502,699
(2) To approve amendments to the 1996
Director Option Plan to (a)
increase the number of shares of
Common Stock authorized for
issuance under such plan from
100,000 to 200,000 and (b)
provide that all options granted
on or after May 12, 1999 under
such plan shall be fully
exercisable on the date of
grant............................ 24,918,973 1,228,979 397,586 -0-
(3) To ratify the selection by the
Board of Directors of Arthur
Andersen LLP as the Corporation's
independent public accountants
for the fiscal year ending
December 31, 1999................ 26,279,614 185,559 80,365
</TABLE>
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index are included in this report.
(b) Reports on Form 8-K
None.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Open Market, Inc.
(Registrant)
Date: August 4, 1999
/s/ Gary B. Eichhorn
By:__________________________________
Gary B. Eichhorn
President and Chief Executive
Officer
Date: August 4, 1999
/s/ Betty J. Savage
By:__________________________________
Betty J. Savage
Vice President and Chief Financial
Officer
(Principal Financial Officer)
Date: August 4, 1999
/s/ Annmarie Russell
By:__________________________________
Annmarie Russell
Director of Finance
(Principal Accounting Officer)
30
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
+10.1 Master Software License and Distribution Agreement, dated June 9,
1999, between ABSB, L.C. and the Company.
27.1 Financial Data Schedule for the quarter ended June 30, 1999.
</TABLE>
- --------
+ Confidential materials omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
Exhibit 10.1
------------
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
MASTER SOFTWARE LICENSE AND DISTRIBUTION AGREEMENT
This Master Software License and Distribution Agreement (the "Agreement")
is made and entered into this 9th day of June, 1999 (the "Effective Date") by
and between ABSB, L.C., a Utah limited liability company, with offices at 4692
North 300 West, Suite 200, Provo, UT 84604 ("ABSB"), and Open Market, Inc., a
Delaware Corporation, with offices at 1 Wayside Road, Burlington, MA 01803, and
Folio Corporation, a Utah corporation and wholly owned subsidiary of Open
Market, Inc. (Folio Corporation and Open Market, Inc., being jointly and
severally liable hereunder, are collectively referred to as "OPEN MARKET").
OPEN MARKET develops, markets and sells software products and related services
which provide solutions for conducting commerce over the Internet, and
ABSB desires to develop, market and sell commercial publishing software
products, and
OPEN MARKET and ABSB wish to enter into an agreement providing for the license
of rights to certain software products from OPEN MARKET to ABSB, including
applicable technology and intellectual property rights, the assignment of
customers and distribution channels for such software products, and the future
business relationship between the parties.
In consideration of the mutual promises herein contained and other valuable
consideration, the parties hereto agree as follows:
1. DEFINITIONS
1.1 "Folio Products" means the entire Folio software product line,
including without limitation: Folio SiteDirector, Folio Views, Folio Builder,
Folio Publisher, Folio Integrator, Folio 4, LivePublish and SecurePublish, and
all documentation related thereto.
1.2 "OPEN MARKET Commerce Products" means OPEN MARKET's software product
line as of the Effective Date, including without limitation: Transact,
LiveCommerce, SecureLink, and ShopSite products, all future versions and
enhancements of same, and all necessary documentation related thereto. The
parties may include as OPEN MARKET Commerce Products eligible for distribution
pursuant to Section 2.2, additional future software products from time to time
by mutual written agreement. OPEN MARKET shall have the right to add to or
discontinue any or all of the software products comprising the OPEN MARKET
Commerce Products, but only upon thirty (30) days prior notice, via e-mail or in
writing, to ABSB.
1.3 "Folio Customers" means the licensees from OPEN MARKET of the Folio
Products as of the Effective Closing Date.
1.4 "Folio Distributors" means the authorized distributors, resellers,
business partners and commercial publishers of the Folio Products as of the
Effective Closing Date.
1.5 "Transition Plan" means the mutually agreed procedures following the
Effective Date by which (a) the obligations of OPEN MARKET to Folio Customers
and Folio Distributors, and the
<PAGE>
associated fees, rights and benefits to OPEN MARKET, will be assigned to ABSB;
(b) ABSB will assume the marketing, sales, engineering and distribution of the
Folio Products; and (c) OPEN MARKET will provide to ABSB certain assistance
regarding, without limitation, finance, administration, information systems,
human resource issues, licensee transition, back office systems, and the
coordination of databases and websites.
1.6 "Transition Period" means the limited period of time following the
Effective Date during which OPEN MARKET will provide to ABSB transitional
assistance with respect to the support of Folio Customers and Folio Distributors
and the other items included in the Transition Plan.
1.7 "Folio Trademarks" means the registered and unregistered trademarks to
be licensed to ABSB under this Agreement, identified in Exhibit 2.3.
1.8 "Affiliate" means, as to either party, any partnership, joint venture
or corporation which is directly or indirectly controlling of, controlled by or
under common control with such party or any entity in which such party owns more
than 50% of the outstanding equity interests.
1.9 "Proprietary Information" means the confidential and valuable
information of a disclosing party which that party desires to protect against
further disclosure or competitive use and which is either (a) in written form
and designated as proprietary or confidential or (b) is disclosed orally and is
designated in writing as being proprietary or confidential within ten (10) days
of disclosure.
1.10 "Effective Closing Date" means the close of business on June 30, 1999,
the date upon which ABSB shall assume all applicable benefits and obligations
arising under this Agreement.
1.11 "Territory" shall mean worldwide.
1.12 "Business Segment" shall mean the commercial information publishing
market consisting of companies whose primary business model is the sale of
content without a significant advertising component, and which market includes
the representative customers listed in Exhibit 1.12 for purposes of
illustration.
2. TECHNOLOGY LICENSE
2.1 Folio Product License to ABSB. Subject to payment of the applicable
fees and royalties and compliance with the other material terms described in
this Agreement, OPEN MARKET hereby grants to ABSB an exclusive, assignable
(i.e., to any successor entity controlled by prior owners of ABSB, but otherwise
assignable only subject to OPEN MARKET's prior written consent, which shall not
be unreasonably withheld), world-wide and irrevocable license during the term of
this Agreement (subject to Section 9.3) (a) to use the Folio Products and all of
the intellectual property related to the Folio Products (e.g., patents (subject
to Section 2.4), copyrights, trademarks, service marks, sublicenseable third
party license rights, trade secrets and know-how), the documentation related to
the Folio Products, including without limitation all source code, object code
and executable code embodied in the Folio Products and all computer software,
know-how, technology, trade secrets, and other intellectual property used in the
Folio Products, and any and all other items currently used in connection with
the development, marketing, and distribution of the Folio Products, including
without limitation applicable domain names, technology, permits and licenses,
for ABSB's internal business purposes not expressly prohibited under this
Agreement, and (b) to use, modify, make derivative works from, sell,
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sublicense, market, distribute (pursuant to appropriate end user license terms
and conditions as described in Section 2.2 below), copy, modify, bundle and
otherwise exploit the same in the Territory for any and all lawful purposes,
along with the right to contract with third parties to do any of the same
(subject to OPEN MARKET's prior consent, which shall not be unreasonably
withheld). ABSB will not be permitted to distribute the Folio Products in source
code form to any third party (e.g., for limited OEM licensing purposes) without
OPEN MARKET's prior written consent, which consent shall not be unreasonably
withheld. The exclusive license use rights granted to ABSB shall not include any
rights to any OPEN MARKET Commerce Products, either in whole or in part, or to
any third party products that OPEN MARKET licenses from third parties, except as
expressly provided under this Agreement.
2.2 OPEN MARKET Commerce Products License to ABSB. OPEN MARKET hereby
grants to ABSB in object code form only, a non-exclusive, non-transferable and
world-wide license to sublicense, distribute, and make available to others, the
OPEN MARKET Commerce Products solely to the Business Segment in the Territory
under end user license agreements containing terms substantially similar to
those in Exhibit 2.2 and which are legally sufficient to (i) notify the customer
that the applicable OPEN MARKET Commerce Product is protected by copyright, (ii)
notify the customer that the applicable OPEN MARKET Commerce Product is being
licensed and that ownership is not being transferred, (iii) prohibit
unauthorized copying or transfer of the applicable OPEN MARKET Commerce
Products, (iv) restrict use of the applicable OPEN MARKET Commerce Products as
reasonably appropriate, (v) disclaim all implied warranties with respect to the
use of the applicable OPEN MARKET Commerce Products, including but not limited
to any warranties of merchantability, fitness for a particular purpose, or
warranties arising from usage of trade or course of dealing, and (vi) disclaim
or limit any liability of Open Market related to the applicable OPEN MARKET
Commerce Products in the same manner that ABSB disclaims or limits its
liability, consistent with the applicable OPEN MARKET standard end-user license.
Notwithstanding the foregoing, ABSB shall not be authorized to market and
distribute OPEN MARKET's ShopSite product to entities that intend to provide a
hosted ShopSite service offering to third party merchants; provided, however,
that ABSB shall be allowed to be a ShopSite host itself and to service third
parties pursuant to OPEN MARKET's customary terms and conditions for such
hosting arrangements. At Licensee's request, the parties may discuss and
mutually agree in good faith on whether certain potential customer accounts are
within the Business Segment or whether OPEN MARKET will allow exceptions to this
restriction on a case-by-case basis in its sole reasonable discretion.
2.3 Trademark License. OPEN MARKET hereby grants to ABSB an exclusive,
transferable (subject to OPEN MARKET's reasonable consent) and worldwide license
to use, solely in connection with the Folio Products, on packaging, in
advertising, literature, publicity, and other promotional materials, the OPEN
MARKET trademarks listed in Exhibit 2.3 (the "Trademarks") during the term of
this Agreement, in accordance with OPEN MARKET's use guidelines provided in
Exhibit 2.3. ABSB acknowledges that OPEN MARKET owns all rights to the
Trademarks. ABSB shall not during or after the term (i) do anything, during or
after the term, which could adversely affect the validity or enforceability of
the Trademarks or OPEN MARKET's rights therein; or (ii), without OPEN MARKET's
prior written consent, use or adopt any Trademark or any name, design or symbol
similar thereto, as part of, on, in connection with (iii) ABSB's formal or
informal business, private, substitute or other name or (iv) any of ABSB's
designs, symbols, advertisements, products, services, letterhead, business cards
or other means of identification; provided, however, that notwithstanding any of
the foregoing provisions, ABSB may use, apply for and register any trademark
that is derivative of, or related to, the Trademarks (but specifically excluding
the registration of any trademark that contains the "Folio" name, or the use of
any Trademark in the name of ABSB or any successor entity, without OPEN MARKET's
prior written
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consent, in OPEN MARKET's sole discretion), and OPEN MARKET agrees to cooperate
with ABSB in any such registration, subject to ABSB's obligation to license back
any such trademark to OPEN MARKET for the term of this Agreement and, in the
event that the Section 9.3 purchase option is not exercised by ABSB, to assign
to OPEN MARKET all such interim trademarks promptly following the termination of
this Agreement. In addition, ABSB shall, at OPEN MARKET's request and expense,
assist OPEN MARKET by executing documents or otherwise as OPEN MARKET reasonably
may request, in order to register any Trademark.
2.4 No Patent License. Nothing contained herein shall be deemed or
otherwise construed as a license, either express or implied, or right under any
OPEN MARKET patent, whether or not the exercise of any license or right granted
pursuant to this Agreement necessarily employs as an invention any existing or
later issued patent of Open Market. Notwithstanding the foregoing, OPEN MARKET
agrees that ABSB and its sublicensees, end user customers, resellers,
distributors and any successor corporation, shall have the right to exercise the
respective licenses and other rights granted to them pursuant to this Agreement,
subject to the applicable restrictions and limitations contained herein. If
ABSB elects to exercise the option granted in Section 9.3, the parties shall
discuss whether additional rights relative to OPEN MARKET's patents will be
necessary, in which case both parties agree to negotiate, in good faith, fair
and reasonable terms and conditions for the same. In any event, OPEN MARKET
hereby covenants and agrees not to assert against ABSB, or its successors or
permitted assigns, or its sublicensees, end-user customers, resellers or
distributors, any claims for infringement of any OPEN MARKET patent or patent
rights by ABSB, or its successors or permitted assigns, or its sublicensees,
end-user customers, resellers, or distributors during the term hereof, to the
extent necessary to protect ABSB's full exercise of the licenses granted in
Sections 2.1 and 2.2, or at any time after the exercise of the Section 9.3
purchase option subject to the rights, terms and conditions to be agreed upon in
the contemplated asset purchase agreement (which covenant not to sue shall not
be assignable to any third party except a successor entity controlled by prior
owners of ABSB).
2.5 Order Processing. In consideration of ABSB's payment of the
applicable royalties and fees set forth in Section 9 below, OPEN MARKET shall
provide ABSB with master copies of the Folio Products and OPEN MARKET Commerce
Products (collectively, the "Software") and ABSB shall be authorized to
duplicate and distribute the Software to its customers. The OPEN MARKET
Commerce Products shall be designated for use in certain licensed end-user
categories listed in Exhibit 2.6, which shall include Development, Corporate,
Commerce Service Provider, Niche Commerce Service Provider, Cold-Spare Back-Up
and Hot Spare Back-Up.
The foregoing duplication and distribution rights shall be subject to the
following terms and conditions and shall apply to the Software generally unless
otherwise expressly provided:
(a) ABSB shall receive on a timely basis all upgrades and updates to
the Software master copies and one (1) copy of the respective documentation
shall be provided to ABSB by OPEN MARKET. ABSB may purchase additional copies of
the Documentation at OPEN MARKET's applicable standard pricing unless otherwise
mutually agreed.
(b) Each applicable licensed end-user category applicable to the OPEN
MARKET Commerce Products shall be subject to the standard license use
limitations listed in Exhibit 2.6.
(c) Under no circumstances shall any third parties be authorized to
duplicate Software, unless otherwise expressly permitted by OPEN MARKET in
writing or in the applicable
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standard end-user license agreement (e.g., back-up copies).
(d) If ABSB distributes a quantity of Software licenses to customers
such that more than the applicable guaranteed minimum royalties (with respect to
the Folio Products) or the initial order amounts (with respect to the OPEN
MARKET Commerce Products) are due OPEN MARKET, ABSB shall promptly notify OPEN
MARKET in writing within thirty (30) business days and commence payment of
applicable amounts due for such Software in accordance with subsection (f)
below. For the avoidance of doubt, the parties acknowledge and agree that ABSB
shall pay OPEN MARKET the foregoing royalties and fees based on the structure in
Exhibit 9 regardless of the fee charged by ABSB to its customers.
(e) ABSB shall provide reports to OPEN MARKET of all such Software
distributions to customers in accordance with subsection (f) below.
(f) Within sixty (60) calendar days after the end of each calendar
quarter, ABSB shall furnish OPEN MARKET with a report for such quarter listing
all Software provided to all customers, including at least the following
information: customer name and address; type of Software and site of
installation; and applicable fee due to OPEN MARKET calculated pursuant to
Exhibit 9. Such reports shall contain such additional detail and be in such form
as reasonably may be specified by OPEN MARKET from time to time. After such
time as the Software license fees equal the applicable guaranteed minimum
royalties (with respect to the Folio Products) or the initial order amounts
(with respect to the OPEN MARKET Commerce Products), payment of the applicable
royalties and license fees, as appropriate, shall accompany each quarterly
report.
(g) ABSB shall maintain accurate and complete records of each
transaction or dealing involving the Software, including all invoicing and
payment records and information for the term of this Agreement. OPEN MARKET, or
its designated independent certified public accountant, shall have the right,
upon two (2) weeks prior written notice and during normal business hours, to
inspect such records relating to the Software transactions and dealings entered
into by ABSB during the term of this Agreement. Audits may not be conducted more
frequently than every twelve (12) months.
2.6 OPEN MARKET Optional Reseller Rights. OPEN MARKET may request during
the term of this Agreement by written notice to ABSB to be granted non-
exclusive, worldwide reseller rights for the Folio Products (as the same may be
modified by ABSB) on terms no less favorable than those provided to other
similarly situated resellers of the Folio Products, which request shall be
subject to ABSB's prior written consent in its sole discretion. Any such
reseller arrangement shall be subject to the terms and conditions of ABSB's
standard form of reseller agreement, under mutually agreed terms, including
without limitation applicable territory and market segment restrictions. OPEN
MARKET will not be permitted to distribute the Folio Products in source code
form to any third party without ABSB's prior written approval, which approval
may be withheld for any reason.
3. ASSIGNMENT OF FOLIO CUSTOMERS AND DISTRIBUTORS
3.1 Folio Customers. OPEN MARKET will use reasonable best efforts to
assign all of its end-user Folio Product licenses and the related support and
maintenance agreements to ABSB as of the Effective Closing Date for the term of
this Agreement, subject to the Transition Plan described in
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
Section 5.1 below to be mutually agreed to by the parties as soon as possible.
Except as may be otherwise mutually agreed pursuant to Section 2.6 above, OPEN
MARKET will not sell, or offer to sell, any Folio Products to end-users or any
other third party after the Effective Closing Date. ABSB will assume the
licenses and the related support and maintenance agreements assigned to it by
OPEN MARKET as of the Effective Closing Date, and upon the Effective Closing
Date ABSB will receive all benefits (including without limitation the right to
receive all accounts receivable earned after the Effective Closing Date under
such agreements, and the right to audit all receivables payable under such
agreements and to collect and retain any disparities due thereunder) and perform
all obligations and assume all liabilities and benefits thereunder. With
respect to any such agreements that OPEN MARKET is unable to assign to ABSB,
OPEN MARKET and ABSB shall exercise their reasonable best efforts to provide
ABSB with the benefits and related obligations that are the functional
equivalent thereof.
3.2 Folio Distributors. OPEN MARKET will use reasonable best efforts to
assign to ABSB and ABSB will assume, as of the Effective Closing Date for the
term of this Agreement, all agreements with the Folio Distributors
(collectively, the "Folio Distributor Agreements"). Upon the Effective Closing
Date, ABSB will receive all benefits (including without limitation the right to
receive all accounts receivable earned after the Effective Closing Date under
such agreements, and the right to audit all receivables payable under such
agreements and to collect and retain any disparities due thereunder) and perform
all obligations and assume all liabilities and benefits under the Folio
Distributor Agreements which it assumes, and will cooperate with OPEN MARKET in
seeking to maintain amicable relations with and a transfer to ABSB of all OPEN
MARKET non-assignable obligations with all Folio Distributors, if any, in those
cases where ABSB does not immediately assume the Folio Distributor Agreements.
With respect to any agreement or contract rights that OPEN MARKET is unable to
assign to ABSB, OPEN MARKET and ABSB shall exercise their reasonable best
efforts to provide ABSB with the benefits and related obligations that are the
functional equivalent thereof.
4. FOLIO EMPLOYEES AND FACILITIES
4.1 Folio Employees. OPEN MARKET will authorize ABSB to offer employment,
on a permanent or temporary basis, to Folio personnel currently employed by OPEN
MARKET who are experienced in the design, sale and support of the Folio Products
and who, prior to the Effective Closing Date, are selected by ABSB. OPEN MARKET
shall share information regarding the Folio employees in order to assist ABSB
and OPEN MARKET in determining which employees are candidates for hire by ABSB.
Such cooperation will include but not be limited to (i) designing retention
incentives for the Folio employees which ABSB wishes to employ and (ii)
contributing up to a maximum of [**], which, with the exception of [**] will be
matched by an equal contribution from ABSB to be allocated by mutual agreement
prior to offers to any employee as retention incentive compensation for the
Folio employees which ABSB wishes to employ and who have committed to remain
employees for a minimum period of six (6) months from the Effective Closing
Date. Upon any such hiring by ABSB, OPEN MARKET by written notice to such
employees will release such employees from their existing obligations to OPEN
MARKET of non-disclosure with respect to the Folio Products licensed hereunder;
provided, however, that all other applicable non-disclosure obligations of such
employees for the benefit of Folio Corporation and OPEN MARKET will remain in
full force and effect.
4.2 Folio Facilities. OPEN MARKET will retain all rights, title and
ownership interest in the
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
Folio building facility located in Provo, Utah and all related real property and
personal property located in Provo (the "Folio Facility"). The parties may elect
to enter into a rental or leasing relationship for all or part of the Folio
Facility under which ABSB will lease all or part of the Folio Facility from OPEN
MARKET for an initial term of twelve (12) months, with annual twelve (12) month
renewal options subject to the mutual agreement of the parties. In addition to
the foregoing, if ABSB elects to exercise the option granted under Section 9.3,
OPEN MARKET also shall provide ABSB with the option to purchase all or part of
the personal property located at the Folio Facility, which second option ABSB
will be required to exercise by written notice to OPEN MARKET within five (5)
business days of said first option exercise date. The essential terms and
conditions for the foregoing lease and option arrangements shall be set forth in
Exhibit 4.2, including without limitation a monthly lease rate for the entire
Folio Facility of $85,000.00 per month commencing on July 1, 1999.
5. TRANSITION PERIOD; JOINT DEVELOPMENT ACTIVITIES.
5.1 Transition and Post-Transition Support. (a) Both parties will
cooperate as reasonably required promptly to develop a plan for the joint
support of the Folio Product end users and Folio Distributors during a
reasonable, but limited, period of transition from OPEN MARKET to ABSB, at no
charge to ABSB. Each of the parties will prepare, as part of the foregoing
Transition Plan, certain items, including but not limited to an individual
transition plan for all large customers, a transition plan for support and
maintenance for all Folio Product customers and Folio Distributors, a Folio
Product upgrade plan and a communications plan and procedures. The parties each
agree to use reasonable efforts to minimize the duration of the Transition
Period (currently estimated by the parties to be approximately three months),
and each acknowledges that the length of the Transition Period may be related to
the number of Folio employees that are hired by ABSB and the Folio employees
retained by OPEN MARKET, as well as the assignability of contracts. Upon the
expiration of the Transition Period, OPEN MARKET shall have no direct support,
maintenance or services obligations to customers for the Folio Products or OPEN
MARKET Commerce Products distributed by ABSB, except as the parties hereafter
may otherwise agree in writing.
As of the Effective Closing Date, OPEN MARKET will transfer to ABSB the
following fees to account for certain on-going support and consulting benefits
and obligations arising under certain Folio Customer agreements to cover
applicable costs of such Folio Customers in accordance with the following
schedule:
If the Effective Date is June 9, 1999: [**]
(b) By the Effective Closing Date, ABSB shall elect either (i) to have OPEN
MARKET provide ABSB's customers directly with all support and maintenance for
the OPEN MARKET Commerce Products in accordance with OPEN MARKET's standard
terms and conditions for end-user maintenance and support agreements, and to
receive a 10% finders fee for all such referrals of maintenance and support
agreements to OPEN MARKET, or (ii) to itself be responsible for providing
customers with the primary maintenance and support services for the OPEN MARKET
Commerce Products, including without limitation the installation of the
applicable software if required by customer, the training of customer personnel
in the use of the applicable software, and the provision of primary maintenance
and support relating to the applicable software, subject to OPEN MARKET's
obligation to provide backup support and maintenance services to ABSB, pursuant
to Exhibit 5.1.
5.2 OPEN MARKET Deliverables. OPEN MARKET will deliver to ABSB copies of
all engineering plans, diagnostics, specifications and all other written and
electronic code, documentation
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and other materials (in such available format as ABSB may require) that OPEN
MARKET possesses which constitute and support the Folio Products, all software
in source code form included in the Folio Products (except non-assignable source
or object code proprietary to third party licensors, if any), and all export
licenses, copyrights, trademarks, service marks, and domain name registrations,
and all other documents evidencing the proprietary and other legal rights
included in and related to the Folio Products reasonably required for ABSB's
exercise of its license rights and its successful distribution of the Folio
Products. All such materials will be delivered to ABSB not later than the
Effective Date. Such materials, including all copies and reproductions made by
ABSB, remain the property of OPEN MARKET and, unless ABSB elects to exercise the
option granted under Section 9.3, must be promptly returned to OPEN MARKET upon
the expiration or termination of this Agreement.
5.3 Joint Development and Training Activities. The parties shall
establish an advisory Steering Committee, which shall meet on a quarterly basis
or more frequently if reasonably required during the term of this Agreement, in
order to enable OPEN MARKET (i) to provide input and, if required, resources to
ABSB for product planning and future development of the Folio Products, (ii) to
provide resources for the joint development and integration of the Folio
Products with the OPEN MARKET Commerce Products, (iii) to provide marketing
assistance to ABSB for the distribution of the Folio Products as may be
reasonably required, and (iv) to provide training for the Folio Products and
OPEN MARKET Commerce Products to ABSB personnel at OPEN MARKET's standard rates
as may be reasonably required. Each party shall designate a primary contact
person through whom all communications regarding this Agreement may be directed.
5.4 Observer Status on ABSB Board. During the term of this Agreement,
OPEN MARKET shall be provided with the right to designate one of its senior
executives as an observer on ABSB's Board of Directors, subject to ABSB's
reasonable approval as to such designee. OPEN MARKET's observer seat shall not
be entitled to any voting or other related rights granted to ABSB's other
permanent Board members. OPEN MARKET shall bear all applicable travel and
lodging expenses in connection with the foregoing right.
6. REPRESENTATIONS AND WARRANTIES
6.1 As of the Effective Closing Date, OPEN MARKET represents and warrants
to ABSB as follows:
(a) Organization and Authority. Open Market, Inc. is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware, and Folio Corporation is a corporation duly organized, validly
existing and in good standing under the laws of Utah. Each of Open Market, Inc.
and Folio Corporation has the corporate power and authority to own its property
and to carry on its business as now being conducted by it and each is duly
qualified to transact business as a foreign corporation in each jurisdiction
where such qualification is necessary. OPEN MARKET has the corporate power and
authority to execute, deliver and perform its obligations under this Agreement.
(b) Due Authorization. The execution, delivery and performance by
OPEN MARKET of this Agreement have been duly authorized by all requisite
corporate proceedings. OPEN MARKET has duly executed and delivered this
Agreement and this Agreement constitutes a valid and binding agreement
enforceable against OPEN MARKET in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, and similar laws of general application
affecting the rights and relief of creditors and secured parties and to the
further extent that the availability of the remedies of
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specific performance and injunctive relief and other equitable remedies is
subject to the discretion of the court before which any proceeding therefor may
be brought.
OPEN MARKET has furnished to ABSB true and correct copies of Folio Corporation's
Certificate of Incorporation and By-laws, each as amended and in effect on the
Effective Date.
(c) No Conflict With Other Agreements. The execution, delivery and
performance by OPEN MARKET of this Agreement do not require the consent,
approval, or notice of or to any government entity or any other third party.
The execution, delivery and performance by OPEN MARKET of this Agreement do not
and will not conflict with or result in a breach of the terms, conditions, or
provisions of, or give rise to a right of termination or constitute a default
under, or result in any violation of (i) its Certificate of Incorporation or By-
laws, (ii) any mortgage or other material agreement or instrument to which it is
a party, (iii) any order, judgment or decree binding on it or any of its
property, or (iv) any applicable law, rule, or regulation to which OPEN MARKET
or any of its respective property and assets are subject, or (v) any material
license, waiver or permit currently held by OPEN MARKET, or (vi) any of the end-
user or distributor agreements referenced in Sections 3.1 and 3.2. OPEN MARKET
shall exercise best efforts to obtain the assignment of all end-user and
distributor agreements referenced in Sections 3.1 and 3.2 that are material,
individually and in the aggregate, to the Folio Products.
(d) Compliance with Agreements. OPEN MARKET is not in breach of any
of the material terms and conditions (nor, to the best of OPEN MARKET's
knowledge, is any third party in breach or threatening to terminate), and OPEN
MARKET has performed all accrued obligations under, the Folio Product end-user
licenses and the Folio Distributor Agreements referenced in Sections 3.1 and
3.2, and all third party technology licenses to OPEN MARKET, and such agreements
are in full force and effect. The agreements referenced in Sections 3.1 and 3.2
are the only revenue bearing agreements or understandings (written or otherwise)
relating to the Folio Products.
The export licenses referenced in Section 5.2 represent all of the licenses
obtained by OPEN MARKET in connection with the Folio Products and currently
necessary for the export
of the Folio Products, not including the countries identified by the U.S.
Department of Commerce from time to time to which export is not allowed.
(e) Actions Pending; Compliance With Law. Except as disclosed in
Schedule 6.1(e), there is no action, suit or proceeding pending or, to the
knowledge of OPEN MARKET, threatened, against OPEN MARKET before any court,
arbitrator or government body, agency or official, which without limitation (i)
questions the validity of any of the transactions contemplated in this
Agreement, or (ii) would, if adversely determined, have a material adverse
effect on the business, financial position or results of operations of OPEN
MARKET and its consolidated subsidiaries, taken as a whole, including Folio
Corporation, (iii) relates to any of the Folio Products or (iv) would have a
material adverse impact on Licensee's ability to exercise the license rights
granted under this Agreement. OPEN MARKET is in full compliance with all
federal, state, and local laws, statutes, regulations, and ordinances relating
in any way to the Folio Products. Without limiting the generality of the
foregoing sentence, OPEN MARKET warrants that it has filed all tax returns it is
required to file and has paid all taxes payable in connection with the Folio
Products.
(f) Intellectual Property. Schedule 6.1(f) sets out a complete list
of all patents, copyrights, domain names, and other intellectual property,
including but not limited to all intellectual
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property embodied in the Folio Products, and any and all related items necessary
for Licensee to enjoy the benefits of the license rights granted under this
Agreement, and a complete list of all licenses pursuant to which OPEN MARKET is
authorized to use intellectual property owned by a third party. Except as
disclosed in Schedule 6.1(f), OPEN MARKET warrants (i) that it owns the Folio
Products, including all patents, copyrights, trade secrets, and other
intellectual property embodied therein, (ii) that it has all rights in the OPEN
MARKET Commerce Products and the Folio Products necessary to grant the rights
and licenses granted hereunder, including all rights under applicable
copyrights, trade secrets, patents, trademarks, third party technology licenses,
and other applicable proprietary rights, free and clear of all liens or
encumbrances and free from all claims and demands of third parties, (iii) that
neither the Folio Products nor the OPEN MARKET Commerce Products infringe, nor
will the license rights granted ABSB hereunder infringe, any third party
copyright, trade secret, trademark, U.S. patent (or, to OPEN MARKET's best
knowledge, any foreign patent), or any other third party proprietary right, (iv)
that there are no impending, threatened or pending infringement actions of any
third party patent, copyright, trade secret, trademark or other third party
proprietary right concerning the Folio Products and the OPEN MARKET Commerce
Products, (v), to the best of OPEN MARKET's knowledge, there are no
infringements by any third party of any intellectual property relating to the
Folio Products or the OPEN MARKET Commerce Products, and (vi) that there are no
claims pending, or, to the best of OPEN MARKET's knowledge, threatened,
challenging the ownership, validity, or enforceability of any intellectual
property relating to the Folio Products or the OPEN MARKET Commerce Products.
OPEN MARKET has not granted any exclusive licenses to any person in connection
with the Folio Products or, within the Business Segment, the OPEN MARKET
Commerce Products. No former or present employee, officer, or director of OPEN
MARKET holds any right, title or interest, directly or indirectly, in any
intellectual property used in the Folio Products. Except as set forth in
Schedule 6.1(f), all computer software embodied in the Folio Products was either
developed by (i) employees of OPEN MARKET within the scope of their employment,
or (ii) third parties as "works made for hire", as that term is defined under
the U.S. copyright laws, or (iii) assigned works pursuant to written agreements.
(g) Folio Product Warranties. OPEN MARKET warrants to ABSB that the
Folio Products, shall perform in all material respects in accordance with their
respective then-current documentation for a period of ninety (90) days after the
Effective Closing Date. OPEN MARKET shall have no liability with respect to any
failure of the Folio Products to perform as warranted under this Section 6.1(g)
if such failure results from any changes or modifications made to the Folio
Products by ABSB or any third party. This warranty is made solely to ABSB and
ABSB shall be solely responsible for any warranty to, or claims by, end-users of
the Folio Products, subdistributors or any other third parties.
(h) OPEN MARKET Commerce Product Warranties. OPEN MARKET warrants to
ABSB that the OPEN MARKET Commerce Products, shall perform in all material
respects in accordance with their respective then-current documentation for a
period of ninety (90) days after the date of any sale thereof. OPEN MARKET
shall have no liability with respect to any failure of the OPEN MARKET Commerce
Products to perform as warranted under this Section 6.1(h) if such failure
results from any changes or modifications made to the OPEN MARKET Commerce
Products by ABSB or any third party. This warranty is made solely to ABSB and
ABSB shall be solely responsible for any warranty to, or claims by, end-users of
the OPEN MARKET Commerce Products, subdistributors or any other third parties.
(i) Warranty Remedies. ABSB's exclusive remedy and OPEN MARKET's sole
obligation under the warranties set forth in Section 6.1(g) and 6.1(h) shall be
for OPEN MARKET to
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provide telephone assistance and to use reasonable best efforts to promptly
correct any material failure of the applicable products to perform as warranted,
or to provide work around, if such failure is reported to OPEN MARKET within the
above warranty period and ABSB, if necessary, at OPEN MARKET's request, provides
OPEN MARKET with reasonably sufficient information (which may include access to
ABSB's computer system for use of ABSB's copy(ies) of the Software by OPEN
MARKET) to reproduce the defect in question.
(j) Limitations; Remedies. OPEN MARKET's entire liability and ABSB's
exclusive remedy as to defects, performance or nonperfor-mance of the Folio
Products and OPEN MARKET Commerce Products under 6.1(g) and (h) shall be the
warranties and remedies as set forth in Section 6.1(i), regardless of the theory
of claim or form of action, except for any instances of fraud or intentional
wrongdoing. THE ABOVE ARE THE ONLY WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, THAT ARE MADE BY OPEN MARKET AND OPEN MARKET DISCLAIMS ALL OTHER
WARRANTIES, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. OPEN MARKET DOES NOT
WARRANT THAT USE OF THE APPLICABLE SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE.
NO ORAL OR WRITTEN INFORMA-TION OR ADVICE GIVEN BY OPEN MARKET, ITS AGENTS OR
EMPLOYEES SHALL CREATE A WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF THE
WARRANTIES IN THIS AGREEMENT.
(k) Financial Statements. Attached as Schedule 6.1(k) are
consolidated balance sheets of OPEN MARKET as of December 31, 1998 and March 31,
1999 (all such financial statements referred to herein as the "Financial
Statements"). The Financial Statements have been prepared in accordance with
GAAP consistently applied during the periods involved. The Financial Statements
are complete and correct in all material respects and fairly present the
financial condition of OPEN MARKET and the Folio Products as of such dates and
the results of operations for the periods then ended. There is no liability or
obligation of any kind, whether accrued, absolute, fixed or contingent, relating
to the Folio Products that is not disclosed, reflected, or reserved against in
the Financial Statements and clearly identified as pertaining to the Folio
Products, except such liabilities or obligations incurred in the ordinary course
of business, consistent with past practices.
(l) Proprietary Information and Inventions. To the best of OPEN
MARKET's knowledge, none of the current or former officers, directors,
shareholders, or employees of OPEN MARKET is in violation of his or her
obligations to OPEN MARKET (contractual or otherwise) relating to confidential
information of the Folio Products or any intellectual property embodied in the
Folio Products, nor is OPEN MARKET aware of any facts or circumstances that
would lead a prudent manager to investigate and become aware of any such
violation.
(m) Contracts and Commitments. Schedule 6.1(m) lists the thirty (30)
largest dollar-volume contracts referenced in Sections 3.1 and 3.2 and all other
material contracts and commitments relating to the Folio Products. OPEN MARKET
is not in material breach of any material contract with any third party, and to
the best of OPEN MARKET's knowledge, no party to any such contract is in
material breach.
(n) Customers. Except as disclosed in Schedule 6.1(n), since December
31, 1998, there has not been any material adverse change in the business
relationships of OPEN MARKET with any of its customers, and OPEN MARKET is not
aware that any customer or customers representing a material amount of the Folio
Customer base intends to cease doing business with OPEN MARKET or
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materially alter the amount of business they or any of them presently is doing
in connection with the Folio Customer base.
(o) Sufficiency of Licenses and Assignments. The licenses granted
under this Agreement and the contracts being assigned to ABSB in connection
herewith, are sufficient to enable ABSB to market, distribute and sell the Folio
Products and to enable ABSB to receive the intended benefits of such license
grants as provided under this Agreement.
(p) Full Disclosure. No representation or warranty by OPEN MARKET in
this Agreement and no statement contained in any document or schedule furnished
by OPEN MARKET to ABSB or its representatives in connection with the
transactions contemplated by this Agreement contains any untrue statement of
material fact or omits to state any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading.
(q) Affiliate Transactions. OPEN MARKET has not entered into any
transaction for the provision of any services or the sale of any goods, or
affecting any intellectual property embodied in the Folio Products, with any
officer, director, shareholder, employee or affiliate of OPEN MARKET that was
not negotiated at arms-length or for fair market value, or which impairs the
value or limits the implementation of the license rights granted ABSB hereunder.
6.2 As of the Effective Closing Date ABSB represents and warrants to OPEN
MARKET as follows:
(a) Organization and Authority. ABSB is a limited liability company
duly organized, validly existing and in good standing under the laws of Utah,
and has the power to own its property and to carry on its business as now being
conducted by it. ABSB has the power and authority to execute, deliver and
perform its obligations under this Agreement.
(b) Due Authorization. The execution, delivery and performance by
ABSB of this Agreement have been duly authorized by all requisite proceedings.
ABSB has duly executed and delivered this Agreement and this Agreement
constitutes a valid and binding agreement enforceable against ABSB in accordance
with its terms, subject to bankruptcy, insolvency, reorganization, and similar
laws of general application affecting the rights and relief of creditors and
secured parties and to the further extent that the availability of the remedies
of specific performance and injunctive relief and other equitable remedies is
subject to the discretion of the court before which any proceeding therefor may
be brought. ABSB has furnished to OPEN MARKET true and correct copies of its
Articles of Organization, as amended and in effect on the Effective Date.
(c) No Conflict With Other Agreements. The execution, delivery and
performance by ABSB of this Agreement do not and will not conflict with or
result in a breach of the terms, conditions or provisions of, or give rise to a
right of termination or constitute a default under, or result in any violation
of (i) its Articles of Organization or Operating Agreement, (ii) any mortgage or
other material agreement or instrument to which it is a party, (iii) any order,
judgment or decree binding on it or any of its property, or (iv) any applicable
law, rule or regulation to which ABSB or any of its respective property and
assets are subject, or any material license, waiver or permit currently held by
ABSB.
(d) Actions Pending; Compliance With Law. Except as otherwise
disclosed in writing to OPEN MARKET, there is no action, suit or proceeding
pending or, to the knowledge of
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ABSB, threatened, against ABSB before any court, arbitrator or government body,
agency or official, which (i) questions the validity of any of the transactions
contemplated in this Agreement or (ii) would, if adversely determined, have a
material adverse effect on the business, financial position or results of
operations of ABSB and its consolidated subsidiaries, taken as a whole.
(e) Government Contracts. The Folio Products and Open Market
Commerce Products are provided with restricted and limited rights for purposes
of government contracting and subcontracting. ABSB shall ensure that the rights
granted by it or any subdistributor to any agency of the U.S. Government or U.S.
Government subcontractor hereunder shall be subject to restrictions as set forth
in FAR 52.227-19 or DFARS 252.227-7013(c)(1) or successor regulations. ABSB and
its subdistributors shall include all appropriate restricted and limited rights
legends on any Folio Product or Open Market Commerce Product so licensed
hereunder.
(f) Compliance with Laws. ABSB shall comply with all applicable
laws, rules and regulations in its performance of this Agreement. In
particular, ABSB shall not export or re-export any Folio Product, OPEN MARKET
Commerce Product or any portion thereof, directly or indirectly, to any country
outside of the U.S. except as permitted by relevant U.S. laws and regulations,
including without limitation the U.S. Export Administration Act.
7. OPEN MARKET COVENANTS
7.1 Non-Solicitation. During the term of this Agreement, neither OPEN
MARKET nor its Affiliates, shall solicit, directly or indirectly, Folio
Customers, Folio Distributors or Folio employees; provided, however, that OPEN
MARKET shall be free to market, sell and distribute OPEN MARKET Commerce
Products to Folio Customers or Folio Distributors without restriction.
7.2 Trademark Maintenance; Intellectual Property Matters. During the term
of this Agreement, OPEN MARKET shall use reasonable best efforts to maintain its
existing trademark registrations and registration applications relating to the
Folio Products and to preserve and protect all of its intellectual property
rights relating to the Folio Products. OPEN MARKET shall consult with ABSB from
time to time during the term of this Agreement and upon ABSB's reasonable
request with respect to all intellectual property matters, and will comply with
ABSB's reasonable requests at ABSB's expense relating to all trademarks and
other intellectual property covered by the exclusive licenses set out in this
Agreement.
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7.3 Promotional Materials. OPEN MARKET shall provide ABSB, at no cost to
ABSB, such promotional materials with respect to the applicable Software
products as OPEN MARKET generally makes available to its distributors, including
without limitation technical specifications, prices, drawings, advertisements
and demonstration products, and ABSB may reproduce such materials as reasonably
required, including without limitation on its website(s), provided that all
copyright, trademark and other property makings are reproduced. Such materials,
including all copies and reproductions made by ABSB, remain the property of OPEN
MARKET and, except insofar as they are distributed by ABSB in the course of
performance of ABSB's duties under this Agreement, must be promptly returned to
OPEN MARKET upon the expiration or termination of this Agreement.
8. ABSB COVENANTS
8.1 Marketing, Promotional and Development Activities. During the term of
this Agreement, ABSB shall use commercially reasonable efforts to market,
promote and develop the Folio Products. ABSB shall advertise the OPEN MARKET
Commerce Products in appropriate advertising media. ABSB shall maintain a
professional marketing organization for the promotion of the software products
and sufficient qualified personnel to provide installation, maintenance,
technical support, and training for customers.
8.2 Quarterly Financial Reports: Within thirty (30) days after the end of
each calendar quarter during the term of this Agreement, ABSB shall furnish OPEN
MARKET with a report for such quarter consisting of ABSB's P&L, balance sheet,
cash flow and accounts receivable aging. If ABSB's cash balance drops below (i)
Two Million Five Hundred Thousand Dollars ($2,500,000) during the six (6) month
period following the Effective Closing Date or (ii) Three Million Five Hundred
Dollars ($3,500,000) thereafter during the term of this Agreement, ABSB shall
immediately notify OPEN MARKET and the parties shall designate senior executives
to discuss the situation and mutually agree on appropriate remedial actions,
including without limitation a reasonable cure period under which ABSB may seek
to obtain additional funding in a mutually agreed amount. If the parties fail
to agree on the foregoing actions or if ABSB is unable to reasonably cure the
situation in a manner reasonably acceptable to OPEN MARKET, OPEN MARKET may
elect to terminate this Agreement upon written notice and, if OPEN MARKET so
elects, the provisions of Section 9.3 (i)-(v) shall apply.
8.3 Financial Commitments: Prior to the Effective Closing Date, ABSB shall
provide OPEN MARKET with written evidence of funding commitments from investors
to ABSB totaling at least Thirteen Million Dollars ($13,000,000) in a form
reasonably satisfactory to OPEN MARKET. The parties acknowledge and agree that
upon any breach of the foregoing covenant under this Section 8.3, OPEN MARKET
may elect in its sole discretion to terminate this Agreement and the licenses
granted hereunder upon written notice on July 1, 1999, without any liability to
OPEN MARKET and ABSB, and, if OPEN MARKET so elects, the provisions of Section
9.3 (i)-(v) shall apply.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commmission. Asterisks denote omission.
9. FEES AND PAYMENT
9.1 Royalties. In consideration of the exclusive license and distribution
rights granted by OPEN MARKET, ABSB will pay royalties to OPEN MARKET under
royalty rates (covering guaranteed minimum royalties and any applicable upside)
set forth in Exhibit 9 with annual guaranteed minimum royalties of Four Million
Six Hundred Sixty-Six Thousand Six Hundred Sixty-Six Dollars ($4,666,666) per
year, payable in quarterly installments of One Million One Hundred Sixty-Six
Thousand Six Hundred Sixty-Six Dollars ($1,166,666) each, in advance, for a term
of three (3) years following the Effective Date, for a total of Fourteen Million
Dollars ($14,000,000) in guaranteed minimum royalty payments, with the first
payment due on or before June 30, 1999 (which guaranteed minimum royalty
payments are personally guaranteed by Bradley D. Pelo in the form attached
hereto, and which guaranty rights are exercisable by OPEN MARKET solely at
its option).
9.2 License Support and Maintenance Fees. ABSB shall also pay OPEN MARKET
Four Million Dollars ($4,000,000) in non-refundable license fees (plus any
applicable support and maintenance fees pursuant to Exhibit 5.1) for the initial
licenses of the applicable OPEN MARKET Commerce Products under discount rates
set forth in Exhibit 9, with a Two Million Dollar ($2,000,000) payment due and
payable on or before June 29, 1999, a One Million Dollar ($1,000,000) payment
due and payable on September 1, 1999 and a One Million Dollar ($1,000,000)
payment due and payable on December 15, 2000. The foregoing fees shall be in
consideration of the right granted to ABSB to sell and distribute licenses and
support and maintenance agreements for said OPEN MARKET Commerce Products to
third parties hereafter, all of which revenues shall be retained by ABSB.
License fees for additional licenses of the OPEN MARKET Commerce Products by
ABSB shall be determined in accordance with the discount rates established in
Exhibit 9 in accordance with the terms and conditions in Section 2.6
9.3 Option to Purchase. In addition, on the third anniversary of the
Effective Closing Date, ABSB shall have the option to obtain the unconditional
transfer and assignment of all rights, title and interests in and to (a) the
Folio Products and (b) all or part, in ABSB's sole discretion, of Folio's
personal property in Provo, Utah, which option may be exercised by written
notice to OPEN MARKET within five (5) business days before said anniversary
date. If ABSB elects to exercise this option, ABSB shall make an additional
payment to OPEN MARKET in the form of a one-time payment on the third
anniversary of the Effective Date, payable within ninety (90) days thereafter,
in an amount equal to [**] for all of the Folio Products, and an additional
payment for all or such part of Folio's personal property located in Provo, Utah
as ABSB elects to purchase in an amount equal to the fair market value of the
same, and the parties shall execute an asset purchase agreement and bill of sale
with all customary representations, warranties, covenants and indemnities as may
be mutually agreed by the parties. If ABSB does not elect to exercise this
option, (i) this Agreement will automatically terminate and ABSB's license
rights shall immediately cease, subject to ABSB's right to receive all
previously earned accounts receivable from its sales of Folio Products and OPEN
MARKET's Products and service agreements sold by ABSB hereafter, (ii) ABSB will
not be entitled to receive any of the foregoing rights with respect to the Folio
Products, (iii) ABSB will promptly return to OPEN MARKET all software products,
documentation and other materials received from OPEN MARKET, including without
limitation those listed in Section 5.2 above and the items listed under (v)
below, (iv) ABSB shall provide OPEN MARKET with benefits equivalent to those
undertaken by OPEN MARKET on behalf of ABSB under
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Sections 3.1, 3.2 and 4.1 above, and (v) OPEN MARKET shall continue to retain
all rights, title and interests in and to the Folio Products including, but not
limited to all enhancements, extensions, modifications or derivative works of
the Folio Products made by ABSB, unless otherwise agreed in writing by the
parties hereafter. In the event that ABSB does not elect to exercise the option
set forth hereinabove, the parties may agree to enter into a non-exclusive
license and distribution agreement for the Folio Products and the OPEN MARKET
Commerce products under mutually agreed terms and conditions.
Nothing in this Agreement shall constitute a sale or transfer of OPEN MARKET
assets, products or related technology to ABSB except as otherwise expressly
provided under the option granted under this Section 9.3.
9.4 Payments by Wire Transfer. Payments by ABSB pursuant to this Section
9 will be made by wire transfer to an OPEN MARKET account designated by OPEN
MARKET to ABSB on the applicable date of payment, or as may be otherwise
specified by OPEN MARKET in writing.
9.5 Late Payments. If any payment is not made within thirty (30) days of
the due date thereof, such payment shall bear interest at the rate of one
percent (1%) per month, or the highest legal rate, whichever is less, commencing
as of the due date until fully paid. Failure to make any payment within thirty
(30) days of the due date thereof shall constitute a material breach of this
Agreement.
9.6 Taxes. All prices quoted to ABSB in connection with this Agreement
are exclusive of all government excise, sales, service, use, occupational, or
like taxes and, accordingly, are subject to an increase equal in amount to any
tax OPEN MARKET may be required to collect or pay upon the licensing, delivery
or installation of the software products marketed hereunder. ABSB is
responsible for payment of any taxes resulting from or imposed upon this
Agreement or the copies of the applicable software products sold by ABSB, except
taxes based on OPEN MARKET's net income.
In no event shall ABSB be entitled to receive refunds of any fees, royalties or
payments paid to OPEN MARKET pursuant to subsections 9.1 - 9.3 above; provided,
however, that ABSB retains the independent right to file suit against OPEN
MARKET for any damages arising from any instances of fraud or intentional
wrongdoing or any uncured breach of any material warranty by OPEN MARKET
hereunder.
10. LIMITATIONS OF LIABILITY
10.1 Total Liability. EXCEPT FOR THE LIABILITY OF OPEN MARKET ARISING FROM
ANY INDEMNIFICATION OBLIGATION UNDER THIS AGREEMENT OR ANY INTENTIONAL BREACH BY
EITHER PARTY OF ITS OBLIGATIONS UNDER SECTION 12, IN NO EVENT SHALL THE
AGGREGATE LIABILITY OF EITHER PARTY FOR ANY MATTER ARISING OUT OF THE SUBJECT
MATTER OF THIS AGREEMENT, WHETHER IN CONTRACT, TORT, OR OTHERWISE, EXCEED AN
AMOUNT EQUAL TO THE AMOUNTS ACTUALLY RECEIVED BY OPEN MARKET PURSUANT TO
SECTIONS 9.1 AND 9.2 PRIOR TO THE DATE GIVING RISE TO SUCH LIABILITY, EXCEPT FOR
INSTANCES OF GROSS NEGLIGENCE, FRAUD OR OTHER INTENTIONAL WRONGDOING.
10.2 Exclusion of Damages. EXCEPT FOR THE LIABILITY OF EITHER PARTY
ARISING FROM ANY INDEMNIFICATION OBLIGATION UNDER THIS AGREEMENT OR ANY
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INTENTIONAL BREACH OF ITS OBLIGATIONS UNDER SECTION 12, NEITHER PARTY WILL BE
LIABLE TO THE OTHER OR ANY THIRD PARTY FOR ANY SPECIAL, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING
NEGLIGENCE), PRODUCT LIABILITY OR OTHERWISE, AND WHETHER OR NOT SUCH PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE, EXCEPT FOR INSTANCES OF GROSS
NEGLIGENCE, FRAUD OR OTHER INTENTIONAL WRONGDOING.
10.3 Failure of Essential Purpose. The parties have agreed that the
limitations specified in this Section 10 will survive and apply even if any
limited remedy specified in this Agreement is found to have failed of its
essential purpose.
11. INDEMNIFICATION
11.1 Infringement. In the event of any claim or allegation against ABSB of
infringement or misappropriation of any copyright, trade secret, trademark, U.S.
patent or other third party proprietary right by reason of the use, copying or
distribution by ABSB of the Folio Products or Open Market Commerce Products (not
attributable to any modifications to the same made by ABSB hereafter) as
permitted hereunder, OPEN MARKET will indemnify, defend and hold ABSB harmless
from any and all damages, losses, liabilities, costs and expenses (including
reasonable attorneys' fees) arising out of or related to any such claim or
allegation. OPEN MARKET shall have the sole and exclusive authority to defend
and/or settle any such claim or action, provided that OPEN MARKET shall keep
ABSB informed of, and shall consult with, any independent attorneys appointed by
ABSB at ABSB's own expense regarding the progress of such litigation; and
provided further that OPEN MARKET will not settle any such claim without ABSB's
consent, if such settlement would materially adversely affect ABSB's rights
under this Agreement or if such settlement involves a Folio Product or any
intellectual property embodied therein.
11.2 Remedies. If the use, copying or distribution of any Folio Product or
Open Market Commerce Product by ABSB has become, or in OPEN MARKET's opinion is
likely to become, the subject of any claim of infringement, OPEN MARKET may, at
its option and expense, promptly, (i) procure for ABSB the right to continue
using the infringing product as set forth hereunder, (ii) either replace or
modify the infringing product to make it non-infringing, (iii) substitute an
equivalent of the infringing product, or (iv) refund to ABSB all fees paid by
ABSB for such infringing product and pay ABSB the balance of all damages it
suffers and expenses and fees it incurs as a result of such actual or threatened
infringement.
11.3 Other Third Party Claims.
(a) OPEN MARKET Indemnification. In the event of any claim or
allegation against ABSB by a Folio Customer or Folio Distributor (except any
claim based on ABSB's material breach of this Agreement, negligence or
intentional misconduct) arising from the negligence or intentional misconduct of
OPEN MARKET either (i) prior to the Effective Closing Date, (ii) as a result of
any material obligation not disclosed to ABSB prior to the Effective Closing
Date or (iii) in connection with the Folio Customers or the Folio Distributors
either before or after the Effective Closing Date, OPEN MARKET will, at its
expense, indemnify, defend and hold ABSB harmless from any and all damages,
losses, liabilities, costs and expenses (including reasonable attorneys' fees)
arising out of any such claim or allegation. OPEN MARKET shall have the sole
and exclusive authority to defend and/or
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settle any such claim or action, provided that OPEN MARKET shall keep ABSB
informed of, and shall consult with, any independent attorneys appointed by ABSB
at ABSB's own expense regarding the progress of such litigation; and provided
further that OPEN MARKET will not settle any such claim without ABSB's consent,
if such settlement would materially adversely effect ABSB's rights under this
Agreement.
(b) ABSB Indemnification. In the event of any claim or allegation
against OPEN MARKET by a Folio Customer or Folio Distributor (including without
limitation those arising out of a Folio Distributor Agreement) arising after the
Effective Closing Date, ABSB will, at its expense, indemnify, defend and hold
OPEN MARKET harmless from any and all damages, losses, liabilities, costs and
expenses (including reasonable attorneys' fees) arising out of any such claim or
allegation, except regarding OPEN MARKET's material breach of this Agreement,
negligence or intentional misconduct. ABSB shall have the sole and exclusive
authority to defend and/or settle any such claim or action, provided that ABSB
shall keep OPEN MARKET informed of, and shall consult with, any independent
attorneys appointed by OPEN MARKET at OPEN MARKET's own expense regarding the
progress of such litigation; and provided further that ABSB will not settle any
such claim without OPEN MARKET's consent, if such settlement would materially
adversely effect OPEN MARKET's rights under this Agreement.
11.4 Limitation of Indemnification. OPEN MARKET shall have no liability or
obligation hereunder with respect to any infringement claim if such infringement
is caused solely by (i) use of any Folio Product or Open Market Commerce Product
by ABSB or its customers in an application or environment other than as
specified in OPEN MARKET's current documentation for such product or as
contemplated under this Agreement; (ii) modification of any Folio Product or
Open Market Commerce Product by ABSB or any third party or the combination,
operation or use of any Folio Product or Open Market Commerce Product with other
product(s) not supplied by OPEN MARKET where the Folio Product or Open Market
Commerce Product would not by itself be infringing.
11.5 Cross-Indemnification By ABSB or OPEN MARKET to indemnify ABSB.
Except where OPEN MARKET is obligated to indemnify ABSB under Section 11.1 or
Section 11.3, and without limiting any other obligation of ABSB to indemnify
OPEN MARKET hereunder, or any obligation of OPEN MARKET to indemnify ABSB
hereunder, ABSB shall indemnify, defend and hold OPEN MARKET harmless from any
and all claims, damages, losses, liabilities, costs and expenses (including
reasonable attorneys' fees) arising out of or in connection with ABSB's use or
distribution of the Folio Products or OPEN MARKET Commerce Products, including
but not limited to any modifications, enhancements or other changes made by ABSB
to the Folio Products or OPEN MARKET Commerce Products (or any component
thereof) following delivery to ABSB, unless arising from OPEN MARKET's material
breach of this Agreement, negligence or intentional wrongdoing; and provided
further that ABSB will not settle any such claim without OPEN MARKET's consent,
if such settlement would materially adversely effect OPEN MARKET's rights under
this Agreement. ABSB shall have the sole and exclusive authority to defend any
such claim or action, provided that ABSB shall keep OPEN MARKET informed of, and
shall consult with any independent attorneys appointed by OPEN MARKET at OPEN
MARKET's own expense, regarding the progress of such litigation.
SUBJECT TO SECTION 10 ABOVE, THIS SECTION 11 STATES EACH PARTY'S ENTIRE
LIABILITY AND OBLIGATION, AND EXCLUSIVE REMEDY WHETHER STATUTORY, CONTRACTUAL,
EXPRESS, IMPLIED OR OTHERWISE, FOR THIRD PARTY CLAIMS.
11.6 Third Party Infringement. If either party has knowledge of or
believes that any of the
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intellectual property rights in the Folio Products are being infringed by a
third party, the party having such knowledge or belief shall notify the other
party in writing within (30) days, which notice shall set forth the facts of
such infringement in reasonable detail. ABSB shall have the right, but not the
obligation, to initiate suit for infringement of the intellectual property
rights in the Folio Products. In the event ABSB elects not to initiate suit,
OPEN MARKET shall have the right to initiate suit for infringement. Any award or
recovery as a result of a suit or claim for infringement shall be retained by
the party which has initiated and paid for such litigation, unless and to the
extent that the parties hereafter may agree otherwise in writing. OPEN MARKET
and ABSB will cooperate in any such litigation including, without limitation,
the exchange of information.
12. OWNERSHIP AND TRADE SECRETS; CONFIDENTIALITY
12.1 OPEN MARKET Ownership Rights. Except for the licenses granted
hereunder, and subject to Section 9.3, all rights, title and interests,
including without limitation all intellectual property rights, in and to the
Folio Products and the OPEN MARKET Commerce Products, including but not limited
to all translations into any language, copies, alterations, enhancements,
extensions, modifications, derivative works or other works relating to any of
the Folio Products made by OPEN MARKET or ABSB (collectively, the "Works") are
retained by OPEN MARKET, unless otherwise agreed in writing by the parties
hereafter regarding any particular Work(s). The documentation accompanying each
of the Folio Products shall contain an acknowledgment of the incorporation of
OPEN MARKET's copyrighted material in the Folio Products. Every license
agreement pursuant to which such Folio Products are provided to third parties
shall prohibit reverse assembly, decompilation, or other means of converting
object to source code. All of the Works shall, to the maximum extent allowed by
applicable law, be (i) governed by US copyright law and (ii) deemed derivative
works and/or "works made for hire" for OPEN MARKET. OPEN MARKET holds and shall
retain all rights that vest in any Work as a derivative work, a "work made for
hire", or as part of a collective work or compilation, except as the parties
hereafter may agree otherwise in writing as to any particular Work(s).
Otherwise, to the extent ABSB for any reason shall acquire by operation of law
or otherwise any rights therein not expressly granted to it under this
Agreement, ABSB hereby irrevocably assigns all such rights to OPEN MARKET and
shall execute all necessary documents to perfect such assignment to OPEN MARKET
under applicable law and ABSB also irrevocably waives its moral or other
authorship rights in the Works; or, if such waiver is not allowed, irrevocably
consents to the infringement of such rights by OPEN MARKET.
12.2 Confidentiality. ABSB and OPEN MARKET shall each safeguard the
other's Proprietary Information in the same manner as they safeguard their own
valuable proprietary information. The parties each agree that the terms of this
Agreement, including without limitation the amount of license or other fees
payable hereunder, and the payment terms, shall be deemed Proprietary
Information. Each of the parties acknowledges that the other's Proprietary
Information constitutes such party's valuable proprietary information and trade
secrets. Each of the parties expressly agrees and acknowledges that it is
entering into this Agreement, and providing the other copies of its Proprietary
Information hereunder, in reliance upon the other's foregoing promise of
confidentiality. This Section 12.2 supersedes the Mutual Confidentiality
Agreement dated May 17, 1999 which is hereby, terminated and of no further force
and effect.
12.3 Nondisclosure. For a period of five (5) years neither party shall
use, disclose, make or have made any copies of the other party's Proprietary
Information in whole or in part, except as provided herein, without the prior
express written authorization of the other party. The parties shall only
disclose or otherwise allow access to the Proprietary Information of the other
party, to employees, consultants or
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contractors who (i) have a need to obtain access thereto in order to give effect
to the rights granted to such party under this Agreement, and (ii) are legally
bound to maintain the proprietary and confidential nature of such materials
under a written agreement.
12.4 Exceptions. Any provisions herein concerning non-disclosure and non-
use of confidential information of a party shall not apply to any such
information which (a) is already rightfully known to the other party when
received, (b) is or becomes publicly known through publication or otherwise and
through no wrongful act of the other party, (c) is received from a third party
without similar restriction and without breach of this Agreement, (d) is
approved for release or use by written authorization of the other party, or (e)
is required to be disclosed by law or governmental regulation.
12.5 Publicity. Notwithstanding anything to the contrary in this Section
12, each party may publicize the existence of the business relationship
established hereunder in connection with any product, promotion or publication
arising under this Agreement, provided that neither party shall make any public
announcements or disclose any of the terms of this Agreement to any third party
without first obtaining the consent of the other party. Notwithstanding anything
to the contrary in this Agreement, OPEN MARKET and ABSB agree that they will
coordinate obtaining confidential treatment for this Agreement in connection
with any disclosure of this Agreement pursuant to any SEC filing. The parties
will mutually agree upon the content, timing and other terms of a press release
announcing this Agreement.
13. CHANGE IN CONTROL, BANKRUPTCY
13.1 Change in Control. For the purposes of this Agreement, a "Change of
Control" shall be deemed to have occurred if any person or a group (within the
meaning of Rule 13d-5 under the Securities Exchange Act as in effect on the
Effective Closing Date) who are not five percent (5%) or more shareholders of
the applicable party on the Effective Closing Date shall acquire, directly or
indirectly, beneficially or of record, ownership of voting securities
representing more than fifty percent (50%) of the total voting power of one of
the parties hereto.
13.2 Bankruptcy. For purposes of this Agreement, "Bankruptcy" shall mean
the voluntary or involuntary commencement of any proceeding under any law of any
jurisdiction, now or hereafter in force, relating to bankruptcy, insolvency,
dissolution, reorganization, composition, arrangement or otherwise for the
relief of debtors or the readjustment of indebtedness, or the appointment of a
receiver, trustee, custodian or similar official, for a party or the assets of a
party, which is not dismissed within sixty (60) days of filing, with the
exception of Chapter 11 proceedings under the United States Bankruptcy Code.
13.3 OPEN MARKET Remedies.
(a) In the event of a bankruptcy of ABSB all provisions of this
Agreement will continue in full force and effect, provided, however, that OPEN
MARKET in its reasonable discretion, may elect by written notice to ABSB within
sixty (60) days of receiving actual or written notice of such bankruptcy any or
all of the following:
(1) to terminate the licenses granted to ABSB under this Agreement,
subject to ABSB's right to receive all previously earned accounts receivable as
provided herein; and
(2) to require ABSB to immediately return or destroy any source code
to the
20
<PAGE>
Folio products in ABSB's possession or control.
(b) No termination as provided in Section (a)(1)-(2) above will
entitle ABSB to any refund of fees previously paid pursuant to this Agreement.
13.4 ABSB Remedies.
(a) In the event of a any Change of Control of OPEN MARKET, all
provisions of this Agreement will continue in full force and effect; provided,
however, in the event of a Change of Control the acquiring or successor
corporation shall agree to assume all ongoing obligations of OPEN MARKET to ABSB
hereunder.
(b) In the event that a trustee in bankruptcy is appointed for OPEN
MARKET, then unless and until such trustee has rejected this Agreement, the
trustee shall, at the written request of ABSB, (a) continue to perform all of
the obligations of OPEN MARKET under this Agreement, or (b) promptly deliver to
ABSB all intellectual property, as defined in Section 101 of Title 11 of the
United States Code, with respect to the Folio Products including source code,
designs, documentation and the like held by the trustee, including any
embodiment of such intellectual property to the extent protected by applicable
nonbankruptcy law, and in either case not interfere with the rights of ABSB to
such intellectual property (including such embodiment) as provided in this
Agreement or any agreement supplementary hereto, provided, however, that ABSB
may use any intellectual property so delivered only subject to the license terms
set forth in Section 2 above.
(c) If the trustee rejects this Agreement, and ABSB elects under
Section 365(n)(1)(B) of Title 11 of the United States Code to retain its rights
under this Agreement, the trustee shall promptly deliver to ABSB all
intellectual property, as defined in Section 101 of Title 11 of the United
States Code, with respect to the Folio Products, including without limitation
all source code, designs, documentation and the like held by the trustee,
including any embodiment of such intellectual property to the extent protected
by applicable nonbankruptcy law, and not interfere with the rights of ABSB to
such intellectual property (including such embodiment) under this Agreement or
any agreement supplementary hereto, provided, however, that ABSB may use any
intellectual property so delivered only subject to the license terms set forth
in Section 2 above.
The parties acknowledge that the provisions of subsections (b) and (c) above
shall not apply if Licensee elects to exercise the option granted under Section
9.3.
14. TERM; SURVIVAL
14.1 Term. This Agreement shall commence on the Effective Date and shall
continue until the third anniversary thereof, or for such longer term as the
parties may hereafter agree in writing, pursuant to Section 9.3.
14.2 Survival. The rights and obligations contained in Sections 7, 8, 9.3,
10, 11 (for two years after termination of this Agreement), 12, 16, and 17 shall
survive any termination of this Agreement.
15. BREACH AND TERMINATION
15.1 Injunctive Relief. OPEN MARKET and ABSB agree that a breach of the
provisions of
21
<PAGE>
Sections 2.1, 2.2, or 12 of this Agreement would cause irreparable harm and
significant injury to the applicable party which would be difficult to ascertain
and which would not be compensable by damages alone, and that, accordingly, such
party will have the right to enforce those provisions by injunction, specific
performance or other equitable relief without prejudice to any other rights and
remedies it may have for such party's breach of this Agreement
15.2 License Termination. In the event ABSB commits any material and
willful substantial breach or default in the performance of its obligations
pursuant to Sections 2.1, 2.2, 9.1, or 9.2, and fails to provide an acceptable
remedy of such breach or default within thirty (30) days after written notice of
such breach or default from OPEN MARKET, OPEN MARKET by notice to ABSB may
terminate the licenses granted to ABSB under Sections 2.1 and 2.2 hereof. Such
termination shall not effect the rights of end-users who were licensed prior to
such termination. If ABSB is unable to reasonably cure the situation in a
manner reasonably acceptable to OPEN MARKET, OPEN MARKET may also, in its sole
discretion, elect to have the provisions of Section 9.3(i)-(v) apply.
15.3 Right to Cure. In no event may this Agreement be terminated by either
party without first providing the party allegedly in material breach hereof with
a formal written notice, detailing the alleged breach or default, and giving
such party at least thirty (30) days after receipt of such written notice to
reasonably cure the same and thus avoid termination hereof.
16. NOTICES. Any notice required or permitted to be given hereunder shall be
given in writing to the party at the address and to the attention of the
individual or title listed on Exhibit 16 of this Agreement by personal delivery,
certified mail, return receipt requested, or by overnight delivery, and the date
upon which such notice is so personally delivered (or if notice is given by
certified mail, return receipt requested, three (3) business days from the date
of sending, or if by overnight delivery, one (1) business day from the date of
sending) shall be deemed to be the date of such notice, irrespective of the date
appearing thereon. The addresses, individuals and/or titles to which notices
shall be sent may be changed by a party upon written notice to the other.
17. GENERAL
17.1 No Assignment. Except as provided in Section 2 of this Agreement or
in the case of a merger or acquisition of all or substantially all the assets of
such party or other Change of Control, neither Party may assign this Agreement
(or any of its rights hereunder), or delegate its obligations hereunder without
the prior written consent of the other, which shall not be unreasonably
withheld. This Agreement shall be binding upon and shall inure to the benefit of
all permitted assignees (including by merger and acquisition), except as
provided otherwise in this Agreement.
17.2 Waiver. No modification to this Agreement, nor any waiver of any
rights hereunder, shall be effective unless assented to in writing by both
parties and the waiver of any breach or default shall not constitute a waiver of
any other right hereunder or any subsequent breach or default.
17.3 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17.4 Inconsistency. In the event of any conflict or inconsistency between
the terms in the body of this Agreement and any Exhibit hereto it is the
intention of the parties that the term in the body of the Agreement shall
govern.
22
<PAGE>
17.5 Relationship. Nothing contained herein shall in any way constitute
any association, partnership, or joint venture between the parties hereto, or be
construed to evidence the intention of the parties to establish any such
relationship.
17.6 Unenforceability. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid, illegal, or otherwise
unenforceable, such provision shall be enforced as nearly as possible in
accordance with the stated intention of the parties, while the remainder of this
Agreement shall remain in full force and effect and bind the parties according
to its terms. To the extent any provision cannot be enforced in accordance with
the stated intentions of the parties, such provision shall be deemed not to be a
part of this Agreement.
17.7 Choice of Law. The Convention on International Sale of Goods shall
not apply to this Agreement. This Agreement shall be deemed to have been made
in The Commonwealth of Massachusetts, USA, and shall be governed by and
construed in accordance with the lawsof said Commonwealth, exclusive of its
rules governing choice of law and conflict of laws.
17.8 Entire Agreement. This Agreement, including all exhibits hereto, is
the entire agreement between ABSB and OPEN MARKET with respect to its subject
matter, and supersedes all prior and contemporaneous proposals, statements and
agreements with respect to such subject matter.
Executed as of the date first written above by authorized representatives
of the parties as an instrument under seal.
OPEN MARKET, INC. ABSB, L.C.
By: /s/ Gary Eichhorn By: /s/ Brad Pelo
------------------------------ -----------------------------
[authorized signatory] [authorized signatory]
Title: President and CEO Title: President and CEO
--------------------------- -------------------------
Date: June 9, 1999 Date: June 9, 1999
--------------------------- --------------------------
FOLIO CORPORATION
By: /s/ Gary Eichhorn
------------------------------
[authorized signatory]
Title: President and CEO
----------------------------
Date: June 9, 1999
----------------------------
23
<PAGE>
Disclosure Schedules
--------------------
Schedule 6.1(e)
- ---------------
None
Schedule 6.1(f)
- ---------------
Trademarks: Folio(R), Folio VIEWS(R), Folio(R) Publisher, Folio(R) Integrator,
Folio(R) Builder, Folio 4, Folio SiteDirector, Folio Infobase Technology,
SecurePublish, LivePublish.
Domain Names: folio.com, securepublish.com, secure-publish.com, directory.net
Third Party Software Agreements: Halcyon, Inc., Inso Corporation, Microsoft,
Inc., PKWare, Inc., RSA, Inc., SoftArt, Inc., Linguistic Software Solutions,
Inc.
Schedule 6.1(k)
- ---------------
Please refer to Open Market's Website at http://www.openmarket.com/investor/sec
for a copy of the company's 10Q containing the applicable Financial Statements
Schedule 6.1(m)
- ---------------
Contracts:
Distribution Agreements: ADP, Inc., Astea International, Best Software, Inc.,
Bell Atlantic Directory Graphics, Bureau of National Affairs, Business and Legal
Reports, Chase Manhattan Mortgage, Citibank, Financial Accounting Foundation,
First Health, Inc., Insurance Services Office, Inc., J.J. Keller, Inc., Knowlix,
Inc., Lexis Law Publishing, Mathew Bender, Mortgage Resource Center, Novell,
Inc., Pepsi Cola, Inc., Reed Elsevier, Inc., Tax Analysts, Inc., Thomson
Holdings, Inc., West Group, Wilke Thornton, Wolters Kluer
Software Evaluation License Agreement: Price Waterhouse Coopers
International Resellers/Business Partners: Catalyst, Inc., CED CD Rom Verlag,
Compdisk, Gyldendal Rettsdata, Soft Consultoria
Schedule 6.1(n)
- ---------------
None
24
<PAGE>
SCHEDULE OF EXHIBITS
--------------------
Exhibit 1.12 Business Segment
Exhibit 2.2 End User Agreement Terms and Conditions
Exhibit 2.3 Folio Trademarks and Use Guidelines
Exhibit 2.6 OPEN MARKET Commerce Products Licensed End User Categories
Exhibit 4.2 Folio Facilities
Exhibit 5.1 Open Market Back-Up Support
Exhibit 9 Royalty Rates; Discount Rates; Price Lists
Exhibit 16 Notices
25
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commmission. Asterisks denote omission.
EXHIBIT 1.12
------------
BUSINESS SEGMENT
currently paying royalties to Open Market Accounts
[**]
26
<PAGE>
EXHIBIT 2.2
END USER AGREEMENT TERMS AND CONDITIONS
1. License/Restrictions on Use. Customer, after the payment of the applicable
fees, shall be entitled to use the Software only (a) for the purposes expressly
set forth in this Agreement (See Exhibit 2.6 for applicable license use
limitations); (b) in the Territory; and (c) during the term of this Agreement.
The rights granted to Customer herein are restricted to Customer. Customer is
granted no other license for, and no right of ownership or title in, any
Software. Customer's license may not be assigned or otherwise transferred to
any third party.
2. Nondisclosure.
(a) Customer shall treat the Software and all other items identified as
confidential Licensor information prior to their disclosure to Customer
(collectively, the "Proprietary Information") as confidential and proprietary.
Except as specified in this Agreement, Customer shall not publish or disclose
Proprietary Information to, or use same for the benefit of, any third party.
Customer shall (1) give Proprietary Information at least the same degree of
protection Customer gives its own confidential information, and in no event
shall use less than reasonable care; (2) keep Proprietary Information in a safe
place and monitor access thereto; and (3) allow access to Proprietary
Information on a "need to know" basis only to those of its personnel ( the
"Recipients") who, prior to gaining access to Proprietary Information, have
executed a written legally binding agreement with Customer (the
"Acknowledgments") acknowledging the confidential and proprietary nature of
Proprietary Information and Licensor's rights therein and requiring compliance
with the nondisclosure, non-use and non-competition provisions of this
Agreement. Customer shall ensure, and hereby warrants and represents, that all
Acknowledgments are valid and enforceable against all Recipients, and this
Agreement is valid and enforceable against Customer, anywhere in the Territory.
(b) Customer shall have no obligations of confidentiality with respect to
information that, without breach of any obligation of confidentiality owed to
Licensor, (1) is or subsequently becomes publicly available; (2) became known to
Customer prior to its disclosure by Licensor; (3) became known to Customer from
a source other than Licensor; (4) is independently and entirely developed by
Customer; (5) is used by Customer to enforce Customer's rights, claims or
defenses under this Agreement; or (6) Customer is legally required to disclose,
provided, however, that Customer shall use its best efforts to minimize or
prevent such disclosure to the maximum extent allowed under applicable law and
to secure confidential treatment of the information being disclosed. Customer
agrees that it must have documentary evidence to invoke any of the provisions of
this subparagraph (b).
3. Proprietary Rights.
(a) Customer acknowledges that Licensor or its suppliers hold and shall
retain the exclusive and entire right, title, and ownership (including
copyright, patent, trade secret, trademark, and know-how rights) anywhere in the
world in (1) the Software and any translations thereof, and (2) Licensor's trade
names and marks and service names and marks depicted on any Software (the
"Trademarks"). Customer shall not use the Trademarks, or any name or mark
similar thereto, whether alone or together with another name or mark, or as part
of, on, or in connection with, Customer's corporate, business, private,
27
<PAGE>
substitute or other name, or on any of Customer's designs, symbols, Software,
services, letterhead, business cards, or other means of identification.
Customer also shall not adopt or attempt to register anywhere in the world any
of the Trademarks, or any name or mark similar thereto.
(b) Except as specified in this Agreement, Customer may not (1) copy,
reproduce, store, or convey any Software in any form or on any medium
whatsoever, including without limitation print, audio, video, software, CD-ROM,
or other electronic form; (2) make any modifications, additions, or enhancements
to any Software; (3) attempt to decompile, reverse-engineer, or extract any
algorithms or hierarchies from any Software; or (4) create any work based on, or
using any idea derived from, any Software. The original, and a copy of the
Software, are the sole and exclusive property of Licensor or its suppliers.
Customer shall reproduce and include all Licensor (or supplier) copyright,
trademark, and other proprietary rights notices on all copies of the Software
and any translation thereof. Customer shall not remove or modify any existing
Licensor or other copyright, trademark or other proprietary rights notice from
the Software or related documentation.
(c) To the maximum extent allowed under applicable law, this agreement
shall be governed by US copyright law, for the purposes of which any copy,
modification, addition, or work made in violation of Paragraph 3(b) shall be
deemed a derivative work or a "work made for hire" for Licensor. Licensor (or
its suppliers) holds and shall retain all rights that may vest at any time in
any of the foregoing items as a derivative work, a "work made for hire", or as
part of a collective work or compilation.
4. Warranties, Remedies, Disclaimers.
(a) Warranty. Licensor warrants and represents to Customer that (i)
Licensor has the full right and authority to license the Software hereunder,
(ii) the Software do not, to the best of Licensor's knowledge, infringe upon the
copyright of any third party; and (iii) for a period of [thirty (30) days]
following the date of delivery of each Software to Customer, each Software shall
substantially perform in accordance with its intended purpose and be
substantially free from defect in material and workmanship. The foregoing
warranties shall not apply (A) if the applicable Software is not used in
accordance with its intended purpose; (B) to any modification or translation of
any Software not made by Licensor.
(b) Exclusive Remedy. Customer's only remedy, which is in lieu of all
other remedies, and Licensor's only liability, for breach of the warranties in
Paragraph 4(a)(i) or 4(a)(ii), shall be to obtain for Customer, at Licensor's
sole option and expense, the right to continue to use the infringing or
unauthorized Software, modify the Software so that it becomes non-infringing or
authorized, or replace the infringing Software with a non-infringing or
authorized Software. Customer's only remedy, which is in lieu of all other
remedies, and Licensor's only liability, for breach of the warranties in
Paragraph 4(a)(iii), shall be to replace the non-conforming Software, during
such [thirty (30) day] warranty period and at no charge to Customer, with a
conforming Software. Customer assumes the entire cost of all necessary
servicing, repair or correction of defects after the [thirty (30) day] warranty
period.
(c) Disclaimer of Warranty. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
PARAGRAPH (4)(a), NEITHER LICENSOR NOR LICENSOR'S SUPPLIERS MAKES ANY WARRANTY,
EXPRESSED OR IMPLIED, CONCERNING THE SOFTWARE, OR OTHERWISE IN CONNECTION WITH
THIS CUSTOMER AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES
ARISING FROM USAGE OF TRADE, COURSE OF
28
<PAGE>
DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, NEITHER LICENSOR NOR LICENSOR'S SUPPLIERS WARRANTS THAT THE SOFTWARE
WILL MEET CUSTOMER'S REQUIREMENTS OR THAT THEY WILL BE ACCURATE OR ERROR-FREE.
CUSTOMER ASSUMES THE ENTIRE RISK AS TO THE RESULTS, PERFORMANCE OR USE OF THE
SOFTWARE. TO THE MAXIMUM EXTENT ALLOWED BY APPLICABLE LAW, LICENSOR AND
LICENSOR'S SUPPLIERS SHALL HAVE NO LIABILITY TO CUSTOMER OR ANY THIRD PARTY FOR
DAMAGES RESULTING FROM THE USE OF, OR ANY ERROR OR OMISSION IN, THE SOFTWARE OR
ANY ACTION TAKEN OR NOT TAKEN BASED ON THE SOFTWARE OR OTHERWISE FROM ANY CAUSE
WHATSOEVER, AND REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT OR IN TORT
(INCLUDING NEGLIGENCE). IN NO EVENT SHALL LICENSOR OR LICENSOR'S SUPPLIERS BE
LIABLE TO CUSTOMER OR ANY THIRD PARTY FOR ANY LOSS OF BUSINESS OR OTHER
CONSEQUENTIAL, PUNITIVE, INCIDENTAL, OR INDIRECT DAMAGES. TO THE MAXIMUM EXTENT
ALLOWED BY APPLICABLE LAW, CUSTOMER ACKNOWLEDGES THAT (i) LICENSOR AND
LICENSOR'S SUPPLIERS SHALL NOT HAVE ANY LIABILITY TO CUSTOMER UNDER THIS
CUSTOMER AGREEMENT OR OTHERWISE IN CONNECTION WITH THE SOFTWARE, AND (ii) IT
SHALL LOOK SOLELY TO LICENSOR AND NOT TO ANY OF LICENSOR'S SUPPLIERS, CORPORATE
AFFILIATES, SHAREHOLDERS, DIRECTORS OR EMPLOYEES, FOR ANY SUIT, CLAIM, OR RELIEF
IN CONNECTION WITH THE SOFTWARE OR THIS CUSTOMER AGREEMENT. IN NO EVENT SHALL
LICENSOR BE LIABLE TO CUSTOMER FOR MORE THAN THE FEE PAID BY CUSTOMER TO
LICENSOR.
5. Third Party Beneficiary. CUSTOMER ACKNOWLEDGES THAT OPEN MARKET IS AN
EXPRESS INTENDED THIRD-PARTY BENEFICIARY OF THIS CUSTOMER AGREEMENT AND THAT
OPEN MARKET SHALL HAVE THE RIGHT TO BRING ACTION, CLAIM OR SUIT FOR DAMAGES,
INJUNCTIVE OR OTHER RELIEF UPON ANY BREACH BY CUSTOMER OF THIS CUSTOMER
AGREEMENT.
6. Compliance with Law. Customer shall not, directly or indirectly, (a)
export or re-export the Software or any technical information about the Software
to any country for which the United States Export Administration Act prohibits
such export or re-export or requires an export license or other United States
governmental approval, unless the appropriate export license or approval has
been obtained; or (b) take any action that would cause Licensor or Licensor to
be in violation of United States anti-boycott laws under the United States
Export Administration Act or the United States Internal Revenue Code, or any
regulation thereunder, or United States Foreign Corrupt Practices Act.
7. Assignment. This Customer Agreement may be assigned by Licensor or
Licensor's designee upon written notice to Customer.
29
<PAGE>
EXHIBIT 2.3
FOLIO TRADEMARKS AND USE GUIDELINES
Open Market's Folio Trademarks
The following are registered trademarks and trademarks of Open Market.
Documentation, packaging, etc., must contain a notice of Open Market's ownership
of these marks. Initial use of these trademarks must include the (R) or
symbols. You must use these marks exactly as they appear below.
Folio(R) Underhead Technology (R) Folio Infobase Technology/TM/
Folio 4/TM/ Folio Views(R) Folio(R) Builder
Folio(R) Publisher Folio(R) Integrator Folio SiteDirector/TM/
LivePublish/TM/ SecurePublish/TM/
Use Guidelines
Logo Artwork for Commercial Publications
Powered by Folio Logo
Logo Usage for Commercial Publications
Use of Powered by Folio Logo
Color
100 % Black or authorized colors
Media and Packaging Placement
The Powered by Folio Logo must be prominently displayed on all (1) diskettes,
(2) CD-ROMs, (3) other media used in connection with the distribution of any
Commercial Publication, (4) packaging, (5) advertising, and (6) promotional
materials associated with distributing or marketing each Commercial Publication.
The Powered by Folio Logo must be present on the front and spine of all
packaging. Call (801) 229-6700 if you have any questions regarding the placement
of the Powered by Folio Logo. Publisher may feature its company logo or
Commercial Publication trademark more prominently than the Powered by Folio
Logo, and Publisher may use its own trademarks, logos and imprints to identify
the Commercial Publication. Additionally, with respect to the serving up of
Infobases online with LivePublish, Publisher shall display the Folio Logo in the
document pane in instances where no active documents from an Infobase are being
displayed.
Size:
Below is a minimum size that must be present on the media and packaging.
However, publishers can increase the size of the Logo to meet their individual
needs.
Minimum size: Minimum size:
CD ROM
Packaging
Marketing Literature
LivePublish Doc Frame Floppy labels
1" 5/8"
30
<PAGE>
Logo Usage for Folio Commercial Publications that Contain a Custom Application
Color
100 % Black or authorized colors
Media and Packaging Placement
In addition to the Logo Usage Requirements above, Publisher must include the
Open Market copyright notice and prominently display the Powered by Folio Logo
in or on (1) the application splash screen, (2) the "About" dialog box, (3) any
online help language distributed with the program, (4) any documentation
distributed with the program, and (5) on all advertising, and promotional
materials associated with distributing or marketing the application. Publisher
may feature its company logo or application trademark more prominently than the
Powered by Folio Logo, and Publisher may use its own trademarks, logos and
imprints to identify the custom application.
Size
Below is a minimum size that must be present on the splash screen and about
dialog. Publisher can increase the size of the Logo to meet their individual
needs.
Minimum size:
Splash Screen
About Dialog
1"
Copyright Notices required for Folio Commercial Publications that Contain a
Custom Application
Publishers who distribute Open Market's Interface Controls and the Indexing and
Retrieval Engine must use the following notice:
Interface Controls & Indexing and Retrieval Engine Copyright (C) 1998 Open
Market, Inc.
All rights reserved.
Publishers who distribute either the Interface Controls or the Indexing and
Retrieval Engine must use the appropriate notice listed below:
Interface Controls Copyright (C) 1998 Open Market, Inc. All rights reserved.
Indexing and Retrieval Engine Copyright (C) 1998 Open Market, Inc. All rights
reserved.
All Publishers must include the following notice:
Contains security software from RSA Data Security, Inc. Copyright (C) 1998 RSA
Data Security, Inc. All rights reserved.
All custom applications built with Folio Components must include the following
RSA Seal in the application splash screen:
[RSA seal] Note: The minimum size of the RSA Seal must be 3/4 of an inch or
larger.
Third-Party Copyright Notices for Folio Commercial Publications that Contain a
Custom Application (Required if Technology is Included)
Soft-Art and Linguistic Software Products Notice
- ------------------------------------------------
Indexing and Retrieval Assistant program for dictionaries Copyright (C) 1998.
Soft-Art, Inc.(R) All rights reserved.
Dictionaries Copyright (C) 1998 Linguistic Software Products, Inc.(R) All rights
reserved.
Inso Corporation Notice
- -----------------------
ImageStream(R) Graphics & Presentation Filters Copyright (C) 1991-1998 Inso
Corporation, All rights reserved.
31
<PAGE>
Logo Verification
Per this Agreement, logo usage on packaging artwork associated with the sale of
a Commercial Publication must be verified by Folio Trademark Screening. Please
send copies of the Folio Commercial Publication Authorization Form as referenced
in Exhibit E along with all packaging artwork to Open Market, Attention:
Trademark Screening, 5072 North 300 West, Provo, Utah 84604.
32
<PAGE>
EXHIBIT 2.6
-----------
OPEN MARKET COMMERCE PRODUCT LICENSED END USER CATEGORIES
"Commerce Service Provider" (TRANSACT only) means a business entity or
organization that is granted a license to provide Internet transaction or other
commerce services to Merchants using TRANSACT. The terms for such a license are
set forth in Exhibit B. As used hereunder, a "Merchant" means any third party
licensee of Licensee or an Affiliate who establishes an active account with
Licensee or with an Affiliate in order to provide goods, services, information
or other items to buyers via TRANSACT.
"Niche Commerce Service Provider" (TRANSACT only) is a Commerce Service Provider
whose TRANSACT license is contractually limited either by the number of
Merchants that can be served by the licensed copy of TRANSACT or by geographic
area.
"Corporate" (TRANSACT only) means a business entity or its authorized Business
Line that is granted a license to provide goods, services, information or other
items to buyers via TRANSACT. Under no circumstances shall a Corporate TRANSACT
licensee be authorized to use TRANSACT to provide transaction services as a
Commerce Service Provider to third party Merchants. "Business Line" means any
business activity which Licensee elects to manage under a single Store ID (and
the additional Store IDs as provided below) and which is authorized by Open
Market to use TRANSACT. Such business activities may include without limitation
separate product lines, corporate divisions, fulfillment centers or promotional
campaigns.
Unless Licensee has procured an applicable TRANSACT CSP license, Licensee or a
Business Line will not be authorized to use TRANSACT to provide Internet
transaction or other commerce services as a commerce service provider to third
party merchants. For purposes hereunder, "Store ID" means a number that
identifies a registered store to the TRANSACT administrator, which is provided
to the Business Line when it registers a store and which will appear on the
appropriate registration screens.
Each Business Line is granted the non-exclusive, non-transferable, non-
sublicensable right to the following: one (1) Store ID on Licensee's TRANSACT
and SecureLink software and Documentation as needed. Licensee may make as many
copies of the SecureLink software as are reasonably necessary to support the
Store ID. Support for Business Line licenses is provided by OPEN MARKET at the
Basic or Premier level at OPEN MARKET's standard U.S. list prices for Basic
level and at an agreed discount of Twenty Percent (20%) off of Open Market's
published U.S. Premier level support rates for Premier level.
"Development" means a copy of the applicable Software that is licensed for use
solely for internal development, testing and staging purposes and for no other
purpose.
"Cold Spare Back-up" is a copy of TRANSACT that may be installed but used only
in order to provide emergency back-up to the Production copy of TRANSACT for the
duration of such emergency.
"Hot Spare Back-up" is a copy of TRANSACT that may be installed and kept
running, but used only in order to provide emergency back-up to the Production
copy of TRANSACT for the duration of such emergency.
LiveCommerce License Grant and Applicable Use Limitations (from standard
- ------------------------------------------------------------------------
shrinkwrap license)
- -------------------
33
<PAGE>
GRANT OF LICENSES (Standard End User Terms). Open Market grants Licensee a non-
exclusive, non-transferable license to install and use the Program on dedicated
servers or multiple server configurations owned, controlled or authorized by
Licensee to create and deploy a single LiveCommerce "catalogue" to support no
more than the designated number of unique Catalogue Items listed above for
Licensee's own internal business purposes. A LiveCommerce "catalogue" consists
of the following three (3) databases: a catalogue database, a data import
database and an image database. The base Program consists of three (3)
components: (a) two (2) LiveCommerce development licenses, (b) one (1)
LiveCommerce production license, and (c) the suite of LiveCommerce authoring
tools defined in the Documentation. Each license is comprised of a catalogue
and an "installation" (the set of LiveCommerce application services required to
operate a single LiveCommerce catalogue). Licensee may use the two LiveCommerce
development licenses to create as many instances of a single catalogue as
Licensee reasonably requires; however, Licensee may have only one (1) production
copy of the catalogue at any one time.
Licensee may make a reasonable number of copies of the Program solely for back-
up or archival purposes. Licensee may not reverse-engineer, disassemble, or
decompile the Program nor may Licensee use the Program for competitive analysis
or benchmarking purposes. All LiveCommerce authoring tools provided with the
Program may be used solely for Licensee's own internal business purposes by
authorized Licensee employees. Licensee may copy the Documentation solely for
reference.
Catalogue Items: For purposes of this Agreement, "Catalogue Items" means the
number of unique values in the "Items" object class of the catalogue database
and therefore does not include product or category attributes. Catalogue Items
are available in the following packages: Small Catalogue - up to 20,000; Medium
Catalogue - 20,000 - 50,000; and Large Catalogue - 50,000+. Licensee must
obtain an additional grant of license of Catalogue Items from Open Market if
Licensee wishes to utilize more than the number of Catalogue Items designated
above.
ShopSite License Grant and Applicable Use Limitations (from standard shrinkwrap
- -------------------------------------------------------------------------------
license)
- --------
Grant of License. The ShopSite software and accompanying documentation are being
licensed to you, which means you have the right to use the software only in
accordance with this Agreement. Open Market grants you the right to use the
software in connection with one (1) Licensed Storefront (as defined below) on a
single Internet server or multiple server configuration. The software is
considered in use on an Internet server when it is loaded into temporary memory
or installed into permanent memory. This license is subject to the following
restrictions and limitations:
(a) The term "Licensed Storefront," as used in this Agreement, means the
Internet storefront created and/or maintained by you on an Internet server
for advertising and selling your goods or services as part of a single
business or the goods or services of another person or entity as part of a
single business. A Licensed Storefront may not offer the goods or services
of more than one business or entity.
(b) You will have access to the object code version of the software and are not
entitled to have access to the source code, except as provided in a
separate Master Preferred Escrow Agreement.
(c) This license is valid for only one (1) Licensed Storefront. The software
may not be used in connection with more than one (1) Storefront and may not
be transferred to a different Storefront than the one originally licensed
without Open Market's prior written consent.
(d) Copies. You are authorized to make a reasonable number of copies of the
software for backup or
34
<PAGE>
archival purposes, provided that all of Open Market's copyright notices are
included in the copy.
(e) Scope of Use. You may not sublicense or lease the software or any of the
accompanying documentation to any other person except in accordance with
the terms of the License Agreement as amended, but you may use the software
to maintain a Licensed Storefront that is leased to another person or
entity. The software may be used only for advertising and selling goods and
services that you sell in the ordinary course of your business, whether
manufactured or provided by you or third parties, or, if you are
maintaining the Licensed Storefront for another merchant, the software may
be used only for advertising and selling the goods and services of that
merchant. Except as specifically permitted in this Agreement, the software
may not be used to process transactions or data for any other person or
entity.
35
<PAGE>
EXHIBIT 4.2
FOLIO FACILITIES
The "Folio Facilities," as defined in Section 4.2 of the Agreement to include
all real estate, all improvements thereon, and all personal property located
therein, shall be leased by OPEN MARKET to ABSB for the monthly rental sum of
Eighty-Five Thousand Dollars ($85,000.00) per month, with the first payment due
on July 1, 1999, subject to such other terms and conditions as will be set forth
in a basic commercial lease agreement to be finalized between OPEN MARKET and
ABSB as soon as possible hereafter.
36
<PAGE>
EXHIBIT 5.1
OPEN MARKET BACK-UP SUPPORT AND MAINTENANCE
OPEN MARKET shall have no direct support, maintenance or Services obligations to
Customers for the Software distributed by Distributor. OPEN MARKET will provide
Distributor with back-up support and maintenance for the Software in accordance
with the terms and conditions set forth in the Support Obligations listed below.
Such support is conditional upon OPEN Market's receiving payment for annual or
other support charges as set forth in this Exhibit.
Distributor will be responsible for providing Customers with the support,
maintenance and Services set forth in the Support Obligations, including without
limitation: (i) the installation of the Software if required by Customer, (ii)
the training of Customer personnel in the use of the Software, (iii) the
provision of primary support and maintenance relating to the Software and
Services for Customers and other end-users in the Territory.
Definitions.
1.1 "Bypass" means a temporary solution or workaround to a problem which
offers acceptable relief.
1.2 "Compatibility" means that the Software can be recompiled and linked
properly on the new release of the Distributor operating system.
1.3 "Documentation" shall mean the existing "Open Market, Inc. " user
manuals and other written materials that relate to the particular Software,
including materials useful for installation, operation, and maintenance.
Documentation shall include maintenance modifications and enhancements thereto
if, when, and to the extent such maintenance modifications and/or enhancements
are delivered to Distributor by "Open Market, Inc." under this Agreement or
under any other agreement or arrangement between the parties.
1.4 "End-User" shall mean a Customer of Distributor.
1.5 "Fix" means a permanent solution to a problem that may be obtained in
a generally available Release.
1.6 "Maintenance Release" means any modification of a Software product for
which Distributor or OPEN MARKET, in its sole discretion, changes the second
number to the right of the decimal point in the Software version number, e.g., a
change from version 1.00 to 1.01.
1.7 "Major Release" shall mean a new version of the Software that contains
significantly new functionality or features and is accompanied by a Major
Release bulletin or other notice. Each Major Release shall be identified solely
by the numeral(s) to the left of the decimal point, with the new Major Release
having the larger numeral. For example, for any given Software product, release
3.0 is a more current version than release 2.0.
1.8 "Patch" means a solution to a problem which may be obtained prior to
the next Release of the Software.
37
<PAGE>
1.9 "Software" shall mean the computer programs, Documentation and related
information as defined in the Agreement. The term "Software" shall not include
Source Code.
1.10 "Release" means any modification of the Software which becomes
generally available.
1.11 "Minor Release" means any modification of the Software that contains
some features and or fixes. Each Minor Release shall be identified by the first
number to the right of the decimal point in the Software version number, e.g., a
change from version 1.00 to 1.10.
1.12 "Work Around" shall mean a temporary solution that is intended to
alleviate a Customer's particular problem.
1.13 "Educational Services" shall mean the delivery, materials and
scheduling of education courses which are made available by OPEN MARKET for
OPEN MARKET products or services.
1.14 "Consulting Services " shall mean any such service by which OPEN
MARKET offers its' Customers, Distributor or others any assistance with the
development, delivery, installation, configuration, testing, management,
training or advice on it's products or technology for a fee.
1.15 "Implementation Services" shall mean the service provided by OPEN
MARKET which involves the planning, installation and testing of OPEN MARKET
products.
2. Support Provisions.
2.1 Levels of Support. Distributor and OPEN MARKET acknowledge that three
(3) levels of support are required.
2.1.1 Level 1 Support. Level 1 (problem verification) handles calls
requiring a relatively low, but broad degree of product expertise. Level 1
activities include the following:
* Provide Initial Customer Contact
* Maintain Problem Log
* Provide Problem Description and Definition
* Ensure Continuous Availability
* Manage Remote Connections
* Maintain Customer Configuration Data
* Resolve Software Installation Inquiries and Problems
Remotely
* Provide Appropriate Quality Metrics to Management
* Provide Remote System Administration and Configuration
Assistance
* Attempt Problem Reproduction
2.1.2 Level 2 Support. Level 2 (problem determination and temporary
fix) requires both broad and in-depth product expertise. Level 2 support has
full responsibility for problem trouble-shooting, and development of avoidance's
and workarounds. Level 2 activities include the following:
* Critical Call Access or as per Contract/Support Plan
* Provide Problem Determination and Verification
* Perform Remote Diagnosis
38
<PAGE>
* Provide Patch to Customer
* Provide Engineering (Level 3) Interface
2.1.3 Level 3 Support. Level 3 requires engineering level technical
expertise. The Level 3 support organization has complete ownership of the field
release process, and similarly is responsible for providing timely and accurate
product defect descriptions and resolution plans to Distributor Level 1 and
Level 2 support. Level 3 support activities include the following:
* Perform Line of Code Fault-Isolation
* 7 x 24 Critical Call Access
* Provide Patches or Resolve to Customer's Satisfaction
* Provide Major, Minor and Patch releases
2.2 Problem Classifications, Hardware/Software.
2.2.1 Problem (call) severity will be determined by Distributor, based
upon Distributor's Customer's priority, using the following as a guideline:
Declared Critical Problem: A "down" situation, whereby a user is unable to do
production work, and a Work-Around is either not available, or, if available, is
unacceptable to Distributor and/or the user.
Serious Problem: A major function/product is unusable and no Work-Around is
available, but the user is able to do some production work.
Moderate Problem: There is a loss of a function or resource that does not
seriously affect the user's operations or schedules. Any problem which was
originally reported as Critical or Serious, but has been temporarily solved with
a Work-Around, shall be reduced in severity to Moderate, only if the customer
and Distributor mutually concur.
Minor Problem: Means all other problems with the Software other than those
falling within the categories above.
2.2.2 Repair/fix criteria.
Resolution will be provided by OPEN MARKET in accordance with the following
criteria, and tracked on a case by case basis.
Problem Resolution Criteria
Resolution will be provided by OPEN MARKET in accordance with the following
criteria, and tracked on a case by case basis.
<TABLE>
<CAPTION>
Telephone Initial
Severity Response Update Action Target Patch Maint Rel.
<S> <C> <C> <C> <C> <C>
Declared 30 minutes, every bus. work As Req. Next
Critical if required day continuously
Event
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Serious 1 bus. hour every other ASAP As Req. Next
Event
<S> <C> <C> <C> <C> <C>
Moderate/ 4 / 8 bus. hrs. every week reasonable No As Req.
Minor Event
</TABLE>
Note: Times are calendar/clock times except where stated
2.2.3 Unresolved Critical or Serious Event Procedures.
Should a Critical or Serious Event not be patched fixed within the 10 day time
frame, OPEN MARKET shall dedicate a full time resource to the situation until
resolved. This resource shall provide Distributor with detailed fix plan and
daily progress updates. This resource will perform the work required at the
most convenient location for resolution (Distributor, Company, Customer site).
If, by the 10th day, OPEN MARKET cannot identify the source of the problem then
OPEN MARKET will supply to Distributor a clear and comprehensive plan for
locating and fixing the problem . This information may be passed on to the end-
user.
3. Distributor Responsibilities.
Distributor shall provide technical support to Customers of those Software
products provided by Distributor. Distributor will provide all Level 1 and
Level 2 Support. By this the parties agree that Distributor will:
3.1 Provide access to telephone and electronic communications for
technical assistance and consultation 24 hours a day 365 days a year to
Distributor's support center.
3.2 Execute diagnostic routines as made available by OPEN MARKET's for
Level 1 and Level 2 support situations in accordance with OPEN MARKET's
instructions as they relate to OPEN MARKET's Software products, and inform OPEN
MARKET of the results of those diagnostics.
3.3 Reasonably verify the existence of a Software product problem and to
determine the conditions under which that problem can be duplicated prior to
submission to OPEN MARKET.
3.4 Identify, define, and report software problems in a manner that will
allow OPEN MARKET to verify, replicate, and correct Software defects.
3.5 Provide direct customer contact for Level 1 and Level 2 of technical
support assistance and act as the front line field support organization
providing technical support directly to their End-User customers.
3.6 Manage and control problem situations arising at customer sites.
3.7 Distributor will act as the front line field support organization for
Level 3 support and facilitate OPEN MARKET's direct communication with customer
in Level 3 support situation.
3.8 Distributor agrees to be a beta test site for OPEN MARKET Software
products.
40
<PAGE>
3.9 Distributor agrees to provide response, updates, and relief support,
as per Section 2.2.2, to its' customers as the primary interface to them.
3.10 Distributor agrees to maintain an adequate staff of trained technical
support personnel to service the needs of it's Customers.
3.11 Distributor agrees to participate with OPEN MARKET in a semi-annual
technical support review to ensure Distributor and OPEN MARKET are meeting their
respective Support Obligations as defined herein.
4. OPEN MARKET Responsibilities.
OPEN MARKET intends to supply post-sale technical support to Distributor for
Customers of those Software products provided by Distributor. OPEN MARKET will
provide Level 3 Support Services. By this, the parties agree that OPEN MARKET
will provide the following support to Distributor:
4.1 Provide to Distributor Maintenance Releases, Update Releases and Discounts
on Major Releases of the Software.
4.2 Provide access by Distributor to OPEN MARKET service personnel for
telephone technical assistance as necessary during OPEN MARKET's Support Center
normal business hours via dial up , electronic mail or web site.
4.3 Provide emergency contact to Distributor for Critical problems occurring
outside of normal work hours. Access will be through an assigned duty pager to
be continuously active outside the periods of OPEN MARKET's normal business
hours.
4.4 Use computerized tracking systems to log and record all requests from
customers for technical assistance.
4.5 On a case by case exception basis, if requested by Distributor, OPEN MARKET
may agree to establish direct support obligations for individual customer
licensed Software, subject to mutually acceptable terms, including but not
limited to, price.
4.6 Provide remedial Software support by providing, a Patch or Bypass solution
to verified problems reported by Distributor according to Section 2.2.
4.7 Provide prompt shipment of appropriate and available Fix, Patch or Bypass,
and Documentation updates when available.
4.8 Provide Distributor with Software support services for the current version
and the previous version of the Software under the maintenance agreement.
Additionally, the second back level of the applicable Software will be supported
by OPEN MARKET for a period of three (3) months to allow Distributor time to
install the latest product version.
4.9 OPEN MARKET agrees to provide response, updates, and relief support, as per
Section 2.2.2, to the Distributor.
4.10 OPEN MARKET shall provide emergency on-site support upon mutual agreement
between the
41
<PAGE>
parties and only in support of Critical events, OPEN MARKET personnel shall be
available for emergency dispatch to End User site or Distributor support center
for problem correction. Travel, living and incidental costs incurred due to
problems mutually agreed to have been caused by the product, after all remote
problem resolution has been exhausted by OPEN MARKET, shall be the
responsibility of OPEN MARKET. Travel, living and incidental costs incurred due
to problems mutually agreed not to have been caused by Defects in the Software
shall be the responsibility of Distributor.
4.11 OPEN MARKET agrees to participate with Distributor in a semi-annual
technical support review to ensure OPEN MARKET and Distributor are meeting their
Support Obligations.
4.12 OPEN MARKET agrees to participate with Distributor in a technical support
review to ensure OPEN MARKET and Distributor are meeting their Support
Obligations.
5. Technical Training/Distributor's Support Personnel:
OPEN MARKET shall make available to Distributor qualified personnel who are
knowledgeable in all aspects of the Software, to instruct and assist
Distributor's personnel with respect to the maintenance and support of the
Software.
OPEN MARKET shall provide training and documentation to Distributor service
personnel with respect to the design, theory, operation, installation,
maintenance and support of the Software.
Training shall consist of either class room instruction or via an on-site
consulting engagement. Class room training shall take place at OPEN MARKET's
training facility during normal business hours and shall commence during a
normally scheduled class. After the training class, Distributor personnel will
get a week hands on work in OPEN MARKET's Support Center.
OPEN MARKET offers several on-site Consulting packages which provide hands on
training of OPEN MARKET products. Consulting packages shall serve as a
substitute for class room instruction. Consulting packages are designed to be
offered on-site. Distributor shall be responsible for the cost of all Consulting
packages at the then current price.
6. Updates, Maintenance releases and Upgrades:
Updates and Maintenance releases will be included under this Support
Obligations. Upgrades will be made available at a discount from the royalty rate
as determined hereunder.
7. Fees:
7.1 Training of Distributor's personnel:
$2,000 / per person a minimum of 2 people trained is required. The fee includes
the Training Class and the week hands on in the OPEN MARKET Support Center.
Distributor shall be responsible for all travel and living expenses incurred by
its employees in connection with attending said training.
7.2 Annual Support Program Fee:
42
<PAGE>
Access to the above services, by two named Distributor contacts, after
completion of the required OPEN MARKET training course. Each named contact will
have access rights to the above services. Additional named contacts are charged
on a per named contact basis. This service is designed to provide Distributor's
internal development and support staff the required support during the proposal,
design, testing and implementation of projects.
$15,000 / year for two Distributor contacts* - unlimited access to all support
as outlined in section 4 (*waived for initial year of Annual Support)
$7,500 / year for each additional Distributor contact - unlimited access to
above services
7.3 Third Level Support Fees:
Forty Percent (40%) of the support fee revenue received by Distributor from
customers for the applicable Software purchased on an annual basis (commencing
upon shipment of the applicable Software) for ongoing third level support and
maintenance services as described above. This fee includes access to support
personnel 7X24 for critical calls only.
7.4 Pass Through Services:
Distributor may offer to their Customers OPEN MARKET Consulting and Education
Services on a commission basis. Distributor will be paid 5% of the net Open
Market sales.
7.5 OPEN MARKET published Service and Support Pricing is defined as follows.
Consulting Rates: Standard Rates: $1,500/day, Business Consulting: $2,000/day
Pre-packaged Offerings: per package
Education Services:
Transact Installation and Administration - $2,000 US
Courseware License - per quote
Implementation Services: Implementation of Transact - $1,500/day US
All prices exclude reasonable travel and living expenses which will be billed at
actual price paid.
Schedule A
Section I Contacts:
Name of Licensee:
Address of Licensee:
Telephone Number:______________ Fax Number:______________ Email
43
<PAGE>
Contact Person(s):
1.______________________________, Telephone:_____________, Email:
2.______________________________, Telephone:_____________, Email:
3.______________________________, Telephone:_____________, Email:
(Premier Only)
Date of License Agreement: _______ / ______ / _________
(Same as Annual Support Agreement)
Section II. OPEN MARKET Software : (List all)
Product:________________________ Revision:______ Annual Support Fee:_________
Product:________________________ Revision:______ Annual Support Fee:_________
Product:________________________ Revision:______ Annual Support Fee:_________
Product:________________________ Revision:______ Annual Support Fee:_________
Product:________________________ Revision:______ Annual Support Fee:_________
(List additional on back of this page)
Total Annual Support Fee:_________
44
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
EXHIBIT 9
ROYALTY RATES; DISCOUNT RATES
Folio Product Royalty Rates:
[**] of the applicable Folio Product revenues received by ABSB; with an annual
guaranteed minimum royalty of Four Million Seven Hundred Thousand Dollars
($4,700,000.00), and an annual maximum of Five Million Dollars ($5,000,000.00),
for any 12-month period during the term of this Agreement.
OPEN MARKET Commerce Product Discount Rates:
[**] off of OPEN MARKET's then-current standard U.S. and International list
prices for the applicable products attached as Schedule A.
<TABLE>
<CAPTION>
<S> <C>
ITEM NUMBER LIST List
Item # DESCRIPTION Price/Unit
CSP TRANSACT
CSP Transact Base License
1 CSP Transact License [**]
Includes all Standard Payment Modules, all Fulfillment Modules, the SecureLink SDK, English
Language Module and the Customer's local language Module (where available)
2 Niche CSP Transact License [**]
Includes one Standard Payment Module, one Fulfillment Module, the SecureLink SDK (for up
to 100 merchants), the English Language Module and the Customer's local Language Module
(where available)
CSP Transact Standard Payment Modules (Included with CSP License, 1 at no additional charge with
NicheCSP)
4 Purchase Order Module License [**]
5 FDC Payment Module License [**]
6 First USA Payment Module License [**]
7 Toronto Dominion Payment Module License [**]
CSP Transact Standard Fulfillment Modules (Included with CSP License, 1 at no
additional charge with NicheCSP)
</TABLE>
45
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
<TABLE>
<S> <C>
9 Physical Goods Module License [**]
10 Digital Goods Module License [**]
11 Subscriptions Module License [**]
CSP Transact Language Modules (Not Currently Available)
CSP Transact SDKs (internal use only)
12 Payment SDK License [**]
13 Fulfillment SDK License [**]
14 Order Entry SDK License [**]
CSP Transact Optional Software
15 CSP Transact Fax Module License [**]
16 CSP Transact SalesTax Module License* [**]
*Additional fees of $20/month/state of taxable presence/merchant
apply to all customers purchasing the Sales Tax Module
CSP Transact Development Licenses
23 CSP Transact Unlimited Development License [**]
CSP Transact Miscellaneous
28 Merchant License Prepay
29 Tier 1a Merchant License/year (up to $30,000 in transaction revenue/year) [**]
30 Tier 1 Merchant License/year (up to $60,000 in transaction revenue/year) [**]
31 Tier 2 Merchant License/year (up to $400,000 in transaction revenue/year) [**]
32 Tier 3 Merchant License/year (up to $2,000,000 in transaction revenue/year) [**]
33 Tier 4 Merchant License/year (over $2,000,000 in transaction revenue/year) [**]
34 Upgrade from Niche to Full CSP [**]
CSP ShopSite (contact Neil Costa for pricing)
35 ShopSite TX License (Express)
36 ShopSite TX License (Lite)
37 ShopSite TX License (Manager)
38 ShopSite TX License (Pro)
39 ShopSite TX License (Express) & Merchant License Bundle
40 ShopSite TX License (Lite) & Merchant License Bundle
41 ShopSite TX License (Manager) & Merchant License Bundle
42 ShopSite TX License (Pro) & Merchant License Bundle
CORPORATE TRANSACT (Modular Pricing)
Corporate Transact Base Licenses
Includes the SecureLink SDK, English Language Module, the customer's local
Language Module (where available), on-site installation services and one seat
in Transact Administration Training
</TABLE>
46
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
<TABLE>
<S> <C>
43 Base Commerce System: Physical [**]
44 Base Commerce System: Digital [**]
45 Base Commerce System: Subscriptions [**]
Corporate Transact Language Modules (Not Currently Available)
Corporate Transact Capacity Factors
46 Additional Transact "StoreId" (standard = 1) [**]
47 Additional Transact Download Server (standard = 1)
$5,000
Corporate Transact Recurring Fees
48 Additional subscribers (standard = 5,000) [**] of
subscription value/year
49 Additional 100,000 transactions/year (standard = 100,000/year) [**]/year
Corporate Transact Basic Add-on Modules
50 VAT Module License [**]
51 US/Canada SalesTax Module (TaxWare) License* [**]
*Additional fees of $20/month/state of taxable presence/merchant apply to all customers
purchasing the SalesTax Module.
52 Fax Module License [**]
Corporate Transact Real-time Credit Card Payment Modules
53 FDC Payment Module License [**]
54 First USA Payment Module License [**]
55 Toronto Dominion Payment Module License [**]
Corporate Transact Advanced Add-on Modules
56 Digital Coupons Module License [**]
57 Advanced Customer Service Module License [**]
58 Microtransactions Module License [**]
59 Customer Registration Module License [**]
Corporate Transact Add-on Fulfillment Modules
60 Physical Goods Module License [**]
61 Digital Goods Module License [**]
62 Subscriptions Module License [**]
Corporate Transact SDKs (internal use only)
63 Payment SDK [**]
64 Fulfillment SDK [**]
65 Order Entry SDK [**]
Corporate Transact Upgrades
66 Upgrade from Corporate License to Niche CSP [**]
67 Upgrade from Corporate License to Full CSP [**]
</TABLE>
47
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
<TABLE>
<S> <C>
Corporate Transact Development Licenses
76 Corporate Transact Development License [**]
TRANSACT DOCUMENTS
101 Additional Transact/SecureLink Doc Set [**]
102 Additional Fulfillment API Guide [**]
103 Additional Payment API Guide [**]
LIVE COMMERCE (Modular Pricing)
LiveCommerce Base System and Add-on Modules
104 LiveCommerce Base Catalog System [**]
Includes one seat in LiveCommerce Training and Quick Start consulting services
105 Personalized Catalog Module License [**]
106 Parametric Catalog Module License [**]
107 LiveCommerce Development License [**]
LiveCommerce Capacity Factors
108 Additional LiveCommerce Catalog Server (standard = 1) [**]
109 Additional 5,000 catalog items (standard = 5,000) [**]
</TABLE>
48
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
<TABLE>
<CAPTION>
ITEM NUMBER LIST List
Item # DESCRIPTION Price/Unit
CSP TRANSACT
CSP Transact Base License
<S> <C>
1 CSP Transact License [**]
Includes all Standard Payment Modules, all Fulfillment Modules, the SecureLink SDK, English
Language Module and the Customer's local language Module (where available)
2 Niche CSP Transact License [**]
Includes one Standard Payment Module, one Fulfillment Module, the SecureLink SDK (for up
to 100 merchants), the English Language Module and the Customer's local Language Module
(where available)
CSP Transact Standard Payment Modules (Included with CSP License, 1 at no additional charge with
NicheCSP)
4 Purchase Order Module License [**]
5 FDC Payment Module License [**]
6 First USA Payment Module License [**]
7 Toronto Dominion Payment Module License [**]
CSP Transact Standard Fulfillment Modules (Included with CSP License, 1 at no
additional charge with NicheCSP)
9 Physical Goods Module License [**]
10 Digital Goods Module License [**]
11 Subscriptions Module License [**]
CSP Transact Language Modules (Not Currently Available)
CSP Transact SDKs (internal use only)
12 Payment SDK License [**]
13 Fulfillment SDK License [**]
14 Order Entry SDK License [**]
CSP Transact Optional Software
15 CSP Transact Fax Module License [**]
16 CSP Transact SalesTax Module License* [**]
*Additional fees of $20/month/state of taxable presence/merchant
apply to all customers purchasing the Sales Tax Module
CSP Transact Development Licenses
23 CSP Transact Unlimited Development License [**]
</TABLE>
49
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
<TABLE>
<S> <C>
CSP Transact Miscellaneous
28 Merchant License Prepay
29 Tier 1a Merchant License/year (up to $30,000 in transaction revenue/year) [**]
30 Tier 1 Merchant License/year (up to $60,000 in transaction revenue/year) [**]
31 Tier 2 Merchant License/year (up to $400,000 in transaction revenue/year) [**]
32 Tier 3 Merchant License/year (up to $2,000,000 in transaction revenue/year) [**]
33 Tier 4 Merchant License/year (over $2,000,000 in transaction revenue/year) [**]
34 Upgrade from Niche to Full CSP [**]
CSP ShopSite (contact Neil Costa for pricing)
35 ShopSite TX License (Express)
36 ShopSite TX License (Lite)
37 ShopSite TX License (Manager)
38 ShopSite TX License (Pro)
39 ShopSite TX License (Express) & Merchant License Bundle
40 ShopSite TX License (Lite) & Merchant License Bundle
41 ShopSite TX License (Manager) & Merchant License Bundle
42 ShopSite TX License (Pro) & Merchant License Bundle
CORPORATE TRANSACT (Modular Pricing)
Corporate Transact Base Licenses
Includes the SecureLink SDK, English Language Module, the customer's local
Language Module (where available), on-site installation services and one seat
in Transact Administration Training
43 Base Commerce System: Physical [**]
44 Base Commerce System: Digital [**]
45 Base Commerce System: Subscriptions [**]
Corporate Transact Language Modules (Not Currently Available)
Corporate Transact Capacity Factors
46 Additional Transact "StoreId" (standard = 1) [**]
47 Additional Transact Download Server (standard = 1)
$5,000
Corporate Transact Recurring Fees
48 Additional subscribers (standard = 5,000) [**] of
subscription value/year
49 Additional 100,000 transactions/year (standard = 100,000/year) [**]/year
Corporate Transact Basic Add-on Modules
50 VAT Module License [**]
51 US/Canada SalesTax Module (TaxWare) License* [**]
*Additional fees of $20/month/state of taxable presence/merchant apply to all customers
purchasing the SalesTax Module.
52 Fax Module License [**]
Corporate Transact Real-time Credit Card Payment Modules
53 FDC Payment Module License [**]
54 First USA Payment Module License [**]
55 Toronto Dominion Payment Module License [**]
</TABLE>
50
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
Corporate Transact Advanced Add-on Modules
<TABLE>
<S> <C>
56 Digital Coupons Module License [**]
57 Advanced Customer Service Module License [**]
58 Microtransactions Module License [**]
59 Customer Registration Module License [**]
Corporate Transact Add-on Fulfillment Modules
60 Physical Goods Module License [**]
61 Digital Goods Module License [**]
62 Subscriptions Module License [**]
Corporate Transact SDKs (internal use only)
63 Payment SDK [**]
64 Fulfillment SDK [**]
65 Order Entry SDK [**]
Corporate Transact Upgrades
66 Upgrade from Corporate License to Niche CSP [**]
67 Upgrade from Corporate License to Full CSP [**]
Corporate Transact Development Licenses
76 Corporate Transact Development License [**]
TRANSACT DOCUMENTS
101 Additional Transact/SecureLink Doc Set [**]
102 Additional Fulfillment API Guide [**]
103 Additional Payment API Guide [**]
LIVE COMMERCE (Modular Pricing)
LiveCommerce Base System and Add-on Modules
104 LiveCommerce Base Catalog System [**]
Includes one seat in LiveCommerce Training and Quick Start consulting services
105 Personalized Catalog Module License [**]
106 Parametric Catalog Module License [**]
107 LiveCommerce Development License [**]
LiveCommerce Capacity Factors
108 Additional LiveCommerce Catalog Server (standard = 1) [**]
109 Additional 5,000 catalog items (standard = 5,000) [**]
</TABLE>
51
<PAGE>
EXHIBIT 16
NOTICES
1. Send notices to ABSB to:
ABSB, L.C.
Attn: Bradley D. Pelo, President
5072 North 300 West
Provo, UT 84604
With a copy to:
William L. Fillmore, Esquire
Fillmore Belliston & Israelsen, LC
4692 North 300 West, Suite 200
Provo, Utah 84604
2. Send notices to OPEN MARKET to:
Open Market, Inc.
1 Wayside Road
Burlington, MA 01803
Attn: Legal Counsel
52
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 0 15,961
<SECURITIES> 0 14,694
<RECEIVABLES> 0 28,173
<ALLOWANCES> 0 2,744
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 59,468
<PP&E> 0 27,069
<DEPRECIATION> 0 13,363
<TOTAL-ASSETS> 0 85,085
<CURRENT-LIABILITIES> 0 29,632
<BONDS> 0 2,720
0 0
0 0
<COMMON> 0 36
<OTHER-SE> 0 52,967
<TOTAL-LIABILITY-AND-EQUITY> 0 85,085
<SALES> 12,790 22,865
<TOTAL-REVENUES> 18,550 34,146
<CGS> 844 1,479
<TOTAL-COSTS> 5,241 9,780
<OTHER-EXPENSES> 15,229 29,481
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 171 310
<INCOME-PRETAX> (1,823) (5,020)
<INCOME-TAX> 102 145
<INCOME-CONTINUING> (1,925) (5,165)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,925) (5,165)
<EPS-BASIC> (0.05) (0.14)
<EPS-DILUTED> (0.05) (0.14)
</TABLE>
