AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
FTP SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
MASSACHUSETTS 7372 04-2906463
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
100 BRICKSTONE SQUARE, FIFTH FLOOR, ANDOVER, MASSACHUSETTS 01810,
(508) 685-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DOUGLAS F. FLOOD, ESQ.
100 BRICKSTONE SQUARE, FIFTH FLOOR, ANDOVER, MASSACHUSETTS 01810,
(508) 685-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
DAVID B. WALEK, ESQ. DIANE HOLT FRANKLE, ESQ.
ROPES & GRAY GRAY CARY WARE & FREIDENRICH
ONE INTERNATIONAL PLACE A PROFESSIONAL CORPORATION
BOSTON, MASSACHUSETTS 02110 400 HAMILTON AVENUE
PALO ALTO, CALIFORNIA 94301
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: At the effective time of the merger of a wholly-owned subsidiary of
the Registrant with and into Firefox Communications Inc., which shall occur as
soon as practicable after the effective date of this Registration Statement
and the satisfaction or waiver of all conditions to closing of such merger as
described in the enclosed Joint Proxy Statement/Prospectus.
----------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER UNIT(2) PRICE(3) FEE(4)
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Common Stock, $.01 par
value................. 7,650,000 shares $ $65,025,000 $0
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(1) Represents estimated maximum number of shares of FTP common stock issuable
in the merger.
(2) Not applicable.
(3) Estimated pursuant to Rule 457(f)(1), solely for the purpose of
calculating the registration fee, based upon 7,650,000 shares of FTP
common stock being issued upon conversion of Firefox common stock using
the average high and low prices of FTP common stock of $8.50 per share as
reported on the Nasdaq National Market on June 24, 1996.
(4) In accordance with Rule 457(b), the registration fee paid herewith has
been reduced by $22,459.44, which is the amount of the fee previously paid
in connection with the Preliminary Proxy Statement on Schedule 14A filed
with the Commission on March 27, 1996.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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FTP SOFTWARE, INC.
CROSS REFERENCE SHEET FURNISHED PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING HEADING OR LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN
PART I OF FORM S-4
LOCATION IN JOINT PROXY
ITEM NO. TITLE OF FORM S-4 ITEM STATEMENT/PROSPECTUS
-------- ---------------------- -----------------------
A. INFORMATION ABOUT THE TRANSACTION
Item 1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus... Outside Front Cover
Item 2. Inside Front and Outside
Back Cover Pages of
Prospectus................. Available Information; Table of Contents
Item 3. Risk Factors, Ratio of
Earnings to Fixed Charges
and Other Information...... Summary; Risk Factors; The Merger and
Related Transactions; Unaudited Pro
Forma Consolidated Financial
Statements
Item 4. Terms of the Transaction.... Summary; The Merger and Related
Transactions; Comparison of Rights of
Stockholders of FTP and Firefox
Item 5. Pro Forma Financial
Information................ Summary; Unaudited Pro Forma
Consolidated Financial Statements
Item 6. Material Contracts with the
Company Being Acquired..... Summary; The Merger and Related
Transactions
Item 7. Additional Information
Required for the Reoffering
by Persons and Parties
Deemed to be Underwriters.. Not Applicable
Item 8. Interests of Named Experts
and Counsel................ Not Applicable
Item 9. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................ Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
Item 10. Information with Respect to
S-3 Registrants............ Not Applicable
Item 11. Incorporation of Certain
Information by Reference... Not Applicable
Item 12. Information with Respect to
S-2 or S-3 Registrants..... Available Information; Summary;
Unaudited Pro Forma Consolidated
Financial Statements; Comparative Per
Share Market Price Data; Selected
Historical Financial Data;
Information Regarding FTP; FTP
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Description of FTP
Capital Stock; Financial Statements
of FTP
Item 13. Incorporation of Certain
Information by Reference... Not Applicable
Item 14. Information with Respect to
Registrants Other Than S-3
or S-2 Registrants......... Not Applicable
LOCATION IN JOINT PROXY
ITEM NO. TITLE OF FORM S-4 ITEM STATEMENT/PROSPECTUS
-------- ---------------------- -----------------------
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
Item 15. Information with Respect to S-3
Companies..................... Not Applicable
Item 16. Information with Respect to S-2
or S-3 Companies.............. Not Applicable
Item 17. Information with Respect to
Companies Other Than S-3 or S-
2 Companies................... Available Information; Summary;
Selected Historical Financial Data;
Information Regarding Firefox;
Firefox Management's Discussion and
Analysis of Financial Condition and
Results of Operations
D. VOTING AND MANAGEMENT INFORMATION
Item 18. Information if Proxies,
Consents or Authorizations Are
to be Solicited............... Summary; The FTP Meeting; The Firefox
Meeting; The Merger and Related
Transactions; Management of FTP;
Certain Transactions; FTP Stock
Ownership; Firefox Stock Ownership
Item 19. Information if Proxies,
Consents or Authorizations Are
Not to be Solicited or in an
Exchange Offer................ Not Applicable
FTP SOFTWARE, INC.
100 BRICKSTONE SQUARE, FIFTH FLOOR
ANDOVER, MASSACHUSETTS 01810
June 26, 1996
Dear Stockholder:
A Special Meeting of Stockholders (the "Special Meeting") of FTP Software,
Inc. ("FTP") will be held at the Andover Country Club, 60 Canterbury Street,
Andover, Massachusetts 01810, on July 22, 1996, at 11:00 a.m., local time.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve the issuance of the shares of the common stock, par value
$.01 per share, of FTP ("FTP Common Stock"), issuable pursuant to the Amended
and Restated Agreement and Plan of Merger dated as of May 21, 1996 (as amended
and restated, the "Merger Agreement") among FTP, Firefox Acquisition Corp., a
wholly-owned subsidiary of FTP and a Delaware corporation ("Sub"), and Firefox
Communications Inc., a Delaware corporation ("Firefox"), which sets forth the
terms of a proposed merger of Sub with and into Firefox (the "Merger"). If the
conditions to the Merger are satisfied and the Merger becomes effective:
(i) Firefox will become a wholly-owned subsidiary of FTP;
(ii) each share of Firefox common stock, $0.001 par value per share
("Firefox Common Stock"), issued and outstanding immediately prior to the
effective time of the Merger (the "Outstanding Firefox Shares"), excluding
shares owned by holders who have properly exercised their rights of
appraisal within the meaning of Section 262 of the Delaware General
Corporation Law ("Dissenting Shares"), shall be converted into the right to
receive (A) that number of shares of FTP Common Stock which equals the
amount obtained by dividing (x) $50,000,000 divided by the number of
Outstanding Firefox Shares by (y) the average closing price of the FTP
Common Stock as quoted on the Nasdaq National Market for the 10 trading
days immediately preceding the date of the special meeting of Firefox
stockholders called for the purpose of voting upon the Merger Agreement and
the Merger (the "Average Price") (the "Exchange Ratio"), subject to the
provisions in the Merger Agreement relating to fractional shares, and (B)
cash in the amount of $10,000,000 divided by the number of Outstanding
Firefox Shares (the "Cash Payment"), subject to adjustment as described
below; and
(iii) each then outstanding option to purchase Firefox Common Stock
granted under certain Firefox employee and director stock option plans
shall be deemed assumed by FTP and deemed to constitute an option to
acquire the number (rounded down to the nearest whole number) of shares of
FTP Common Stock equal to the aggregate of (A) that number of shares of FTP
Common Stock (based on the Exchange Ratio) as the holder of such option
would have been entitled to receive pursuant to the Merger had such holder
exercised such option in full immediately prior to the effective time of
the Merger (the "Effective Time") (not taking into account whether or not
such option was in fact exercisable) plus (B) that number of additional
shares of FTP Common Stock calculated by dividing (x) the aggregate Cash
Payment that the holder of such option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full
immediately prior to the Effective Time (not taking into account whether or
not such option was in fact exercisable) by (y) the Average Price. The
exercise price for each such option shall be the price per share equal to
(i) the aggregate exercise price of the shares of Firefox Common Stock
otherwise purchasable pursuant to such option divided by (ii) the number of
shares of FTP Common Stock deemed purchasable pursuant to such option.
The Exchange Ratio will be subject to adjustment as follows: (i) if the
Average Price of one share of FTP Common Stock is greater than $12.00, then
the Average Price shall be deemed to be $12.00, and (ii) if the Average Price
of one share of FTP Common Stock is less than $8.00, then the Average Price
shall be deemed to be $8.00. If the Average Price is less than $8.00 per share
or greater than $12.00 per share, the number of shares of FTP Common Stock
exchanged for shares of Firefox Common Stock pursuant to the Merger will be
6,250,000
or 4,166,666, respectively. If the mean of the high and low sales prices of
one share of FTP Common Stock as quoted on the Nasdaq National Market on the
day of the Effective Time (or if the Effective Time is not a trading day, on
the trading day immediately preceding the Effective Time) (the "Effective Time
Closing Price") is less than $7.00 per share, each Outstanding Firefox Share
shall be entitled to receive that number of additional shares of FTP Common
Stock equal to (i) the amount obtained by dividing (A) the difference between
$7.00 and the Effective Time Closing Price by (B) $7.00, multiplied by (ii)
(A) $10,000,000 divided by (B) the number of Outstanding Firefox Shares,
divided by (iii) the Effective Time Closing Price (such number of additional
shares of FTP Common Stock being referred to as the "Share Adjustment
Factor"), and the Cash Payment applicable to each Outstanding Firefox Share
shall be reduced by an amount equal to the product of (x) the Share Adjustment
Factor multiplied by (y) the Effective Time Closing Price. The purpose of the
adjustment to the aggregate amount of shares and the cash payment to be
received described in the preceding sentence is to preserve the status of the
Merger as a tax-free reorganization for United States federal income tax
purposes in the event that the Effective Time Closing Price of the FTP Common
Stock falls below $7.00 per share by assuring that at least 80% of the value
of the consideration to be issued in the Merger will be in the form of FTP
Common Stock. If the requisite approvals of the stockholders of FTP and
Firefox are received, the Merger is expected to be consummated on or about
July 18, 1996 or as soon thereafter as practicable after all conditions to the
closing of the Merger have been satisfied.
All of the current members of the Board of Directors of FTP are expected to
continue to be members of the Board of Directors of FTP after the Merger, and
I will continue in my current position as Chief Executive Officer of FTP. A
condition of the Merger is that John A. Kimberley, currently the President and
Chief Executive Officer and a Director of Firefox, be elected as a Director of
FTP effective immediately following the Merger.
After careful consideration, your Board of Directors has unanimously
approved the issuance of the shares of FTP Common Stock be issued pursuant to
the Merger and has concluded that such issuance is in the best interests of
FTP and its stockholders. Your Board of Directors unanimously recommends a
vote in favor of the issuance of the shares of FTP Common Stock to be issued
pursuant to the Merger.
In the materials accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
action to be taken by FTP stockholders at the Special Meeting (as well as the
action to be taken by the Firefox stockholders at the Firefox special meeting)
and a proxy. The Joint Proxy Statement/Prospectus more fully describes the
proposed Merger and includes information about FTP and Firefox.
All stockholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, PLEASE
COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE. If you attend the Special Meeting, you may vote in person if you
wish, even though you have previously returned your proxy. It is important
that your shares be represented and voted at the Special Meeting.
Sincerely,
David H. Zirkle
Chief Executive Officer
2
FTP SOFTWARE, INC.
100 BRICKSTONE SQUARE, FIFTH FLOOR
ANDOVER, MASSACHUSETTS 01810!@AB
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
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To Our Stockholders:
A Special Meeting of Stockholders (the "Special Meeting") of FTP Software,
Inc., a Massachusetts corporation ("FTP"), will be held at 11:00 a.m., local
time, on July 22, 1996 at the Andover Country Club, 60 Canterbury Street,
Andover, Massachusetts for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of the
shares of the common stock, par value $.01 per share, of FTP ("FTP Common
Stock"), issuable pursuant to an Amended and Restated Agreement and Plan of
Merger dated as of May 21, 1996 (as amended and restated, the "Merger
Agreement") among FTP, Firefox Communications Inc., a Delaware corporation
("Firefox"), and Firefox Acquisition Corp., a wholly-owned subsidiary of FTP
and a Delaware corporation ("Sub"), which sets forth the terms of a proposed
merger of Sub with and into Firefox (the "Merger"), whereby, among other
things,
(a) Firefox will survive the Merger and become a wholly-owned subsidiary
of FTP;
(b) each share of Firefox common stock, $.001 par value per share
("Firefox Common Stock"), issued and outstanding immediately prior to the
effective time of the Merger (the "Outstanding Firefox Shares"), excluding
shares owned by holders who have properly exercised their rights of
appraisal within the meaning of Section 262 of the Delaware General
Corporation Law ("Dissenting Shares"), shall be converted into the right to
receive (i) that number of shares of FTP Common Stock which equals the
amount obtained by dividing (x) $50,000,000 divided by the number of
Outstanding Firefox Shares by (y) the average closing price of the FTP
Common Stock as quoted on the Nasdaq National Market for the 10 trading
days immediately preceding the date of the special meeting of Firefox
stockholders called for the purpose of voting upon the Merger Agreement and
the Merger (the "Average Price") (the "Exchange Ratio"), subject to the
provisions in the Merger Agreement relating to fractional shares, and (ii)
cash in the amount of $10,000,000 divided by the number of Outstanding
Firefox Shares (the "Cash Payment"), subject to adjustment as described
below; and
(c) each outstanding option to purchase Firefox Common Stock granted
under certain Firefox employee and director stock option plans will be
deemed assumed by FTP and deemed to constitute an option to acquire the
number of shares of FTP Common Stock (rounded down to the nearest whole
number) equal to the aggregate of (i) that number of shares of FTP Common
Stock (based on the Exchange Ratio) as the holder of such option would have
been entitled to receive pursuant to the Merger had such holder exercised
such option in full immediately prior to the effective time of the Merger
(the "Effective Time") (not taking into account whether or not such option
was in fact exercisable) plus (ii) that number of additional shares of FTP
Common Stock calculated by dividing (A) the aggregate Cash Payment that the
holder of such option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to
the Effective Time (not taking into account whether or not such option was
in fact exercisable) by (B) the Average Price. The exercise price for each
such option shall be the price per share equal to (x) the aggregate
exercise price of the shares of Firefox Common Stock otherwise purchasable
pursuant to such option divided by (y) the number of shares of FTP Common
Stock deemed purchasable pursuant to such option.
The Exchange Ratio will be subject to adjustment as follows: (i) if the
Average Price of one share of FTP Common Stock is greater than $12.00, then
the Average Price shall be deemed to be $12.00, and (ii) if the Average Price
of one share of FTP Common Stock is less than $8.00, then the Average Price
shall be deemed to
be $8.00. If the mean of the high and low sales prices of one share of FTP
Common Stock as quoted on the Nasdaq National Market on the day of the
Effective Time (or if the Effective Time is not a trading day, on the trading
day immediately preceding the Effective Time) (the "Effective Time Closing
Price") is less than $7.00 per share, each Outstanding Firefox Share shall be
entitled to receive that number of additional shares of FTP Common Stock equal
to (i) the amount obtained by dividing (A) the difference between $7.00 and
the Effective Time Closing Price by (B) $7.00, multiplied by (ii) (A)
$10,000,000 divided by (B) the number of Outstanding Firefox Shares, divided
by (iii) the Effective Time Closing Price (such number of additional shares of
FTP Common Stock being referred to as the "Share Adjustment Factor"), and the
Cash Payment applicable to each Outstanding Firefox Share shall be reduced by
an amount equal to the product of (i) the Share Adjustment Factor multiplied
by (ii) the Effective Time Closing Price.
2. To transact such other business as may properly come before the Special
Meeting or any postponements or adjournments thereof.
The foregoing items of business are more fully described in the Joint Proxy
Statement/Prospectus accompanying this Notice.
Only stockholders of record of FTP Common Stock at the close of business on
June 13, 1996 are entitled to notice of and to vote at the Special Meeting and
any postponements or adjournments thereof. A majority of the shares of FTP
Common Stock outstanding on the record date for the Special Meeting must be
represented at the Special Meeting, in person or by proxy, to constitute a
quorum for the transaction of business. Approval of the issuance of the shares
of FTP Common Stock to be issued pursuant to the Merger will require the
affirmative vote of the holders of a majority of the outstanding shares of FTP
Common Stock entitled to vote and present, in person or by proxy, at the
Special Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
_____________________________________
Douglas F. Flood
Clerk
Andover, Massachusetts
June 26, 1996
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, YOU ARE
URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN
THE POSTAGE PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME
BEFORE IT IS VOTED.
2
FIREFOX COMMUNICATIONS INC.
2953 BUNKER HILL LANE, SUITE 400
SANTA CLARA, CALIFORNIA 95054
June 26, 1996
Dear Stockholder:
A Special Meeting of Stockholders (the "Special Meeting") of Firefox
Communications Inc. ("Firefox") will be held at 2953 Bunker Hill Lane, Suite
400, Santa Clara, California 95054, on July 22, 1996, at 9:00 a.m., local
time.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve an Amended and Restated Agreement and Plan of Merger dated
as of May 21, 1996 (as amended and restated, the "Merger Agreement"), among
FTP Software, Inc., a Massachusetts corporation ("FTP"), Firefox and Firefox
Acquisition Corp., a wholly-owned subsidiary of FTP and a Delaware corporation
("Sub"), and the merger of Sub with and into Firefox (the "Merger"). If the
conditions to the Merger are satisfied and the Merger becomes effective:
(i) Firefox will become a wholly-owned subsidiary of FTP;
(ii) each share of Firefox common stock, $.001 par value per share
("Firefox Common Stock") issued and outstanding immediately prior to the
effective time of the Merger (the "Outstanding Firefox Shares"), excluding
shares owned by holders who have properly exercised their rights of
appraisal within the meaning of Section 262 of the Delaware General
Corporation Law ("Dissenting Shares"), shall be converted into the right to
receive (A) that number of shares of FTP Common Stock which equals the
amount obtained by dividing (x) $50,000,000 divided by the number of
Outstanding Firefox Shares by (y) the average closing price of the FTP
Common Stock as quoted on the Nasdaq National Market for the 10 trading
days immediately preceding the date of the Special Meeting (the "Average
Price") (the "Exchange Ratio"), subject to the provisions in the Merger
Agreement relating to fractional shares, and (B) cash in the amount of
$10,000,000 divided by the number of Outstanding Firefox Shares (the "Cash
Payment"), subject to adjustment as described below; and
(iii) each then outstanding option to purchase Firefox Common Stock
granted under certain Firefox employee and director stock option plans
shall be deemed assumed by FTP and deemed to constitute an option to
acquire the number (rounded down to the nearest whole number) of shares of
FTP Common Stock equal to the aggregate of (A) that number of shares of FTP
Common Stock (based on the Exchange Ratio) as the holder of such option
would have been entitled to receive pursuant to the Merger had such holder
exercised such option in full immediately prior to the effective time of
the Merger (the "Effective Time") (not taking into account whether or not
such option was in fact exercisable) plus (B) that number of additional
shares of FTP Common Stock calculated by dividing (x) the aggregate Cash
Payment that the holder of such option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full
immediately prior to the Effective Time (not taking into account whether or
not such option was in fact exercisable) by (y) the Average Price. The
exercise price for each such option shall be the price per share equal to
(i) the aggregate exercise price of the shares of Firefox Common Stock
otherwise purchasable pursuant to such option divided by (ii) the number of
shares of FTP Common Stock deemed purchasable pursuant to such option.
The Exchange Ratio will be subject to adjustment as follows: (i) if the
Average Price of one share of FTP Common Stock is greater than $12.00, then
the Average Price shall be deemed to be $12.00, and (ii) if the Average Price
of one share of FTP Common Stock is less than $8.00, then the Average Price
shall be deemed to be $8.00. If the Average Price is less than $8.00 per share
or greater than $12.00 per share, the number of shares of FTP Common Stock
exchanged for shares of Firefox Common Stock pursuant to the Merger will be
6,250,000 or 4,166,666, respectively. If the mean of the high and low sales
prices of one share of FTP Common Stock as quoted on the Nasdaq National
Market on the day of the Effective Time (or if the Effective Time is not a
trading day, on the trading day immediately preceding the Effective Time) (the
"Effective Time Closing Price") is less
than $7.00 per share, each Outstanding Firefox Share shall be entitled to
receive that number of additional shares of FTP Common Stock equal to (i) the
amount obtained by dividing (A) the difference between $7.00 and the Effective
Time Closing Price by (B) $7.00, multiplied by (ii) (A) $10,000,000 divided by
(B) the number of Outstanding Firefox Shares, divided by (iii) the Effective
Time Closing Price (such number of additional shares of FTP Common Stock being
referred to as the "Share Adjustment Factor"), and the Cash Payment applicable
to each Outstanding Firefox Share shall be reduced by an amount equal to the
product of (x) the Share Adjustment Factor multiplied by (y) the Effective
Time Closing Price. The purpose of the adjustment to the aggregate amount of
shares and the Cash Payment to be received described in the preceding sentence
is to preserve the status of the Merger as a tax-free reorganization for
United States federal income tax purposes in the event that the Effective Time
Closing Price of the FTP Common Stock falls below $7.00 per share by assuring
that at least 80% of the value of the consideration to be issued in the Merger
will be in the form of FTP Common Stock.
Firefox stockholders may call 800-322-2885 at any time prior to the date of
the Special Meeting for current information concerning the Average Price,
Exchange Ratio and Cash Payment.
If the requisite approvals of the stockholders of Firefox and FTP are
received, the Merger is expected to be consummated on or about July 18, 1996
or as soon thereafter as practicable after all conditions to the closing of
the Merger have been satisfied. Effective immediately following the Merger, I
will join the Board of Directors of FTP. The current members of FTP's Board
are expected to continue to serve as Directors of FTP following the Merger.
David H. Zirkle, currently the Chief Executive Officer and Chairman of the
Board of FTP, will continue in that position.
Your Board of Directors has carefully considered the terms and conditions of
the proposed Merger and has unanimously determined that the Merger is fair and
in the best interests of Firefox and its stockholders. The Board has
unanimously approved the Merger and the Merger Agreement and recommends a vote
in favor of the Merger and the Merger Agreement.
In the materials accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
action to be taken by Firefox stockholders at the Special Meeting (as well as
the action to be taken by the FTP stockholders at their special meeting called
for the purpose of voting on the issuance of the shares of FTP Common Stock to
be issued pursuant to the Merger) and a proxy. The Joint Proxy
Statement/Prospectus more fully describes the proposed Merger and includes
information about Firefox and FTP and the reasons for the Merger.
All stockholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, PLEASE
COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. If you
attend the Special Meeting, you may vote in person if you wish, even though
you have previously returned your proxy. It is important that your shares be
represented and voted at the Special Meeting.
Sincerely,
John A. Kimberley
President and Chief Executive
Officer
2
FIREFOX COMMUNICATIONS INC.
2953 BUNKER HILL LANE, SUITE 400
SANTA CLARA, CALIFORNIA 95054
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
----------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Firefox Communications Inc., a Delaware corporation ("Firefox"),
will be held at 2953 Bunker Hill Lane, Suite 400, Santa Clara, California
95054, on July 22, 1996, at 9:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an Amended and
Restated Agreement and Plan of Merger dated as of May 21, 1996 (as amended and
restated, the "Merger Agreement"), among FTP Software, Inc., a Massachusetts
corporation ("FTP"), Firefox and Firefox Acquisition Corp., a wholly-owned
subsidiary of FTP ("Sub"), providing for the merger of Sub with and into
Firefox (the "Merger"), whereby, among other things,
(a) Firefox will survive the Merger and become a wholly-owned subsidiary
of FTP;
(b) each share of Firefox common stock, $.001 par value per share
("Firefox Common Stock"), issued and outstanding immediately prior to the
effective time of the Merger (the "Outstanding Firefox Shares"), excluding
shares owned by holders who have properly exercised their rights of
appraisal within the meaning of Section 262 of the Delaware General
Corporation Law ("Dissenting Shares"), shall be converted into the right to
receive (i) that number of shares of FTP Common Stock which equals the
amount obtained by dividing (x) $50,000,000 divided by the number of
Outstanding Firefox Shares by (y) the average closing price of the FTP
Common Stock as quoted on the Nasdaq National Market for the 10 trading
days immediately preceding the date of the Special Meeting (the "Average
Price") (the "Exchange Ratio"), subject to the provisions in the Merger
Agreement relating to fractional shares, and (ii) cash in the amount of
$10,000,000 divided by the number of Outstanding Firefox Shares (the "Cash
Payment"), subject to adjustment as described below; and
(c) each outstanding option to purchase Firefox Common Stock granted
under certain Firefox employee and director stock option plans will be
deemed assumed by FTP and deemed to constitute an option to acquire that
number of shares of FTP Common Stock (rounded down to the nearest whole
number) equal to the aggregate of (i) that number of shares of FTP Common
Stock (based on the Exchange Ratio) as the holder of such option would have
been entitled to receive pursuant to the Merger had such holder exercised
such option in full immediately prior to the effective time of the Merger
(the "Effective Time") (not taking into account whether or not such option
was in fact exercisable) plus (ii) that number of additional shares of FTP
Common Stock calculated by dividing (A) the aggregate Cash Payment that the
holder of such option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to
the Effective Time (not taking into account whether or not such option was
in fact exercisable) by (B) the Average Price. The exercise price for such
options shall be the price per share equal to (x) the aggregate exercise
price of the shares of Firefox Common Stock otherwise purchasable pursuant
to such option divided by (y) the number of shares of FTP Common Stock
deemed purchasable pursuant to such option.
The Exchange Ratio will be subject to adjustment as follows: (i) if the
Average Price of one share of FTP Common Stock is greater than $12.00, then
the Average Price shall be deemed to be $12.00, and (ii) if the Average Price
of one share of FTP Common Stock is less than $8.00, then the Average Price
shall be deemed to be $8.00. If the mean of the high and low sales prices of
one share of FTP Common Stock as quoted on the Nasdaq National Market on the
day of the Effective Time (or if the Effective Time is not a trading day, on
the trading day immediately preceding the Effective Time) (the "Effective Time
Closing Price") is less than $7.00 per share, each Outstanding Firefox Share
shall be entitled to receive that number of additional shares of
FTP Common Stock equal to (i) the amount obtained by dividing (A) the
difference between $7.00 and the Effective Time Closing Price by (B) $7.00,
multiplied by (ii) (A) $10,000,000 divided by (B) the number of Outstanding
Firefox Shares, divided by (iii) the Effective Time Closing Price (such number
of additional shares of FTP Common Stock being referred to as the "Share
Adjustment Factor"), and the Cash Payment applicable to each Outstanding
Firefox Share shall be reduced by an amount equal to the product of (i) the
Share Adjustment Factor multiplied by (ii) the Effective Time Closing Price.
2. To transact such other business as may properly come before the Special
Meeting or any postponements or adjournments thereof.
The Merger is more fully described in, and the Merger Agreement is annexed
in its entirety to, the Joint Proxy Statement/Prospectus accompanying this
Notice.
Only stockholders of record of Firefox at the close of business on June 14,
1996 are entitled to notice of and to vote at the Special Meeting or any
postponements or adjournments thereof. A majority of the outstanding shares of
Firefox Common Stock entitled to vote must be represented at the Special
Meeting, in person or by proxy, to constitute a quorum for the transaction of
business. Approval of the Merger Agreement and the Merger will require the
affirmative vote of the holders of a majority of the outstanding shares of
Firefox Common Stock entitled to vote thereon.
BY ORDER OF THE BOARD OF DIRECTORS
_____________________________________
Mark A. Rowlinson
Secretary
San Jose, California
June 26, 1996
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, YOU ARE
URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN
THE POSTAGE PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME
BEFORE IT IS VOTED. PLEASE DO NOT SEND ANY STOCK CERTIFICATES WITH THE
ENCLOSED PROXY CARD.
2
JOINT PROXY STATEMENT/PROSPECTUS
[FTP LOGO] [FIREFOX LOGO]
---------------
FTP SOFTWARE, INC.
PROSPECTUS
COMMON STOCK, $0.01 PAR VALUE
---------------
This Joint Proxy Statement/Prospectus is being furnished to the stockholders
of FTP Software, Inc., a Massachusetts corporation ("FTP"), in connection with
the solicitation of proxies by the FTP Board of Directors for use at a Special
Meeting of FTP stockholders (the "FTP Meeting") to be held at 11:00 a.m.,
local time, on July 22, 1996, at the Andover Country Club, Andover,
Massachusetts 01810, and at any adjournments or postponements of the FTP
Meeting.
This Joint Proxy Statement/Prospectus is also being furnished to the
stockholders of Firefox Communications Inc., a Delaware corporation
("Firefox"), in connection with the solicitation of proxies by the Firefox
Board of Directors for use at a Special Meeting of Firefox stockholders (the
"Firefox Meeting") to be held at 9:00 a.m., local time, on July 22, 1996, at
Firefox's corporate headquarters, 2953 Bunker Hill Lane, Suite 400, Santa
Clara, California 95054, and at any adjournments or postponements of the
Firefox Meeting.
This Joint Proxy Statement/Prospectus constitutes the Prospectus of FTP for
use in connection with the offer and issuance of shares of common stock of
FTP, $.01 par value per share ("FTP Common Stock"), pursuant to the merger
(the "Merger") of Firefox Acquisition Corp., a wholly-owned subsidiary of FTP
and a Delaware corporation ("Sub"), with and into Firefox that is proposed to
be entered into in accordance with an Amended and Restated Agreement and Plan
of Merger dated as of May 21, 1996 among FTP, Firefox and Sub, a copy of which
is attached hereto as Appendix A (the "Merger Agreement"). As a result of the
Merger, Firefox will become a wholly-owned subsidiary of FTP. Upon the
consummation of the Merger (the date and time that the Merger is consummated
are referred to herein as the "Effective Time"), (a) each share of common
stock of Firefox, $.001 par value per share ("Firefox Common Stock"), issued
and outstanding immediately prior to the Effective Time (the "Outstanding
Firefox Shares"), excluding shares owned by holders who have properly
exercised their rights of appraisal within the meaning of Section 262 of the
Delaware General Corporation Law ("DGCL") ("Dissenting Shares"), shall be
converted into the right to receive (i) that number of shares of FTP Common
Stock which equals the amount obtained by dividing (x) $50,000,000 divided by
the number of Outstanding Firefox Shares by (y) the average closing price of
the FTP Common Stock as quoted on the Nasdaq National Market for the 10
trading days immediately preceding the date of the Firefox Meeting (the
"Average Price") (the "Exchange Ratio"), subject to the provisions in the
Merger Agreement relating to fractional shares, and (ii) cash in the amount of
$10,000,000 divided by the number of Outstanding Firefox Shares (the "Cash
Payment"), subject to adjustment as described below, and (b) each outstanding
option to purchase Firefox Common Stock granted under certain Firefox employee
and director stock option plans will be deemed assumed by FTP and deemed to
constitute an option to acquire the number of shares of FTP Common Stock
(rounded down to the nearest whole number) equal to the aggregate of (i) that
number of shares of FTP Common Stock (based on the Exchange Ratio) as the
holder of such option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to the
Effective Time (not taking into account whether or not such option was in fact
exercisable) plus (ii) that number of additional shares of FTP Common Stock
calculated by dividing (A) the aggregate Cash Payment that the holder of such
option would have been entitled to receive pursuant to the Merger had such
holder exercised such option in full immediately prior to the Effective Time
(not taking into account whether or not such option was in fact exercisable)
by (B) the Average Price. The exercise price for each such option shall be the
price per share equal to (x) the aggregate exercise price of the shares of
Firefox Common Stock otherwise purchasable pursuant to such option divided by
(y) the number of shares of FTP Common Stock deemed purchasable pursuant to
such option.
The Exchange Ratio will be subject to adjustment as follows: (i) if the
Average Price of one share of FTP Common Stock is greater than $12.00, then
the Average Price shall be deemed to be $12.00, and (ii) if the Average Price
of one share of FTP Common Stock is less than $8.00, then the Average Price
shall be deemed to be $8.00. If the Average Price is less than $8.00 per share
or greater than $12.00 per share, the number of shares of FTP Common Stock
exchanged for shares of Firefox Common Stock pursuant to the Merger will be
6,250,000 or 4,166,666, respectively.
If the mean of the high and low sales prices of one share of FTP Common
Stock as quoted on the Nasdaq National Market on the day of the Effective Time
(or if the Effective Time is not a trading day, on the trading day immediately
preceding the Effective Time) (the "Effective Time Closing Price") is less
than $7.00 per share, each Outstanding Firefox Share shall be entitled to
receive that number of additional shares of FTP Common Stock equal to (i) the
amount obtained by dividing (A) the difference between $7.00 and the Effective
Time Closing Price by (B) $7.00, multiplied by (ii) (A) $10,000,000 divided by
(B) the number of Outstanding Firefox Shares, divided by (iii) the Effective
Time Closing Price (such number of additional shares of FTP Common Stock being
referred to as the "Share Adjustment Factor"), and the Cash Payment applicable
to each Outstanding Firefox Share shall be reduced by an amount equal to the
product of (i) the Share Adjustment Factor multiplied by (ii) the Effective
Time Closing Price. The purpose of the adjustment to the Cash Payment
described in the preceding sentence is to preserve the status of the Merger as
a tax-free reorganization for United States federal income tax purposes in the
event that the Effective Time Closing Price of the FTP Common Stock falls
below $7.00 per share by assuring that at least 80% of the value of the
consideration to be issued in the Merger will be in the form of FTP Common
Stock.
The following table sets forth information concerning the consideration that
each holder of a share of Firefox Common Stock will be entitled to receive
pursuant to the Merger based on the capitalization of each of Firefox and FTP
at June 14, 1996, the record date for the Firefox Meeting, and June 13, 1996,
the record date for the FTP Meeting, respectively, at assumed Average Prices of
$12.00, $10.00 and $8.00, and, for illustrative purposes only, includes an
example of the possible effect on such consideration if the Effective Time
Closing Price were to be less than $7.00 by using an assumed Effective Time
Closing Price of $6.00. The table also shows the total consideration to be paid
to Firefox stockholders pursuant to the Merger at such assumed Average Prices
and the percent of the total shares of FTP Common Stock outstanding after the
Merger to be held by Firefox stockholders.
PER SHARE MERGER CONSIDERATION TOTAL MERGER CONSIDERATION PERCENT OF FTP COMMON
-------------------------------------- ------------------------------- STOCK OUTSTANDING AFTER
ASSUMED NUMBER OF SHARES OF NUMBER OF SHARES OF THE MERGER HELD BY
AVERAGE PRICE FTP COMMON STOCK CASH FTP COMMON STOCK CASH FIREFOX STOCKHOLDERS
------------- ------------------- ---------------- ------------------- ----------- -----------------------
$12.00 .6186 $1.4847 4,166,666 $10,000,000 13.38%
$10.00 .7423 $1.4847 5,000,000 $10,000,000 15.64%
$8.00 .9279 $1.4847 6,250,000 $10,000,000 18.82%
PER SHARE MERGER CONSIDERATION TOTAL MERGER CONSIDERATION PERCENT OF FTP COMMON
ASSUMED -------------------------------------- ------------------------------- STOCK OUTSTANDING AFTER
EFFECTIVE TIME NUMBER OF SHARES OF NUMBER OF SHARES OF THE MERGER HELD BY
CLOSING PRICE FTP COMMON STOCK CASH FTP COMMON STOCK CASH FIREFOX STOCKHOLDERS
-------------- ------------------- ---------------- ------------------- ----------- -----------------------
$6.00 .9633 $1.2726 6,488,094 $8,571,432 19.39%
Firefox stockholders may call 800-322-2885 at any time prior to the date of
the Firefox Meeting for current information concerning the Average Price,
Exchange Ratio and Cash Payment.
At the FTP Meeting, stockholders of FTP will be asked to consider and vote
upon a proposal to approve the issuance of the shares of FTP Common Stock to be
issued pursuant to the Merger. FTP's Board of Directors has unanimously
approved and unanimously recommends that the FTP stockholders vote in favor of
this proposal. The affirmative vote of a majority of the shares of FTP Common
Stock entitled to vote and present, in person or by proxy, at the FTP Meeting
is required to approve this proposal. See "The FTP Meeting."
At the Firefox Meeting, stockholders of Firefox will be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement and approve the
Merger. Firefox's Board of Directors has unanimously approved and unanimously
recommends that the Firefox stockholders vote in favor of approval and adoption
of the Merger Agreement and approval of the Merger. The affirmative vote of the
holders of a majority of the outstanding shares of Firefox Common Stock
entitled to vote at the Firefox Meeting is required to approve the Merger
Agreement and the Merger. As of the Firefox Record Date, all executive officers
and directors of Firefox and their affiliates as a group beneficially owned
3,656,792 shares of Firefox Common Stock (approximately 54.3% of the shares of
Firefox Common Stock then outstanding), which represents a sufficient number of
Firefox shares to approve the Merger Agreement and Merger without additional
stockholder votes. Each of the executive officers and directors of Firefox has
advised Firefox that he or she intends to vote or direct the vote of all shares
of Firefox Common Stock over which he or she has voting control, subject to and
consistent with any fiduciary obligations in the case of shares held as a
fiduciary, for approval of the Merger Agreement and the Merger. Each of Messrs.
John Kimberley, Peter Simkin and Richard Whitehead, who beneficially own in the
aggregate approximately 48.7% of the outstanding shares of Firefox Common Stock
as of the Firefox Record Date, is party to a stockholder agreement pursuant to
which each has agreed to vote his shares in favor of the Merger. See "The
Firefox Meeting."
Following the Effective Time, John A. Kimberley, President, Chief Executive
Officer and a Director of Firefox, will serve as a member of the Board of
Directors of FTP and as Vice Chairman of FTP and Executive Vice President of
Firefox. Peter R. Simkin, currently Vice President and Chief Technical Officer
of Firefox, will serve as Chief Technical Officer of FTP following the Merger.
Richard J. Whitehead, currently Vice President and Chief Scientist of Firefox,
will continue to serve as such following the Merger.
On June 25, 1996, the closing sales price on the Nasdaq National Market of
the FTP Common Stock and the Firefox Common Stock was $8.375 and $7.375,
respectively.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of FTP and Firefox on or about June 28,
1996.
SEE "RISK FACTORS" FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY BOTH
FTP AND FIREFOX STOCKHOLDERS.
NEITHER THE MERGER NOR THE SECURITIES TO BE ISSUED IN THE MERGER HAVE BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Joint Proxy Statement/Prospectus is June 26, 1996.
2
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION..................................................... 5
SUMMARY................................................................... 6
RISK FACTORS.............................................................. 22
THE FTP MEETING........................................................... 31
Date, Time and Place of Meeting......................................... 31
Record Date and Outstanding Shares...................................... 31
Voting and Revocation of Proxies........................................ 31
Vote Required........................................................... 32
Quorum; Abstentions and Broker Non-Votes................................ 32
Solicitation of Proxies and Expenses.................................... 32
Recommendation of FTP's Board of Directors.............................. 33
THE FIREFOX MEETING....................................................... 33
Date, Time and Place of Meeting......................................... 33
Record Date and Outstanding Shares...................................... 33
Voting and Revocation of Proxies........................................ 33
Vote Required........................................................... 33
Quorum; Abstentions and Broker Non-Votes................................ 34
Solicitation of Proxies and Expenses.................................... 34
Recommendation of Firefox's Board of Directors.......................... 34
RECENT DEVELOPMENTS....................................................... 34
THE MERGER AND RELATED TRANSACTIONS....................................... 36
General................................................................. 36
Background of the Merger................................................ 38
Reasons for the Merger.................................................. 43
Board Recommendations................................................... 46
Certain Projections..................................................... 46
Opinion of Financial Advisor to FTP..................................... 50
Opinion of Financial Advisor to Firefox................................. 54
Interests of Certain Persons in the Merger.............................. 58
Representations......................................................... 61
Conduct of Firefox's and FTP's Businesses Prior to the Merger........... 62
No Solicitation......................................................... 63
Conditions to the Merger................................................ 63
Effective Time of the Merger............................................ 64
Regulatory Matters...................................................... 64
Termination and Amendment............................................... 65
Break-Up Fee............................................................ 65
Exchange of Stock Certificates.......................................... 65
Certain United States Federal Income Tax Matters........................ 66
Accounting Treatment.................................................... 70
Affiliates' Restrictions on Sale of FTP Common Stock.................... 71
Listing of Additional Shares of FTP Common Stock on the Nasdaq National
Market................................................................. 71
Expenses................................................................ 71
Dissenters' Rights...................................................... 71
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS..................... 74
SELECTED HISTORICAL FINANCIAL DATA........................................ 81
COMPARATIVE PER SHARE MARKET PRICE DATA................................... 83
3
PAGE
----
INFORMATION REGARDING FTP................................................ 84
FTP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 92
INFORMATION REGARDING FIREFOX............................................ 100
FIREFOX MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 111
MANAGEMENT OF FTP........................................................ 118
Executive Officers and Directors....................................... 118
FTP Executive Compensation............................................. 120
Stock Options.......................................................... 121
Option Exercises and Year-End Interests................................ 121
Compensation of Directors.............................................. 122
Employment Agreements.................................................. 122
CERTAIN TRANSACTIONS..................................................... 122
FTP STOCK OWNERSHIP...................................................... 123
FIREFOX STOCK OWNERSHIP.................................................. 124
DESCRIPTION OF FTP CAPITAL STOCK......................................... 125
COMPARISON OF RIGHTS OF STOCKHOLDERS OF FTP AND FIREFOX.................. 130
Special Meeting of Stockholders........................................ 130
Inspection Rights...................................................... 130
Action by Consent of Stockholders...................................... 131
Cumulative Voting...................................................... 132
Dividends and Stock Repurchases........................................ 132
Classification of the Board of Directors............................... 132
Removal of Directors................................................... 133
Vacancies on the Board of Directors.................................... 133
Exculpation of Directors............................................... 133
Indemnification of Directors, Officers and Others...................... 134
Interested Director Transactions....................................... 135
Fundamental Transactions............................................... 135
Charter Amendments..................................................... 136
Amendments to Bylaws................................................... 137
Appraisal Rights....................................................... 137
"Anti-Takeover" Statutes............................................... 138
EXPERTS.................................................................. 138
LEGAL MATTERS............................................................ 139
INDEX TO FINANCIAL STATEMENTS............................................ F-1
APPENDICES
Appendix A--Amended and Restated Agreement and Plan of Merger (including
Form of Stockholder Agreement).......................................... A-1
Appendix B--Opinion of Montgomery Securities............................. B-1
Appendix C--Opinion of Cowen & Company................................... C-1
Appendix D--Text of Section 262 of the Delaware General Corporation Law.. D-1
4
NO PERSON HAS BEEN AUTHORIZED BY FTP OR FIREFOX TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FTP OR
FIREFOX. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY THIS JOINT
PROXY STATEMENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/ PROSPECTUS
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
FTP and Firefox are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). These materials can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of these materials can also be obtained from the Commission
at prescribed rates by writing to the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The FTP Common Stock and the Firefox
Common Stock are traded as "national market securities" on the Nasdaq National
Market. Materials filed by FTP and Firefox can be inspected at the offices of
The National Association of Securities Dealers, Inc., Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006.
FTP has filed with the Commission a Registration Statement on Form S-4 under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the offering of the shares of FTP Common Stock to be issued pursuant to the
Merger (the "Registration Statement"). This Joint Proxy Statement/Prospectus
constitutes the prospectus of FTP that is filed as part of the Registration
Statement. Other parts of the Registration Statement are omitted from this
Joint Proxy Statement/Prospectus in accordance with the rules and regulations
of the Commission. Copies of the Registration Statement, including the
exhibits to the Registration Statement and other material that is not included
herein, may be inspected, without charge, at the offices of the Commission
referred to above, or obtained at prescribed rates from the Public Reference
Section of the Commission at the address set forth above.
Statements made in this Joint Proxy Statement/Prospectus concerning the
contents of any contract or other document are not necessarily complete;
however, all material information concerning any such contract or other
document has been disclosed. With respect to each contract or other document
filed as an exhibit to the Registration Statement, reference is hereby made to
that exhibit for a more complete description of the matter involved, and each
such statement is hereby qualified in its entirety by such reference.
FTP Software, OnNet, PC/TCP, InterDrive, LANWatch, PC/Bind, LANCatch,
KEYview, KEYpak, CyberAgent, Esplanade, HyperDesk, GroupWorks, Mariner and
OnTime are trademarks or registered trademarks of FTP Software, Inc. NOV*AX,
NOV*IX, NOV*OS, Firefox and Firefox's logo are trademarks of Firefox
Communications Inc. This Joint Proxy Statement/Prospectus also contains the
trademarks of other companies.
ALL INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS RELATING
TO FTP HAS BEEN SUPPLIED BY FTP, AND ALL INFORMATION HEREIN RELATING TO
FIREFOX HAS BEEN SUPPLIED BY FIREFOX.
5
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus. The summary is not, and is not
intended to be, complete and is qualified in its entirety by reference to the
full text of this Joint Proxy Statement/Prospectus and the Appendices hereto,
which are incorporated by reference herein. Stockholders are urged to read this
Joint Proxy Statement/Prospectus and the Appendices in their entirety. Forward-
looking statements made in this Joint Proxy Statement/Prospectus are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. All forward-looking statements involve risks and
uncertainties, and actual results could differ materially from those set forth
in the forward-looking statements contained herein as a result of competition,
technological change, increased demands on management as a result of planned
expansion or other risks described below under "Risk Factors."
THE COMPANIES
FTP
FTP designs, develops, markets and supports software products that enable
personal computer users to find, access and use heterogeneous hardware,
information and applications resources across local area, enterprise-wide and
global networks, including the Internet and its World Wide Web. FTP's principal
networking products, OnNet and PC/TCP, which are based upon the industry
standard Transmission Control Protocol/Internet Protocol ("TCP/IP") data
communications protocol suite, enable remote access, file and resource sharing
and other applications across a variety of operating systems, computing
platforms and network environments. Other FTP products allow users to search,
organize and share information, view and convert documents in a large number of
different formats, including legacy formats, and collaborate with other users.
FTP's products emphasize performance, reliability, functionality, robustness
and compatibility, which FTP believes are the key purchasing criteria, along
with technical support and special engineering capability, for organizations
establishing and expanding enterprise-wide networks.
FTP was incorporated in Massachusetts in January 1986. FTP's principal
executive offices are located at 100 Brickstone Square, Fifth Floor, Andover,
Massachusetts 01810, and its telephone number at that address is (508) 685-
4000.
FIREFOX
Firefox develops, markets and supports server-based internetworking
connectivity and communications software. Firefox's products provide
connectivity for local area networks ("LANs") running Novell NetWare and allow
work groups to access local and remote computing resources, including the
Internet, across different internetworking protocols and client operating
systems. Firefox's products are centrally configured on the server and
integrated with the network operating system ("NOS"), thereby taking advantage
of the management and security features already implemented in the NOS and
enhancing control, administration and security of the LAN.
Firefox was incorporated in Delaware in February 1995. Firefox's corporate
headquarters are located at 2953 Bunker Hill Lane, Suite 400, Santa Clara,
California 95054, and its telephone number at that address is (408) 467-1100.
FIREFOX ACQUISITION CORP.
Firefox Acquisition Corp., a Delaware corporation ("Sub"), is a wholly-owned
subsidiary of FTP formed solely for the purpose of the Merger. Sub's principal
executive offices are located at 100 Brickstone Square, Fifth Floor, Andover,
Massachusetts 01810, and its telephone number is (508) 685-4000.
6
MEETINGS OF STOCKHOLDERS
DATE, TIME AND PLACE OF THE MEETINGS
FTP. The FTP Meeting will be held on July 22, 1996 at 11:00 a.m., local time,
at the Andover Country Club, 60 Canterbury Street, Andover, Massachusetts
01810.
Firefox. The Firefox Meeting will be held on July 22, 1996 at 9:00 a.m.,
local time, at Firefox's principal executive offices, 2953 Bunker Hill Lane,
Suite 400, Santa Clara, California 95054.
PURPOSES OF THE MEETINGS
FTP Meeting. At the FTP Meeting, stockholders of record of FTP as of the
close of business on the FTP Record Date (as defined below) will be asked to
consider and vote upon a proposal to approve the issuance of the shares of FTP
Common Stock to be issued pursuant to the Merger.
Firefox Meeting. At the Firefox Meeting, stockholders of record of Firefox as
of the close of business on the Firefox Record Date (as defined below) will be
asked to consider and vote upon a proposal to approve and adopt the Merger
Agreement and the Merger.
RECORD DATES, SHARES ENTITLED TO VOTE
FTP. The 315 holders of record of FTP Common Stock at the close of business
on June 13, 1996 (the "FTP Record Date") are entitled to notice of and to vote
at the FTP Meeting. At the close of business on the FTP Record Date, there were
outstanding 26,966,604 shares of FTP Common Stock, each of which will be
entitled to one vote on each matter to be acted upon at the FTP Meeting. See
"The FTP Meeting--Record Date and Outstanding Shares."
Firefox. The 55 holders of record of Firefox Common Stock at the close of
business on June 14, 1996 (the "Firefox Record Date") are entitled to notice of
and to vote at the Firefox Meeting. At the close of business on the Firefox
Record Date, there were outstanding 6,735,484 shares of Firefox Common Stock,
each of which will be entitled to one vote on each matter to be acted upon at
the Firefox Meeting. See "The Firefox Meeting--Record Date and Outstanding
Shares."
VOTES REQUIRED
FTP. Because the Merger may involve the issuance of shares of FTP Common
Stock in an amount in excess of 20% of the aggregate number of shares of FTP
Common Stock currently outstanding, the National Association of Securities
Dealers, Inc. (the "NASD") requires that FTP obtain the affirmative vote of the
holders of a majority of the outstanding shares of FTP Common Stock entitled to
vote and present, in person or by proxy, at the FTP Meeting to approve the
issuance of the shares of FTP Common Stock to be issued pursuant to the Merger.
Because a subsidiary of FTP, and not FTP itself, is a party to the Merger, the
approval of stockholders of FTP is not required to approve and adopt the Merger
Agreement or the Merger. As of the FTP Record Date, all executive officers and
directors of FTP and their affiliates as a group beneficially owned 552,337
shares of FTP Common Stock (approximately 2.0% of the shares of FTP Common
Stock then outstanding). Each of the directors and executive officers of FTP
has advised FTP that he or she intends to vote or direct the vote of all shares
of FTP Common Stock over which he or she has voting control, subject to and
consistent with any fiduciary obligations in the case of shares held as a
fiduciary, for approval of the issuance of the shares of FTP Common Stock to be
issued pursuant to the Merger. See "The FTP Meeting--Voting of Proxies" and "--
Vote Required."
7
Firefox. Under the Delaware General Corporation Law, approval and adoption of
the Merger Agreement and the Merger require the affirmative vote of the holders
of a majority of the outstanding shares of Firefox Common Stock entitled to
vote. As of the Firefox Record Date, all executive officers and directors of
Firefox and their affiliates as a group beneficially owned 3,656,792 shares of
Firefox Common Stock (approximately 54.3% of the shares of Firefox Common Stock
then outstanding), which represents a sufficient number of Firefox shares to
approve the Merger Agreement and the Merger without additional stockholder
votes. Each of the executive officers and directors of Firefox has advised
Firefox that he or she intends to vote or direct the vote of all shares of
Firefox Common Stock over which he or she has voting control, subject to and
consistent with any fiduciary obligations in the case of shares held as a
fiduciary, for approval of the Merger Agreement and the Merger. See "The
Firefox Meeting--Voting of Proxies" and "--Vote Required."
The vote of the FTP stockholders and the vote of the Firefox stockholders
required at their respective meetings and described above are sometimes
referred to herein as the "Required Votes."
Stockholder Agreements. FTP and each of John A. Kimberley, Firefox's
President and Chief Executive Officer, Peter R. Simkin, Firefox's Vice
President and Chief Technical Officer, and Richard J. Whitehead, Firefox's Vice
President and Chief Scientist, have entered into a Stockholder Agreement under
which each such person has agreed to vote his shares of Firefox Common Stock
(and has delivered an irrevocable proxy to Sub to vote such shares): (i) in
favor of approval of the Merger and adoption of the Merger Agreement; and (ii)
against approval of any other merger, any sale of a material amount of assets,
any change in the Board of Directors of Firefox or any other action that
requires the approval of Firefox stockholders and which is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone or
materially adversely affect the consummation of the Merger or the transactions
contemplated by the Merger Agreement. Each such proxy will remain in effect
until the earlier to occur of (i) the Effective Time, and (ii) such date and
time as the Merger Agreement is terminated. In each Stockholder Agreement, each
such person has also agreed (i) not to offer or dispose of his shares until the
Merger becomes effective or the Merger Agreement is terminated in accordance
with its terms and (ii) not to dispose of more than 500,000 of his shares
during any six-month period following the date of the Merger Agreement. As of
the Firefox Record Date, there were outstanding 6,735,484 shares of Firefox
Common Stock. As of such date, Messrs. Kimberley, Simkin and Whitehead
beneficially owned 1,474,298, 465,000 and 1,338,000 shares of Firefox Common
Stock, respectively, representing approximately 21.9%, 6.9% and 19.9%,
respectively, of the shares of Firefox Common Stock then outstanding. See "The
Firefox Meeting--Vote Required."
QUORUM; ABSTENTIONS AND BROKER NON-VOTES
FTP. The required quorum for the transaction of business at the FTP Meeting
will be a majority of the shares of FTP Common Stock issued and outstanding at
the close of business on the FTP Record Date. Abstentions and broker non-votes
will be included in determining the presence of a quorum. Neither abstentions
nor broker non-votes will have any effect on the vote on the proposal to
approve the issuance of the shares of FTP Common Stock to be issued pursuant to
the Merger. See "The FTP Meeting--Quorum; Abstentions and Broker Non-Votes."
Firefox. The required quorum for the transaction of business at the Firefox
Meeting will be a majority of the shares of Firefox Common Stock issued and
outstanding and entitled to vote on the Firefox Record Date. Abstentions and
broker non-votes will be included in determining the presence of a quorum and
will have the same effect as votes against the proposal to approve the Merger
Agreement and the Merger. See "The Firefox Meeting--Quorum; Abstentions and
Broker Non-Votes."
RECOMMENDATIONS OF FTP'S AND FIREFOX'S BOARDS OF DIRECTORS
FTP's Board of Directors. The Board of Directors of FTP has unanimously
approved the issuance of the shares of FTP Common Stock to be issued pursuant
to the Merger and has unanimously determined that such
8
issuance is in the best interests of FTP and its stockholders. The FTP Board of
Directors unanimously recommends that the FTP stockholders approve the issuance
of such shares. The primary factors considered and relied upon by the FTP Board
of Directors in reaching its recommendation are described in "The Merger and
Related Transactions--Reasons for the Merger."
Firefox's Board of Directors. The Board of Directors of Firefox has
unanimously approved the Merger Agreement and the Merger and has unanimously
determined that the Merger is fair to and in the best interests of Firefox and
its stockholders. The Firefox Board of Directors unanimously recommends
approval and adoption of the Merger Agreement and the Merger by the Firefox
stockholders. The primary factors considered and relied upon by the Firefox
Board of Directors in reaching its recommendation are referred to in "The
Merger and Related Transactions--Reasons for the Merger."
REASONS FOR THE MERGER
The Boards of Directors of each of FTP and Firefox considered a number of
factors in making their respective determinations and recommendations with
respect to the Merger, including the following:
. The combined company's potential to provide on a global basis a more
complete suite of solutions addressing TCP/IP-based applications and
networks for client-based, departmental and LAN-based users.
. The combined company's potential to leverage FTP's and Firefox's
complementary distribution channels and customer bases.
. The combined company's potential to leverage the respective companies'
research and development capabilities and spending on new product
development through the integration of the two companies' competency
centers, providing the potential for the combined company to provide a
full range of products, from client-based to server-based software.
. The combined company's potential to provide enhanced solutions for
existing and new customers by combining FTP's client-based Internet
Protocol ("IP") application suites and Firefox's server-based TCP/IP
products for the Novell NetWare market.
Both Boards of Directors also considered the strategic alternatives for each
of the companies in the absence of the Merger and how each company pursuing
such alternatives separately would likely affect the other company.
The Board of Directors of FTP believes that the following are additional
reasons for stockholders of FTP to vote for approval of the issuance of the
shares of FTP Common Stock to be issued pursuant to the Merger.
. The Merger is expected to allow FTP to enhance its offerings of
networking products to address the needs of departments and work groups,
with particular emphasis initially on the Novell NetWare market and later
on the Microsoft NT market, and to allow FTP's client applications to
take advantage of Firefox's server-based access control and firewall
technology.
. The Merger is expected to enable FTP to take advantage of Firefox's sales
and support presence in the European marketplace, enhancing FTP's ability
to meet the growing global demands for IP systems and solutions.
. The Merger is expected to enable FTP to enhance the design, performance,
functionality and cost of applications by optimizing the use of server-
and client-based solutions.
. The Merger is expected to enable FTP to address customers' desires to
connect their local networks to Internet and intranet resources in a
secure and centrally managed way.
9
The Board of Directors of Firefox believes that the following are additional
reasons for the stockholders of Firefox to vote for approval and adoption of
the Merger Agreement and the Merger.
. The Merger is expected to create the potential to expand the market
presence of Firefox products in the United States and globally through
FTP's significant market presence.
. By combining with FTP, Firefox expects to be able to concentrate its
development efforts on server technology and management and
administration tools and leverage those efforts through FTP's development
resources, customer base, sales and distribution channels, and support
services.
. The Merger is expected to enhance Firefox's ability to develop and
acquire technologies by making available the business and financial
resources of a larger combined business enterprise.
. The Merger is expected to generate potential economies of scale in
product manufacturing and enhance and facilitate customer order
fulfillment.
. The Merger is expected to increase the potential for enhanced liquidity
for Firefox stockholders through their ownership of FTP Common Stock, due
to FTP's greater market capitalization and trading volume.
. The Merger is expected to allow Firefox to realize savings in selling,
general and administrative expenses by enabling it to utilize FTP's
infrastructure.
. The Merger is expected to enable Firefox to reduce its dependence on
third party vendors.
The Boards of Directors of FTP and Firefox also considered a number of
additional factors in determining to approve the Merger. See "The Merger and
Related Transactions--Reasons for the Merger."
THE MERGER
EFFECTS OF THE MERGER
The Merger will be consummated promptly after obtaining the Required Votes
and following the satisfaction or waiver of the other conditions to
consummation of the Merger set forth in the Merger Agreement. See "The Merger
and Related Transactions--Conditions to the Merger." Upon consummation of the
Merger, Firefox will become a wholly-owned subsidiary of FTP, the stockholders
of Firefox will become stockholders of FTP (as described below), and their
rights will be governed by FTP's Restated Articles of Organization, as amended
(the "FTP Articles"), and FTP's Amended and Restated Bylaws (the "FTP Bylaws").
See "Comparison of Rights of Stockholders of FTP and Firefox."
CONVERSION OF SHARES
At the Effective Time, each share of Firefox Common Stock issued and
outstanding immediately prior to the Effective Time (the "Outstanding Firefox
Shares") excluding Dissenting Shares, shall be converted into the right to
receive (i) that number of shares of FTP Common Stock which equals the amount
obtained by dividing (x) $50,000,000 divided by the number of Outstanding
Firefox Shares by (y) the Average Price of the FTP Common Stock (the "Exchange
Ratio"), subject to the provisions in the Merger Agreement relating to
fractional shares; and (ii) cash in the amount of $10,000,000 divided by the
number of Outstanding Firefox Shares (the "Cash Payment"), subject to
adjustment as described below. Cash (without interest) will be paid in lieu of
issuing fractional shares.
The Exchange Ratio will be subject to adjustment as follows: (i) if the
Average Price of one share of FTP Common Stock is greater than $12.00, then the
Average Price shall be deemed to be $12.00, and (ii) if the Average Price of
one share of FTP Common Stock is less than $8.00, then the Average Price shall
be deemed to be $8.00. If the Average Price is less than $8.00 or greater than
$12.00 per share, the number of shares of FTP Common Stock to be exchanged for
shares of Firefox Common Stock pursuant to the Merger will be 6,250,000 or
4,166,666, respectively.
If the mean of the high and low sales prices of one share of FTP Common Stock
as quoted on the Nasdaq National Market on the day of the Effective Time (or if
the Effective Time is not a trading day, on the trading day immediately
preceding the Effective Time) (the "Effective Time Closing Price") is less than
$7.00 per
10
share, each Outstanding Firefox Share shall be entitled to receive that number
of additional shares of FTP Common Stock equal to (i) the amount obtained by
dividing (A) the difference between $7.00 and the Effective Time Closing Price
by (B) $7.00, multiplied by (ii) (A) $10,000,000 divided by (B) the number of
Outstanding Firefox Shares, divided by (iii) the Effective Time Closing Price
(such number of additional shares of FTP Common Stock being referred to as the
"Share Adjustment Factor"), and the Cash Payment applicable to each Outstanding
Firefox Share shall be reduced by an amount equal to the product of (i) the
Share Adjustment Factor multiplied by (ii) the Effective Time Closing Price.
The purpose of the adjustment to the aggregate amount of shares and the Cash
Payment to be received described in the preceding sentence is to preserve the
status of the Merger as a tax-free reorganization for United States federal
income tax purposes in the event that the Effective Time Closing Price of the
FTP Common Stock falls below $7.00 per share by assuring that at least 80% of
the value of the consideration to be issued in the Merger will be in the form
of FTP Common Stock. See "The Merger and Related Transactions--General--
Conversion of Shares."
The following table sets forth information concerning the consideration that
each holder of a share of Firefox Common Stock will be entitled to receive
pursuant to the Merger based on the capitalization of each of Firefox and FTP
at the Firefox Record Date and the FTP Record Date, respectively, at assumed
Average Prices of $12.00, $10.00 and $8.00, and, for illustrative purposes
only, includes an example of the possible effect on such consideration if the
Effective Time Closing Price were to be less than $7.00 by using an assumed
Effective Time Closing Price of $6.00. The table also shows the total
consideration to be paid to Firefox stockholders pursuant to the Merger at such
assumed Average Prices and the percent of the total shares of FTP Common Stock
outstanding after the Merger to be held by Firefox stockholders.
PER SHARE MERGER CONSIDERATION TOTAL MERGER CONSIDERATION
-------------------------------------- -------------------------------
PERCENT OF FTP COMMON
STOCK OUTSTANDING AFTER
ASSUMED NUMBER OF SHARES OF NUMBER OF SHARES OF THE MERGER HELD BY
AVERAGE PRICE FTP COMMON STOCK CASH FTP COMMON STOCK CASH FIREFOX STOCKHOLDERS
------------- ------------------- ---------------- ------------------- ----------- -----------------------
$12.00 .6186 $1.4847 4,166,666 $10,000,000 13.38%
$10.00 .7423 $1.4847 5,000,000 $10,000,000 15.64%
$8.00 .9279 $1.4847 6,250,000 $10,000,000 18.82%
PER SHARE MERGER CONSIDERATION TOTAL MERGER CONSIDERATION
-------------------------------------- -------------------------------
PERCENT OF FTP COMMON
ASSUMED STOCK OUTSTANDING AFTER
EFFECTIVE TIME NUMBER OF SHARES OF NUMBER OF SHARES OF THE MERGER HELD BY
CLOSING PRICE FTP COMMON STOCK CASH FTP COMMON STOCK CASH FIREFOX STOCKHOLDERS
-------------- ------------------- ---------------- ------------------- ----------- -----------------------
$6.00 .9633 $1.2726 6,488,095 $8,571,429 19.39%
Firefox stockholders may call 800-322-2885 at any time prior to the date of
the Firefox Meeting for current information concerning the Average Price,
Exchange Ratio and Cash Payment.
CONVERSION OF OPTIONS
At the Effective Time, each then outstanding option to purchase Firefox
Common Stock granted under the Firefox 1995 Stock Option Plan and the Firefox
1995 Outside Director Stock Option Plan (each, a "Firefox Stock Option"),
whether vested or unvested, will be deemed assumed by FTP and deemed to
constitute an option to acquire the number of shares of FTP Common Stock
(rounded down to the nearest whole number) equal to the aggregate of (i) that
number of shares of FTP Common Stock (based on the Exchange Ratio) as the
holder of such Firefox Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full
immediately prior to the Effective Time (not taking into account whether or not
such option was in fact exercisable) plus (ii) that number of additional shares
of FTP Common Stock calculated by dividing (A) the aggregate Cash Payment that
the holder of such Firefox Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full
immediately prior to the Effective Time (not taking into account whether or not
such option was in fact exercisable) by (B) the Average Price. The exercise
price for each such Firefox Stock Option shall be the price per share equal to
(x) the aggregate exercise price for the shares of Firefox Common Stock
otherwise purchasable pursuant to such Firefox Stock Option divided by (y) the
number of shares of FTP Common Stock deemed purchasable pursuant to such
Firefox Stock Option. See "The Merger and Related Transactions--General--
Conversion of Options."
11
As of the Firefox Record Date, 70,950 shares of Firefox Common Stock were
subject to outstanding Firefox Stock Options. Assuming Average Prices of
$12.00, $10.00 and $8.00, respectively, such options would be converted into
options to purchase approximately 52,669, 63,203 and 79,003 shares,
respectively, of FTP Common Stock.
At the Effective Time, each then outstanding option to purchase Firefox
Common Stock granted under the Firefox 1994 Option Scheme (a "Firefox Scheme
Option") may be assumed by FTP and converted into an option to purchase a
number of shares of FTP Common Stock (rounded down to the nearest whole number)
equal to the aggregate of (a) that number of shares of FTP Common Stock (based
on the Exchange Ratio) as the holder of such Firefox Scheme Option would have
been entitled to receive pursuant to the Merger had such holder exercised such
option in full immediately prior to the Effective Time (not taking into account
whether or not such option was in fact exercisable) plus (b) that number of
additional shares of FTP Common Stock calculated by dividing (i) the aggregate
Cash Payment that the holder of such Firefox Scheme Option would have been
entitled to receive pursuant to the Merger had such holder exercised such
option in full immediately prior to the Effective Time (not taking into account
whether or not such option was in fact exercisable) by (ii) the Average Price.
The exercise price for such Firefox Scheme Options shall be a price per share
equal to (x) the aggregate exercise price for the shares of Firefox Common
Stock otherwise purchasable pursuant to such Firefox Scheme Option divided by
(y) the number of shares of FTP Common Stock deemed purchasable pursuant to
such Firefox Scheme Option. Such assumption and conversion is conditioned upon
the written agreement of each holder of a Firefox Scheme Option. Absent such
written agreement, Firefox Scheme Options will, in accordance with the terms of
the Firefox 1994 Option Scheme, become exercisable in full for a six-month
period beginning at the Effective Time for the same number of shares of FTP
Common Stock as calculated pursuant to the first sentence of this paragraph at
the same exercise price as calculated pursuant to the second sentence of this
paragraph. At the end of such six-month period, any Firefox Scheme Options
which have not been assumed and converted or exercised will terminate. See "The
Merger and Related Transactions--General--Conversion of Options."
As of the Firefox Record Date, 243,296 shares of Firefox Common Stock were
subject to Firefox Scheme Options. Assuming Average Prices of $12.00, $10.00
and $8.00, respectively, and the consent of the holders to the assumption of
such options as described above such options would be converted into options to
purchase approximately 180,608, 216,729 and 270,911 shares, respectively, of
FTP Common Stock.
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Effective Time, FTP will instruct State
Street Bank and Trust Company (the "Exchange Agent") to mail to each holder of
record of a certificate of Firefox Common Stock (each, a "Firefox Stock
Certificate"), a letter of transmittal and transmittal instructions for
exchanging such holder's Firefox Stock Certificates for certificates evidencing
the shares of FTP Common Stock into which the shares of Firefox Common Stock
formerly represented by such certificates have been converted pursuant to the
Merger and the aggregate Cash Payment applicable to such shares. FIREFOX
STOCKHOLDERS SHOULD NOT SUBMIT THEIR FIREFOX STOCK CERTIFICATES FOR EXCHANGE
UNLESS AND UNTIL THEY HAVE RECEIVED THE TRANSMITTAL INSTRUCTIONS AND A FORM OF
LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT. See "The Merger and Related
Transactions--Exchange of Stock Certificates."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Firefox Board of Directors with
respect to the Merger, stockholders of Firefox should be aware that certain
members of Firefox's management and Board of Directors have certain interests
in the Merger that are in addition to the interests of the stockholders of
Firefox generally. See "The Merger and Related Transactions--Interests of
Certain Persons in the Merger."
12
OPINIONS OF FINANCIAL ADVISORS
FTP. On May 20, 1996, Montgomery Securities ("Montgomery") delivered its
written opinion to the Board of Directors of FTP that the consideration to be
paid by FTP pursuant to the Merger was fair to FTP, from a financial point of
view, as of that date. The full text of Montgomery's opinion, which sets forth
the assumptions made, matters considered and limitations on the review
undertaken by Montgomery, is attached as Appendix B to this Joint Proxy
Statement/Prospectus. FTP stockholders are urged to read this opinion in its
entirety. See "The Merger and Related Transactions--Opinion of Financial
Advisor to FTP."
Firefox. On May 21, 1996, Cowen & Company ("Cowen") delivered to the Firefox
Board of Directors its oral and written opinion that, as of that date, the
consideration to be received by the holders of Firefox Common Stock pursuant to
the Merger is fair to such holders from a financial point of view. The full
text of Cowen's opinion, which sets forth the assumptions made (including
assumptions made with respect to the FTP litigation and the Firefox litigation
described below under "Recent Developments"), matters considered and
limitations on the review undertaken by Cowen, is attached as Appendix C to
this Joint Proxy Statement/Prospectus. Firefox stockholders are urged to read
this opinion in its entirety. See "The Merger and Related Transactions--Opinion
of Financial Advisor to Firefox."
REPRESENTATIONS AND COVENANTS
Under the Merger Agreement, each of FTP and Firefox have made a number of
representations regarding its respective capital structure, operations,
intellectual property, material agreements, financial condition and other
matters, including its authority to enter into the Merger Agreement and to
consummate the Merger. Each party has covenanted that, until the earlier of the
consummation of the Merger or the termination of the Merger Agreement, it will
conduct its business in the ordinary course, not amend or change its charter or
bylaws, not declare or pay any dividends in respect of its capital stock and
not take or agree to take any action to make any of its representations in the
Merger Agreement untrue or incorrect. Firefox has also entered into several
other covenants described under "The Merger and Related Transactions--Conduct
of FTP's and Firefox's Businesses Prior to the Merger." Further, each party has
agreed to provide the other party with access to such information and personnel
as reasonably requested, to obtain all necessary consents and approvals, to
enter into Affiliate Agreements and to notify the other party of the occurrence
of certain events. See "The Merger and Related Transactions--Representations"
and "--Conduct of FTP's and Firefox's Businesses Prior to the Merger."
Firefox also has agreed (subject to certain exceptions discussed below) not,
directly or indirectly, to (i) solicit, initiate or encourage the initiation of
any Acquisition Proposals (as defined in the Merger Agreement) that compete
with the Merger, (ii) engage in negotiations concerning, or provide any non-
public information to any person relating to, any Acquisition Proposal or (iii)
agree to, approve or recommend any Acquisition Proposal. The Firefox Board of
Directors is not prevented from considering, discussing, negotiating, agreeing
to, approving and recommending to the Firefox stockholders a bona fide
Acquisition Proposal not solicited in violation of the Merger Agreement, as
long as the Board of Directors determines in good faith (upon advice of outside
counsel) that it is required to do so in order to discharge properly its
fiduciary duties. Firefox also is not prevented from furnishing material, non-
public information regarding Firefox to any third party making a bona fide
Acquisition Proposal, provided that the Firefox Board of Directors has
determined, with the advice of Firefox's outside counsel, that the Board of
Directors must cause Firefox to do so in order to discharge properly the
Board's fiduciary duties and provided that the third party has executed a
confidentiality agreement substantially similar to the one in effect between
FTP and Firefox. See "The Merger and Related Transactions--Conduct of FTP's and
Firefox's Businesses Prior to the Merger."
CONDITIONS TO THE MERGER
In addition to the requirement that the Required Votes be obtained,
consummation of the Merger is subject to a number of other conditions that, if
not satisfied or waived, may result in the termination of the Merger
13
Agreement and the Merger. Each party's obligation to consummate the Merger is
conditioned on, among other things, the accuracy of the other party's
representations, the other party's performance of its covenants, the aggregate
number of Dissenting Shares and fractional shares not being an amount that
would result in the Merger not constituting a reorganization for United States
federal income tax purposes and favorable legal opinions (including an opinion
from the respective parties' counsel to the effect that the Merger will be
treated for federal income tax purposes as a tax-free reorganization). See "The
Merger and Related Transactions--Conditions to the Merger."
EFFECTIVE TIME OF THE MERGER
The Merger will be consummated promptly after obtaining the Required Votes
and following the satisfaction or waiver of the other conditions to
consummation of the Merger set forth in the Merger Agreement. The parties
anticipate that all of the conditions to the Merger will have been satisfied or
waived soon after the Required Votes are obtained and that the Merger will be
consummated on or about July 22, 1996. See "The Merger and Related
Transactions--Effective Time of the Merger."
TERMINATION AND AMENDMENT; BREAK-UP FEE
The Merger Agreement may be terminated at any time prior to the Effective
Time by either party under certain circumstances and at any time after August
15, 1996. Events giving rise to termination rights under the Merger Agreement
include any governmental order or action preventing the Merger, failure to
obtain the Required Votes, adverse Board actions or recommendations, or a
Terminating Breach (as defined in the Merger Agreement). If either FTP or
Firefox terminates the Merger Agreement as a result of certain specified events
and subsequent thereto Firefox enters into a definitive agreement with a third
party for the acquisition of Firefox by such third party, Firefox will be
obligated to pay FTP a fee of $2.4 million. Such provision could discourage a
third party from pursuing an acquisition of Firefox because the cost of such
acquisition, if successful, would be increased by the amount of such fee. See
"The Merger and Related Transactions--Termination and Amendment" and "--Break-
Up Fee."
RECENT DEVELOPMENTS
On February 23, 1996, a class action lawsuit was filed in the United States
District Court for the Northern District of California, San Francisco Division,
naming Firefox and certain of its officers and directors as defendants. On June
5, 1996, the District Court entered an order dismissing the complaint in its
entirety with leave to amend. The lawsuit alleged that the defendants
misrepresented or failed to disclose material facts about Firefox's operations
and financial results, which the plaintiffs contend resulted in an artificial
inflation of the price of the Firefox Common Stock. The suit was purportedly
brought on behalf of a class of purchasers of the Firefox Common Stock during
the period from August 3, 1995 to January 2, 1996. The complaint alleged claims
for violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5
thereunder and sought relief in the form of unspecified compensatory damages,
pre- and post-judgment interest, attorneys' and expert witness fees and such
extraordinary, equitable and/or injunctive relief as permitted by law, equity
and the federal statutory provisions under which the suit was brought.
Specifically, the complaint alleged that each of the defendants knew or had
access to allegedly material adverse non-public information about Firefox's
financial results and business conditions which allegedly was not disclosed,
improperly recognized certain revenues and failed to keep adequate reserves and
participated in drafting, reviewing and/or approving alleged misleading
statements, releases, analyst reports and other public representations,
including disclaimers and warnings, of and about Firefox. Firefox has reviewed
the allegations in the lawsuit, believes them to be without merit, and intends
to defend itself and its officers and directors vigorously if the complaint is
amended. In order to support an adequate defense, Firefox may be required to
expend substantial sums for legal and expert fees and costs. The cost of
defending the litigation and the outcome of the litigation are uncertain and
cannot be estimated. If the lawsuit were determined adversely to Firefox,
Firefox could be required to pay a substantial judgment. See "Risk Factors--
Risks Relating to FTP and Firefox--Litigation Against Firefox" and, for further
information concerning the reasons for the court's dismissal of the complaint,
see "Recent Developments."
14
On March 14, 1996, a class action lawsuit was filed in the United States
District Court for the District of Massachusetts, naming FTP, certain of its
officers and two former officers as defendants. The lawsuit alleges that the
defendants publicly issued false and misleading statements and omitted to
disclose material facts necessary to make statements not false and misleading,
which the plaintiffs contend caused an artificial inflation in the price of the
FTP Common Stock. Specifically, the complaint alleges that the defendants
knowingly concealed adverse facts and made false or misleading forward and non-
forward looking statements concerning the operating results and financial
condition of FTP, the effects of its July 1995 corporate restructuring and
changing competitive factors in FTP's industry. The lawsuit, which is
purportedly brought on behalf of a class of purchasers of the FTP Common Stock
during the period from July 14, 1995 to January 3, 1996, alleges violations of
Section 10(b) and Section 20(a) of the Exchange Act and Rule 10b-5 thereunder
and seeks relief in the form of unspecified compensatory damages, cost and
expenses and such other and further relief as the Court deems proper and just.
FTP has reviewed the allegations in the lawsuit, believes them to be without
merit, and intends to defend itself and its officers vigorously. In order to
support an adequate defense, FTP may be required to expend substantial sums for
legal and expert fees and costs. The cost of defending the litigation and the
outcome of the litigation are uncertain and cannot be estimated. If the lawsuit
were determined adversely to FTP, FTP could be required to pay a substantial
judgment. See "Risk Factors--Risks Relating to FTP and Firefox--Litigation
Against FTP" and "Recent Developments."
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the United States
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the United States Justice Department (the
"Antitrust Division") and specified waiting period requirements have been
satisfied. The required notifications and information were provided on April 5,
1996 and the applicable waiting periods under the HSR Act have expired. See
"The Merger and Related Transactions--Regulatory Matters."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to be a tax-free reorganization for U.S. federal
income tax purposes, so that no gain or loss will be recognized by the Firefox
stockholders on the exchange of Firefox Common Stock for FTP Common Stock
pursuant to the Merger, except to the extent that Firefox stockholders receive
cash in the exchange (i.e., as the Cash Payment, as payment in respect of
Dissenting Shares or in lieu of fractional shares). A condition to the Merger
is that each of FTP and Firefox receive an opinion from its legal counsel at
the closing of the Merger to the effect that the Merger qualifies for federal
income tax purposes as a tax-free reorganization. The parties have received
such opinions from their respective counsel, based upon the assumption that
certain events will occur at or after the Effective Time, but receipt of such
opinions at the Effective Time remains a condition to consummation of the
Merger. The Merger Agreement does not require the parties to obtain a ruling
from the Internal Revenue Service as to the tax consequences of the Merger. An
opinion of counsel only represents counsel's best legal judgment, and has no
binding effect or official status of any kind, and no assurance can be given
that contrary positions may not be taken by the Internal Revenue Service or a
court considering the issues. Firefox stockholders are urged to consult their
own tax advisors regarding the specific tax consequences of the Merger to them,
including the applicability and effect of state, local and other laws. See "The
Merger and Related Transactions--Certain United States Federal Income Tax
Matters."
ACCOUNTING TREATMENT
The parties intend to account for the Merger as a purchase, as more fully
described under "The Merger and Related Transactions--Accounting Treatment."
15
DISSENTERS' RIGHTS
Stockholders of Firefox who comply with the requirements of Section 262 of
the Delaware General Corporation Law will be entitled to appraisal rights in
connection with the Merger. A copy of the text of Section 262 is attached to
this Joint Proxy Statement/Prospectus as Appendix D. Stockholders of FTP who
vote against the issuance of shares of FTP Common Stock to be issued pursuant
to the Merger will not be entitled to rights of appraisal under the
Massachusetts Business Corporation Law. See "The Merger and Related
Transactions--Dissenters' Rights."
COMPARISON OF RIGHTS OF STOCKHOLDERS OF FTP AND FIREFOX
Until the Merger, the rights of stockholders of Firefox will continue to be
governed by the Delaware General Corporation Law and Firefox's Restated and
Amended Certificate of Incorporation and Bylaws. If the Merger is consummated,
holders of Firefox Common Stock will become holders of FTP Common Stock. Upon
consummation of the Merger, the rights of former Firefox stockholders will be
governed by the Massachusetts Business Corporation Law, the FTP Articles and
the FTP Bylaws. See "Comparison of Rights of Stockholders of FTP and Firefox."
COMPARATIVE PER SHARE MARKET PRICE DATA
FTP. The FTP Common Stock commenced trading on November 23, 1993 on the
Nasdaq National Market under the symbol FTPS. Quarterly high and low sales
prices for the FTP Common Stock as reported by the Nasdaq National Market are
shown below for the periods indicated:
HIGH LOW
------- -------
1994:
First Quarter.............................................. $31.25 $24.00
Second Quarter............................................. 27.75 12.50
Third Quarter.............................................. 24.00 11.50
Fourth Quarter............................................. 33.50 21.50
1995:
First Quarter.............................................. $35.50 $25.125
Second Quarter............................................. 32.375 20.25
Third Quarter.............................................. 32.50 20.50
Fourth Quarter............................................. 40.625 21.75
1996:
First Quarter.............................................. $29.00 $10.375
Second Quarter (through June 25, 1996)..................... 13.625 8.25
Firefox. The Firefox Common Stock commenced trading on May 11, 1995 on the
Nasdaq National Market under the symbol FFOX. Quarterly high and low sales
prices for the Firefox Common Stock as reported by the Nasdaq National Market
are shown below for the periods indicated:
HIGH LOW
------- -------
1995:
Second Quarter (commencing May 11, 1995)................... $29.25 $21.50
Third Quarter.............................................. 27.375 15.875
Fourth Quarter............................................. 26.00 16.75
1996:
First Quarter.............................................. $22.63 $ 8.75
Second Quarter (through June 25, 1996)..................... 11.25 7.375
16
On January 16, 1996, the last business day immediately preceding the public
announcement of the Merger, and on May 21, 1996, the last business day
immediately preceding the public announcement of the most recent amendment to
the Merger Agreement, the closing sales prices for the FTP Common Stock as
reported on the Nasdaq National Market were $11.75 and $13.625 per share,
respectively, and the closing sales prices for the Firefox Common Stock as
reported by the Nasdaq National Market were $9.25 and $11.25 per share,
respectively. The following table sets forth the closing prices per share of
the FTP Common Stock and the Firefox Common Stock as reported on the Nasdaq
National Market on May 21, 1996 and June 13, 1996 and the equivalent per share
value of the Firefox Common Stock on such dates. The equivalent per share value
for the Firefox Common Stock has been computed by multiplying the FTP Common
Stock per share price by the Exchange Ratio that would be applicable if the
Average Price of one share of FTP Common Stock were equal to the FTP Common
Stock price on the relevant date and adding the applicable Cash Payment of
$1.4847 per share. See "--Conversion of Shares" above.
FTP FIREFOX EQUIVALENT
COMMON STOCK COMMON STOCK PER SHARE VALUE
------------ ------------ ---------------
May 21, 1996.......................... $13.625 $11.25 $9.91
June 13, 1996......................... $10.125 $ 8.00 $8.90
As of the FTP Record Date, there were 315 record holders of the FTP Common
Stock, as shown on the records of FTP's transfer agent. As of the Firefox
Record Date, there were 55 record holders of the Firefox Common Stock, as shown
on the records of Firefox's transfer agent.
FTP has not since 1992, and Firefox has never, paid or declared any cash
dividends on its stock, and each anticipates that for the foreseeable future it
will continue to retain any earnings for use in the operation of its respective
business.
BECAUSE THE MARKET PRICE OF THE FTP COMMON STOCK THAT HOLDERS OF FIREFOX
COMMON STOCK WILL RECEIVE IN THE MERGER MAY INCREASE OR DECREASE PRIOR TO THE
MERGER, STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS.
SELECTED FINANCIAL DATA
The following selected summary historical financial data of each of FTP and
Firefox have been derived from their respective historical consolidated
financial statements. The unaudited pro forma consolidated statements of income
combine FTP's results of operations for the year ended December 31, 1995 and
the three months ended March 31, 1996 with Firefox's results of operations for
the same periods, giving effect to the Merger as if it had occurred on January
1, 1995. The unaudited pro forma consolidated balance sheet combines FTP's
balance sheet with Firefox's balance sheet as of March 31, 1996, giving effect
to the Merger as if it had occurred on March 31, 1996. The following unaudited
pro forma and equivalent pro forma per share data of FTP and Firefox are
presented after giving effect to the Merger on a purchase accounting basis at
assumed Exchange Ratios of .6186, .7423 and .9279. The summary unaudited pro
forma consolidated financial data is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial
position of either FTP or Firefox that would have occurred had the Merger been
consummated on the indicated dates, nor is it necessarily indicative of future
operating results or financial position. The following financial data should be
read in conjunction with "The Merger and Related Transactions--General--
Conversion of Shares," "Selected Historical Financial Data," "Unaudited Pro
Forma Consolidated Financial Statements," "FTP Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Firefox
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements of FTP and
Firefox, including the notes related thereto, included elsewhere herein.
17
FTP SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- -------
(UNAUDITED)
STATEMENT OF INCOME
DATA:
Total revenue........... $21,419 $33,132 $58,726 $93,245 $136,376 $31,314 $29,004
Income (loss) from
operations............. 8,698 13,103 26,250 33,609 32,946 11,516 (14,429)
Income (loss) before
income taxes........... 8,997 13,412 26,935 36,741 39,102 12,559 (13,400)
Net income (loss)(1).... 5,398 8,047 16,324 22,975 24,634 7,850 (8,442)
Net income (loss) per
share (fully diluted).. $ .24 $ .34 $ .60 $ .79 $ .87 $ .27 $ (.31)
Weighted average common
and common equivalent
shares outstanding
(fully diluted)........ 22,419 23,429 27,361 29,070 28,263 28,721 26,939
DECEMBER 31,
---------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
------- ------- ------- -------- ------- -----------
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash
equivalents............. $ 3,219 $ 4,978 $12,760 $ 10,896 $30,417 $ 31,446
Working capital(2)....... 7,247 9,575 69,242 53,482 87,731 69,300
Total assets............. 13,508 18,775 83,711 129,142 189,968 183,091
Total liabilities........ 3,439 5,739 7,633 16,458 25,160 26,143
Stockholders' equity..... 10,069 13,036 76,078 112,684 164,808 156,948
Dividends(3)............. 6,132 7,365 -- -- -- --
Dividends per share...... .42 .44 -- -- -- --
- --------
(1) From January 1, 1990 through June 30, 1992, FTP operated as an S
corporation under Subchapter S of the Internal Revenue Code of 1986, as
amended, and comparable provisions of certain state tax laws. The provision
for income taxes for the years ended December 31, 1991 and 1992 reflect pro
forma federal and state income taxes as if FTP had been subject to federal
and state income taxation as a C corporation during such periods. Pro forma
adjustments are not applicable to the years ended December 31, 1993, 1994
and 1995.
(2) The reduction in working capital from 1993 to 1994 is principally due to
the classification of a significant amount of FTP's investments as long-
term.
(3) Dividends in 1991 and 1992 included distributions made to stockholders of
approximately $5.2 million and $3.5 million, respectively, to satisfy
federal and state income tax obligations of the stockholders attributable
to FTP's S corporation earnings for the years 1990, 1991 and 1992.
18
FIREFOX SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS
ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
-------------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- ------ ------
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $ 772 $2,442 $5,172 $13,536 $19,768 $4,722 $4,183
Gross margin............ 646 2,202 4,380 11,117 16,133 3,868 3,210
Income (loss) from
operations............. (328) 307 (241) 1,199 396 511 (1,952)
Net income (loss)....... (286) 126 (209) 616 518 279 (1,042)
Income (loss)
attributable to common
stock.................. (286) 126 (225) 419 454 234 (1,042)
Net income (loss) per
share(1)............... $ (.06) $ .03 $ (.05) $ .08 $ .07 $ .04 $ (.15)
Shares used in per share
computation............ 4,569 4,569 4,569 5,486 6,398 5,486 6,735
DECEMBER 31,
------------------------------------ MARCH 31,
1991 1992 1993 1994 1995 1996
----- ----- ------ ------ ------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 1 $ -- $ 960 $ 191 $ 6,547 $ 6,519
Working capital (deficit)...... (656) (579) 453 942 22,152 21,233
Total assets................... 646 962 3,542 6,986 29,537 28,056
Capital lease obligations, less
current portion............... 81 53 150 293 104 62
Redemption obligation for
preference shares............. -- -- 1,125 1,385 -- --
Total stockholders' equity
(deficiency).................. (556) (349) (265) 335 23,935 22,850
- -------
(1) See Note 1 of the notes to the audited historical consolidated financial
statements of Firefox included elsewhere herein.
19
FTP AND FIREFOX
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE
MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
DATA(1):
Total revenue.......................................... $155,894 $ 33,187
Income (loss) from operations.......................... 31,023 (16,961)
Income (loss) before income taxes...................... 36,947 (15,919)
Net income (loss)...................................... 22,280 (10,202)
Net income (loss) per common share (primary and fully
diluted).............................................. $ .67 $ (.32)
Weighted average common and common equivalent shares
outstanding (primary and fully diluted)............... 33,363 31,939
MARCH 31,
1996
---------
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DATA(1):
Cash and cash equivalents............................................. $ 33,976
Working capital....................................................... 76,331
Total assets.......................................................... 200,160
Total liabilities..................................................... 32,135
Stockholders' equity.................................................. 168,025
- --------
(1) See Notes A through D to the following table and "Unaudited Pro Forma
Consolidated Financial Statements," including the notes related thereto.
20
FTP AND FIREFOX
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA
HISTORICAL AND FTP UNAUDITED PRO FORMA PER SHARE DATA
HISTORICAL PRO FORMA
-------------- ---------
FTP FIREFOX FTP
----- ------- ---------
NET INCOME (LOSS) PER COMMON SHARE (PRIMARY AND FULLY
DILUTED):
Year ended December 31, 1995....................... $ .87 $ .07 $ .67
Three months ended March 31, 1996 (unaudited)...... (.31) (.15) (.32)
BOOK VALUE PER COMMON SHARE (UNAUDITED):
March 31, 1996..................................... $5.82 $3.39 $5.26
UNAUDITED EQUIVALENT FIREFOX PRO FORMA PER SHARE DATA
ASSUMED AVERAGE PRICE: $6.00 $8.00 $10.00 $12.00
EXCHANGE RATIO: .9633 .9279 .7423 .6186
----- ----- ------ ------
NET INCOME (LOSS) PER COMMON SHARE (PRIMARY
AND FULLY DILUTED):
Year ended December 31, 1995.............. $ .62 $ .59 $ .50 $ .42
Three months ended March 31, 1996
(unaudited).............................. (.30) (.30) (.24) (.20)
BOOK VALUE PER COMMON SHARE:
March 31, 1996............................ $4.84 $4.70 $ 3.90 $ 3.34
- --------
Note A: The net income (loss) per share data presented above do not reflect the
anticipated charge for in-process technology of approximately $41
million to be incurred in connection with the Merger or the write-off
of capitalized costs of approximately $1 million (net of the resulting
income tax benefit) relating to products made redundant by the Merger.
See "Unaudited Pro Forma Consolidated Financial Statements." If these
charges were reflected as if the Merger had been consummated on January
1, 1995, the pro forma FTP net income per common share presented above
for the year ended December 31, 1995 would be reduced by $1.29 per
share, and the equivalent pro forma Firefox net income per share
presented above for the year ended December 31, 1995 at the assumed
Average Prices of $6.00, $8.00, $10.00 and $12.00 would be reduced by
$.82, $.96, $1.15 and $1.20 per share, respectively.
Note B: The unaudited FTP pro forma and equivalent Firefox pro forma net income
(loss) per share amounts presented above are based upon the historical
weighted average number of shares of FTP Common Stock and dilutive
common stock equivalents of FTP outstanding during each period
presented. In addition, the shares of FTP Common Stock to be issued
pursuant to the Merger (based upon the assumed Exchange Ratios on the
Firefox Record Date) (see "--Conversion of Shares" above) and the
options to purchase FTP Common Stock into which options outstanding
under certain Firefox employee and director stock option plans will be
deemed to be converted pursuant to the Merger (based upon the assumed
Exchange Ratios and the number of shares of Firefox Common Stock
subject to such options as of the Firefox Record Date) (see "--
Conversion of Options" above) are treated as if they were issued on
January 1, 1995.
Note C: The unaudited FTP and equivalent Firefox pro forma book value per share
amounts are based upon the actual number of shares of FTP Common Stock
outstanding at March 31, 1996 and the number of shares of FTP Common
Stock to be issued pursuant to the Merger based upon the assumed
Exchange Ratios and the number of shares of Firefox Common Stock
outstanding on the Firefox Record Date.
Note D: The unaudited FTP pro forma per share amounts are presented assuming an
Average Price of the FTP Common Stock of $10.00. The equivalent Firefox
pro forma per share amounts are presented at assumed Average Prices of
FTP Common Stock of $6.00, $8.00, $10.00 and $12.00 and the resulting
Exchange Ratios of .9633, .9279, .7423 and .6186, respectively (based
on the number of shares of Firefox Common Stock outstanding on the
Firefox Record Date).
21
RISK FACTORS
In addition to the other information in this Joint Proxy
Statement/Prospectus, the following factors should be considered carefully in
evaluating the Merger-related proposals to be voted on at the FTP Meeting and
the Firefox Meeting and the acquisition of the securities offered hereby. For
periods following the Merger, references to the products, business, financial
results or financial condition of FTP or the combined company should be
considered to refer to FTP and its subsidiaries, including Firefox, unless the
context otherwise requires. Forward-looking statements made in this section
and elsewhere in this Joint Proxy Statement/Prospectus are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. All forward-looking statements involve risks and uncertainties, and
actual results could differ materially from those set forth in the forward-
looking statements contained herein for a variety of reasons. These reasons
include, but are not limited to, competition, technological change, increased
demands on management as a result of planned expansion, risks of integration
of the two companies and other risks outlined in this section.
RISKS RELATING TO THE MERGER
Integration of the Two Companies. FTP and Firefox believe that an important
benefit to be realized from the Merger will be the integration of their
respective managements, strategies, operations and product lines. Certain of
the anticipated benefits of the Merger described under "The Merger and Related
Transactions--Reasons for the Merger" may not be achieved unless such
integration is successful and achieved in a timely manner. The successful
combination of companies in the rapidly changing high technology industry
requires coordination of sales and marketing and research and development
efforts and may be more difficult to accomplish than in some other industries.
In the case of the Merger, the difficulties of such integration may initially
be increased by the necessity of coordinating geographically separated
organizations (in suburban Boston, Massachusetts, in Santa Clara, California,
and in Solihull, England) and integrating personnel with disparate business
backgrounds and corporate cultures. The length of the time necessary to
consummate the Merger has caused a loss of momentum in the business of Firefox
and has resulted in a loss of key sales management personnel in the United
States and is likely to result in a loss of additional key personnel,
including sales personnel, which has had and is likely to continue to have a
material adverse impact on Firefox's operating results and financial condition
in the near term. See "Firefox Management's Discussion and Analysis of
Financial Condition and Results of Operations." The integration of the two
companies will require the dedication of management resources that will
temporarily detract from attention to the daily business of the combined
company. This integration process may cause an interruption of, or a loss of
momentum in, the activities of either or both of the companies' businesses or
loss of key personnel, including sales personnel. The foregoing could have an
adverse effect on the revenue and operating results of the combined company,
at least in the near term. Changes necessitated by the Merger that may be made
to the strategies, operations or management of Firefox and FTP could have a
material adverse effect on the business, financial condition and results of
operations of the combined company. In addition, FTP recently completed three
other business acquisitions (see "Information Regarding FTP--Overview") which
it is still in the process of integrating, and may acquire other businesses in
the future. These other acquisitions may impose additional difficulties on the
integration of Firefox into FTP.
In determining the terms of the proposed Merger, the managements of FTP and
Firefox evaluated the companies' respective businesses based in part on
expectations concerning the future results of each of the companies and of the
combined company. The evaluations reflected, to a material extent,
expectations that there would be a significant increase in the sales of
Firefox and FTP products from historical levels, as well as an expectation
that the Merger would produce the other beneficial effects described under
"The Merger and Related Transactions--Reasons for the Merger." The
expectations of an increase in Firefox and FTP product sales are based in part
upon the expected introduction of Firefox products into FTP's distribution
channels and FTP products into Firefox's distribution channels and the
expected ability of the combined company to offer customers and potential
customers a comprehensive suite of client-based and server-based solutions,
addressing TCP/IP-based applications and networks. There can be no assurance
that any increased sales of FTP or Firefox products will result from the
Merger or that any of these expectations will be fulfilled, and the failure of
these expectations to be fulfilled could have a material adverse effect on the
business, financial condition and results of operations of the combined
company.
22
Resellers and Customers. There can be no assurance that resellers and other
customers of Firefox and FTP will continue their current buying patterns
without regard to the announced Merger. Any significant delay or reduction in
orders for Firefox's or FTP's products could have a material adverse effect on
the combined company's business, financial condition and results of
operations. In particular, FTP and Firefox believe that certain customers may
defer purchasing decisions while evaluating the combined company's future
product strategy and competitive position in the industry. Any such deferrals
could have a material adverse effect on the combined company's business,
financial condition and results of operations at least in the near term. These
effects may occur with respect to each company during the period prior to the
consummation of the Merger or following the Merger.
Transaction Charges. The combined company expects to incur a charge for
acquired in-process technology currently estimated to be approximately $41
million in connection with the combination of the two companies. Other Merger-
related expenses expected to be incurred include investment advisory fees,
legal and accounting expenses and other transaction costs (estimated to total
approximately $4 million). See "Unaudited Pro Forma Consolidated Financial
Statements." The amounts set forth above are preliminary estimates only, and
are therefore subject to change. There can be no assurance that the combined
company will not incur additional charges to reflect costs associated with the
Merger or that the anticipated benefits of the Merger will outweigh such
costs.
RISKS RELATING TO FTP AND FIREFOX
The risk factors in this subsection apply to each of FTP and Firefox
individually, where appropriate, and also are expected to apply to the
combined company following the consummation of the Merger.
Dependence on TCP/IP Protocol. All of FTP's networking products and
Firefox's NOV*IX product are designed to utilize the TCP/IP data
communications protocol suite. Continued widespread commercial use and
development of TCP/IP is critical to FTP's and Firefox's success. While TCP/IP
is currently the leading internetworking data communications protocol
standard, other organizations, including the International Standards
Organization, have developed or are developing other open protocol standards
that compete with TCP/IP. In addition, certain competitors, such as
International Business Machines Corporation ("IBM") and Novell, Inc.
("Novell"), have developed proprietary protocols that compete with TCP/IP. If
any of these alternative protocols becomes widely accepted in the
internetworking marketplace, there may be a reduction in the acceptance of
TCP/IP, which would have a material adverse effect on FTP's and Firefox's, as
well as the combined company's, business, financial condition and results of
operations. See "Information Regarding FTP--Products" and "Information
Regarding Firefox--Products."
Rapid Technological Change and Dependence on New Products. The market for
networking software products is subject to rapid changes in technology and
customer preferences. The combined company's growth and future financial
performance will depend upon its ability to develop and introduce new products
and enhancements of existing products that accommodate the latest
technological advances and customer requirements. There can be no assurance
that new products or product enhancements will be developed or marketed
successfully by the combined company on a timely basis or at all, that any new
product or product enhancements will achieve market acceptance, that other
software vendors will not develop and market products which are superior to
FTP's, Firefox's or the combined company's products or that such other
products will not achieve greater market acceptance. In addition, the ability
of each of FTP, Firefox and the combined company to develop and market new
products and product enhancements is dependent upon its ability to attract and
retain qualified employees. Any failure by FTP, Firefox or the combined
company to anticipate or respond adequately to changes in technology and
customer preferences, to develop and introduce new products or product
enhancements in a timely fashion, or to retain qualified employees, could have
a material adverse affect on its business, financial condition and results of
operations.
Because certain of Firefox's and FTP's products incorporate software and
other technologies developed and maintained by third parties, both Firefox and
FTP are to a certain extent dependent upon such third parties'
23
abilities to enhance their current products, to develop new products on a
timely and cost-effective basis that will meet changing customer needs, and to
respond to emerging industry standards and other technological changes. There
can be no assurance that the combined company would be able to replace the
functionality provided by the third party technologies currently offered in
conjunction with Firefox's and FTP's products in the event that such
technologies become unavailable to FTP, Firefox or the combined company or
obsolete or incompatible with future versions of FTP's, Firefox's or the
combined company's products or market standards. The absence of or any
significant delay in the replacement of that functionality could have a
material adverse effect on the combined company's business, financial
condition or results of operations.
Networking software products as complex as those offered by FTP and Firefox
may contain undetected errors or failures when first introduced or as new
versions are released. There can be no assurance that, despite testing by FTP
and Firefox and by current and potential customers, errors will not be found
in new products and product enhancements after commencement of commercial
shipments, resulting in loss of or delay in market acceptance. Such loss or
delay could have a material adverse effect on the combined company's business,
financial condition and results of operations. See "Information Regarding
FTP--Products" and "Information Regarding Firefox--Products" and "--Product
Development."
Competition. The networking software industry is highly competitive, and is
characterized by evolving industry standards, frequent introduction of new
products and product enhancements, and continuous improvement in product
reliability, compatibility, memory use and performance. FTP competes with
major computer and communications systems vendors, including IBM, Microsoft
Corporation ("Microsoft"), Novell, and Sun Microsystems, Inc. ("Sun"), as well
as smaller networking software companies, such as NetManage, Inc.
("NetManage"). Some of FTP's competitors have substantially greater financial,
technical, sales, marketing and other resources than FTP, as well as greater
name recognition and a larger customer base. In addition, FTP's core product
lines are based upon TCP/IP, an open non-proprietary protocol suite. Several
of FTP's competitors have developed proprietary networking applications and
certain of such vendors, including Microsoft, provide a TCP/IP protocol suite
in their products. The introduction of such protocol suites is currently
lengthening the sales cycle and has resulted in a decrease in average unit
sales prices for certain of FTP's products and may continue to have this
effect, which could materially adversely affect the combined company's results
of operations. FTP anticipates that other companies may also enter the market
with their own implementations of TCP/IP. Further, FTP is facing new
competition from makers of terminal emulation software, such as Attachmate
Corporation ("Attachmate") and Wall Data, Inc. ("Wall Data"). In addition,
existing competitors could devote additional resources to the development of
TCP/IP or expand their existing TCP/IP product lines. Increased competition
from existing or new products could adversely affect demand for FTP's products
and has led, and could continue to lead, to increased price competition,
longer payment terms and other concessions, adversely affecting FTP's gross
margins and operating results. See "Information Regarding FTP--Competition"
and "FTP Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The market for Internet-based software and services is new, intensely
competitive, rapidly evolving and subject to rapid technological change. FTP
expects competition in this market to persist, intensify and increase in the
future. Some of FTP's and Firefox's current and potential competitors have
longer operating histories, greater name recognition, larger installed
customer bases and significantly greater financial, technical and marketing
resources than will the combined company. Such competition could materially
adversely affect the combined company's business, operating results or
financial condition. The combined company's current and potential competitors
include Microsoft, browser software vendors including Netscape Communications
Corporation ("Netscape"), Web server software and service vendors, PC and Unix
software vendors and other vendors, including Apple Computer, Inc., Sun,
Hewlett-Packard Co. ("Hewlett-Packard"), IBM, Digital Equipment Corporation
("Digital"), The Santa Cruz Operation, Inc. and Silicon Graphics, Inc. Certain
operating system companies, such as Microsoft, have incorporated Web client
functionality into their software products and offer this functionality at
little or no additional cost to customers. If client products incorporated
into operating systems by such operating system vendors gain market
acceptance, these organizations may be better positioned than FTP and Firefox
to sell Web server and applications software products. In addition, software
24
companies which have server products in other product categories may choose in
the future to enhance the functionality of existing products or develop new
competitive products. Further, FTP's and Firefox's current products are
designed around certain standards, and industry acceptance of competing
standards could decrease the demand for FTP's and Firefox's products. For
example, Microsoft and IBM are each proposing an alternative security
standard, and widespread adoption of either standard could have a material
adverse effect on the combined company's business, financial condition and
results of operations. There can be no assurance that the combined company
will be able to compete successfully against current or future competitors or
that competitive pressures faced by the combined company will not materially
adversely affect its business, financial condition or results of operations.
Firefox's products are designed to operate on the Novell operating system.
In the future, providers of major network operating systems ("NOS") and client
operating system products may increasingly seek to incorporate in their
products functionality similar to that provided by Firefox's connectivity
products. To the extent such companies provide such integrated functionality,
the incremental value of Firefox's product offerings could be substantially
reduced. Novell and other providers of network operating systems currently
offer protocol stacks within their network operating systems, and, if they
were to add applications related to those stacks, sales of Firefox's products
could be adversely affected. There can be no assurance that market uncertainty
relating to Novell's product plans, the introduction of new products by
Novell, or other actions by Novell, will not render Firefox's products
noncompetitive or obsolete. In addition, in connection with the development
and enhancement of certain of its products, Firefox has in the past received
pre-release access to certain of Novell's products. There can be no assurance
that Novell will continue to make such pre-release access available, and any
such discontinuance could have an adverse effect on Firefox's ability to
provide timely enhancements to its products.
As is the case with FTP, many of Firefox's competitors have substantially
greater financial, technical, sales, marketing and other resources, as well as
greater name recognition and a larger customer base, than Firefox. There can
be no assurance that Firefox will be able to continue to provide products that
compare favorably with the products of Firefox's existing or anticipated
competitors or that competitive pressures will not require Firefox to reduce
its prices. See "--Declining Average Selling Prices" below and "Information
Regarding Firefox--Competition."
Management of Growth. FTP and Firefox have each experienced rapid growth,
both in revenue and in employees, in recent periods. This growth has placed,
and will continue to place, a significant demand on FTP's and Firefox's
respective management and other resources. From January 1, 1995 through April
30, 1996, the number of FTP's and Firefox's employees grew from approximately
474 to approximately 880 and from approximately 87 to approximately 151,
respectively. Included in the number of FTP employees were key members of
management as well as approximately 150 employees hired in connection with
business acquisitions. In early May 1996, in connection with the
reorganization of FTP's operations described under "Information Regarding
FTP--Overview," FTP decided to effect certain cost-cutting measures, including
a reduction of approximately 10% in the number of FTP's full-time employees.
Included in the increase in the number of Firefox employees are a significant
number of sales and marketing personnel added in 1995. The length of time
necessary to consummate the Merger has made, and the impact of the Merger may
make, the addition and retention of Firefox sales personnel more difficult in
the near term. In addition, the combined company's growth will require each to
continue to recruit additional management personnel, expand its direct sales
force, improve its operational and financial systems, expand its customer
support functions and train, motivate and manage its employees. If the
combined company is unable to manage its expected growth effectively or
recruit or retain key technical and sales personnel, its operating results
will be adversely affected. See "FTP Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Reliance on Acquisitions. FTP expects that the combined company will
continue FTP's strategy of expanding its products and technology in part
through the acquisition of specific complementary products and of businesses
that have developed products and technologies similar to those of FTP, in
addition to internal development. This strategy is an important component of
the combined company's ability to achieve its goal of providing to its
customers a comprehensive suite of client-based and server-based solutions
addressing TPC/IP-
25
based applications and networks, and FTP and Firefox believe that the future
growth of the combined company depends, in part, upon the success of this
strategy. While FTP is continually searching for acquisition opportunities,
there can be no assurance that it will be successful in identifying, acquiring
and developing products and technology. If any potential acquisition
opportunities are identified, there can be no assurance that the combined
company will consummate such acquisitions or successfully integrate the
technologies or businesses acquired into the combined company. The combined
company may in the future face increased competition for acquisition
opportunities, which may inhibit its ability to consummate suitable
acquisitions and increase the cost of completing acquisitions.
Acquisitions involve a number of special risks and factors, including, among
other things, the diversion of management's attention, the assimilation of the
operations and personnel of the acquired companies, the incorporation of
acquired products into existing product lines, adverse short-term effects on
reported operating results, the amortization of acquired intangible assets,
the loss of key employees of the acquired company or business and the
difficulty of presenting a unified corporate image. No assurance can be given
that any acquisition by the combined company will or will not occur, that if
an acquisition does occur that it will not materially and adversely affect the
combined company or that any such acquisition will be successful in enhancing
its business. In the event that the operations of an acquired company do not
meet expectations, the combined company may be required to restructure the
acquired business or write off the value of some or all of the assets of the
acquired business.
Potential Fluctuations in Operating Results. FTP's and Firefox's operating
results have in the past and the combined company's operating results may in
the future fluctuate from period to period as a result of a variety of
factors, including, among other things: the purchasing patterns of their
customers; the lengthening of sales cycles; the mix of products sold; customer
order deferrals in anticipation of new products or product enhancements;
market acceptance and timing of the introductions of new products and product
enhancements by FTP and Firefox and their competitors; variations in sales by
product and distribution channel; changes in resellers' inventory practices;
the exercise of stock rotation or inventory price protection practices by
distributors; the accuracy of resellers' forecasts of customer demands;
fluctuations in domestic and foreign economic conditions; competitive pricing
pressure; and FTP's sales compensation programs, which are based both on
annual and quarterly sales levels. In addition, substantially all of FTP's and
Firefox's product revenue and profit in each quarter result from orders
received in that quarter, and an increasingly large portion of orders are
received during the last month of such quarter. If revenue does not meet
expectations in any given quarter, operating results may be materially
adversely affected, as occurred with respect to both FTP and Firefox in the
first quarter of 1996. Through 1996, FTP intends to continue to expand the
sales and marketing and product development efforts of the combined company;
therefore, FTP expects that these expenses of the combined company will
increase as a percentage of total revenue. There can be no assurance that FTP
or Firefox will not experience significant fluctuations in operating results
in the future. Quarterly sales and operating results generally depend on the
volume and timing of and ability to fulfill orders received within the
quarter, which are difficult to forecast. The combined company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall of demand for the combined
company's products and services in relation to the combined company's
expectations would have an immediate adverse impact on the combined company's
business, financial condition and results of operations. To the extent that
expenses precede or are not subsequently followed by increased revenue, the
combined company's business, financial condition and results of operations
will be materially adversely affected. Based on the foregoing, FTP and Firefox
believe that period to period comparisons of results of operations are not
necessarily meaningful and should not be relied upon as an indicator of future
performance. See "FTP Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Firefox Management's Discussion and
Analysis of Financial Condition and Results of Operations."
International Sales. Sales outside the United States accounted for
approximately 44% and 46% of FTP's total revenues in 1994 and 1995,
respectively. Sales in the United Kingdom accounted for approximately 40% and
39% of Firefox's net revenues in 1994 and 1995, respectively. FTP and Firefox
expect that sales outside the
26
United States will continue to account for a substantial portion of revenue
for the foreseeable future. Continued growth in international sales is
expected to be a significant factor in the future success of the combined
company. There can be no assurance that the combined company will be able to
maintain or increase international sales of its products or that its
international distribution channels will be able to service and support its
products adequately.
There are certain general risks inherent in conducting international
business, including exposure to currency exchange rate fluctuations, changes
in markets caused by various political, social and economic factors,
unexpected changes in regulatory requirements, tariffs and other trade
barriers, costs and risks of localizing products for foreign countries, longer
payment terms, potentially adverse tax consequences, repatriation of earnings,
the burdens of complying with a wide variety of foreign laws and the
difficulties of managing international operations. In addition, revenue of the
combined company earned in various countries where the combined company does
business may be subject to taxation by more than one jurisdiction, thereby
adversely affecting the combined company's earnings. There can be no assurance
that such factors will not have a material adverse effect on the revenue from
the combined company's future international sales and, consequently, the
combined company's business, financial condition and results of operations.
An increase in the value of the U.S. dollar relative to foreign currencies
would make the combined company's products more expensive and therefore
potentially less competitive in those markets. The combined company is
expected, to a certain extent, to use price lists denominated in local
currencies, and fluctuations in currency exchange rates could have an adverse
impact on the combined company's financial results. Because substantially all
of the combined company's international sales will be indirect, any material
increase in the combined company's international sales as a percentage of
total revenue may have an adverse effect on its gross margins due to the lower
per unit revenue realized by the combined company on sales through indirect
channels. Further, if the size of its international customers and contracts
continues to increase, FTP expects the combined company to transact a greater
number of sales in local currencies, with the result that currency exchange
rate fluctuations in the future may have an increased effect on its business,
financial condition and results of operations. See "Information Regarding
FTP--Sales and Marketing--International" and "Information Regarding Firefox--
Sales and Marketing."
Developing Internet Market; New Entrants; Unproven Acceptance of Products;
Price Erosion. The market for certain of FTP's software and services for the
Internet and corporate "intranet" markets has only recently begun to develop,
is rapidly evolving and is characterized by an increasing number of market
entrants who have introduced or developed products and services for
communication and commerce over the Internet and private IP networks. As is
typical in the case of a new and rapidly evolving industry, demand and market
acceptance for recently introduced products and services are subject to a high
level of uncertainty. The industry is young and has few proven products.
Moreover, critical issues concerning the commercial use of the Internet
(including profitability, security, reliability, cost, ease of use and access,
and quality of service) remain unresolved and may impact the growth of
Internet use. While FTP believes its software products offer significant
advantages for commerce and communication over the Internet and private IP
networks, there can be no assurance that commerce and communication over the
Internet or private IP networks will become as widespread as quickly as
expected, or that FTP's products will become widely adopted for these
purposes. In addition, FTP's client software products for the Internet market
are subject to pricing pressures and marketing risks due to free client
software distributed by online service providers, Internet access providers
and others. Further, companies such as Microsoft, IBM, Netscape and Intuit are
now bundling or are planning to bundle or otherwise offer client software with
their operating systems or other product offerings at little or no additional
cost to users. Both of these factors have resulted in a decrease in average
selling prices for FTP's client software products for the Internet market.
Further, there can be no assurance that such products, even if accepted, will
generate significant profits for FTP. If the Internet or intranet markets fail
to develop, develop more slowly than expected or become saturated with
competitors, or if FTP's products for the Internet or intranet markets do not
achieve market acceptance, the combined company's business, financial
condition and results of operations will be materially adversely affected.
27
Proprietary Rights. FTP considers its implementations of the TCP/IP
protocol, its OnNet Kernel software and PC/TCP Kernel software, to be
proprietary and relies primarily on a combination of copyrights, trademarks,
trade secret law and contracts to protect such proprietary implementations.
However, the basic TCP/IP protocols are non-proprietary and other parties have
developed their own versions. See "--Competition" above.
FTP generally enters into confidentiality and/or license agreements with its
consultants, distributors, customers and potential customers and limits access
to and distribution of its source code and other proprietary information.
Although neither FTP nor Firefox currently has any issued patents, the number
of patents granted on software inventions is increasing. Consequently, there
is a growing risk of third parties asserting patent claims against the
combined company. In the future, the combined company may receive
communications from third parties asserting that either Firefox's or FTP's
products infringe, or may infringe, the patents or other proprietary rights of
such third parties, or seeking indemnification against such infringement, or
asserting that the combined company must obtain a license from such third
parties. Such communications, and any resulting litigation, could result in
substantial costs and diversion of resources and could have a material adverse
effect on the combined company's business, financial condition and results of
operations. If any claims or actions were to be asserted against the combined
company, and the combined company were required to seek a license of a third
party's intellectual property, there can be no assurance that the combined
company would be able to acquire such a license on reasonable terms or at all,
and no prediction can be made about the effect that such license might have on
the combined company's business, financial condition or results of operations.
Should litigation with respect to any such claim commence, such litigation
could be extremely expensive and time consuming and could materially adversely
affect the combined company's business, financial condition and results of
operations regardless of the outcome of the litigation. See "Information
Regarding FTP--Proprietary Rights and Licensing" and "Information Regarding
Firefox--Proprietary Rights."
Declining Average Selling Prices. Until 1995, the market for FTP's and
Firefox's products was not characterized by significant price competition;
however, each of FTP and Firefox is facing increasing pricing pressures from
competitors. These pressures are likely to continue to increase, have led to a
decrease in average selling prices for certain of FTP's and Firefox's
products, and could continue to have this effect on the average selling prices
for their respective products. Any material reduction in the price of FTP's or
Firefox's products would negatively affect gross margins and would require the
combined company to increase significantly unit sales in order to maintain net
revenue. See "FTP Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Information Regarding Firefox--Sales and
Marketing" and "--Competition" and "Firefox Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Distribution Risks. As part of their sales and marketing strategies, both
FTP and Firefox intend to continue to expand their sales and marketing
efforts. There can be no assurance that the combined company will be
successful in this effort. For example, there can be no assurance that the
combined company will be able to attract or retain qualified direct sales
personnel, that the planned expansion will result in increased sales of the
combined company's products, or that such expansion will enable the combined
company to compete successfully against the larger and better funded sales and
marketing organizations of some of its competitors.
Firefox grants its distributors limited rights to exchange unsold products
for other products and provides inventory price protection in the event of
price reductions by Firefox. While Firefox provides allowances for projected
returns and price protection, there can be no assurance that allowances will
be sufficient to offset product returns and price protection in the future.
Substantial returns of products or a decrease in the price of Firefox's
products could have a material adverse effect on the business, financial
condition and results of operations of the combined company. See "Information
Regarding Firefox--Sales and Marketing."
Firefox relies significantly on its independent distributors, systems
integrators and value-added resellers for certain elements of the marketing of
its products and for the distribution of its products. The agreements in place
with these organizations are generally non-exclusive. The distributors,
systems integrators and value-added resellers are not within the control of
Firefox, may represent other product lines in addition to those of Firefox
28
and are not obligated to purchase products from Firefox. Further, there can be
no assurance that these distributors, systems integrators or value-added
resellers will give a high priority to the marketing of Firefox's products,
and they may give a higher priority to other products which may include the
products of Firefox's competitors. Actions of this nature by Firefox's
distributors, systems integrators or value-added resellers may result in a
lower sales effort applied to Firefox's products and a consequent reduction in
Firefox's operating results. Firefox's results of operations can also be
materially adversely affected by changes in the inventory strategies of its
resellers, which can occur rapidly and in many cases may not be related to
end-user demand. There can be no assurance that the combined company will
retain any of Firefox's current distributors, systems integrators or value-
added resellers, and there can be no assurance that Firefox will succeed in
recruiting replacement or new organizations to represent it. Any changes in
distribution channels may adversely affect sales and consequently may
adversely affect the combined company's business, financial condition and
results of operations. See "Information Regarding Firefox--Sales and
Marketing."
Government Regulation and Legal Uncertainties. FTP and Firefox are not
currently subject to direct regulation by any government agency, other than
regulations applicable to business generally, and there are currently few laws
or regulations directly applicable to access to or commerce on the Internet.
However, due to the increasing popularity and use of the Internet, it is
possible that various laws and regulations may be adopted with respect to the
Internet, covering issues such as user privacy, pricing and characteristics
and quality of products and services. For example, the relatively new
Communications Decency Act prohibits distribution of obscene, lascivious or
indecent communications on the Internet. The adoption of any such laws or
regulations may decrease the growth of the Internet, which could in turn
decrease the demand for the combined company's products and increase the
combined company's cost of doing business or otherwise have an adverse effect
on the combined company's business, financial condition or results of
operations. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, libel and personal privacy is
uncertain. Further, due to the encryption technology contained in certain of
FTP's products, such products are subject to U.S. export controls. There can
be no assurance that such export controls, either in their current form or as
may be subsequently enacted, will not limit the combined company's ability to
distribute products outside of the United States or electronically. While FTP
takes precautions against unlawful exportation, the global nature of the
Internet makes it virtually impossible to effectively control the distribution
of the combined company's products. In addition, federal or state legislation
or regulation may further limit levels of encryption or authentication
technology. Any such export restrictions, new legislation or regulation or
unlawful exportation could have a material adverse effect on the combined
company's business, financial condition and results of operations.
Dependence on Key Personnel. Competition for qualified personnel in the
software industry is intense and there can be no assurance that the combined
company will be able to attract and retain a sufficient number of qualified
employees. The success of the combined company will depend to a significant
degree upon the continued contributions of the respective key management,
marketing, product development and operational personnel of FTP and Firefox.
As the business of the combined company grows, it may become increasingly
difficult for the combined company to hire, train and assimilate the new
employees needed. In addition, it is possible that business changes or
uncertainty brought about by the Merger may cause key employees of Firefox to
leave the combined company. The combined company's inability to retain and
attract key employees could have a material adverse effect on the combined
company's business, financial condition and results of operations.
Volatility of Stock Price. The stock prices of each of the FTP Common Stock
and the Firefox Common Stock have historically been volatile, and both FTP and
Firefox experienced significant declines in their respective stock prices in
January 1996, as a result of reporting revenue and earnings for the fourth
quarter of 1995 that were below stock market analysts' expectations. FTP and
Firefox believe factors such as quarterly fluctuations in results of
operations, announcements of new products and acquisitions by the combined
company or by its competitors, changes in earnings estimates by analysts,
changes in accounting treatments or principles and other factors may cause the
market price of the combined company's common stock to fluctuate, perhaps
substantially. Further, stock prices for many technology companies fluctuate
widely for reasons which may be
29
unrelated to operating results. Any shortfall in results versus analysts'
expectations could have an immediate and significant adverse effect on the
trading price of the combined company's common stock in any given period.
These fluctuations, as well as general economic, political and market
conditions, may adversely affect the market price of the common stock of the
combined company in the future. See "Comparative Per Share Market Price Data."
Litigation Against Firefox. On February 23, 1996, a class action lawsuit was
filed in the United States District Court for the Northern District of
California, San Francisco Division, naming Firefox and certain of its officers
and directors as defendants. On June 5, 1996, the District Court entered an
order dismissing the complaint in its entirety with leave to amend. The
lawsuit alleged that the defendants misrepresented or failed to disclose
material facts about Firefox's operations and financial results, which the
plaintiffs contend resulted in an artificial inflation of the price of the
Firefox Common Stock. The suit was purportedly brought on behalf of a class of
purchasers of the Firefox Common Stock during the period from August 3, 1995
to January 2, 1996. The complaint alleged claims for violation of Sections
10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder and sought
relief in the form of unspecified compensatory damages, pre- and post-judgment
interest, attorneys' and expert witness fees and such extraordinary, equitable
and/or injunctive relief as permitted by law, equity and the federal statutory
provisions under which the suit was brought. Specifically, the complaint
alleged that each of the defendants knew or had access to allegedly material
adverse non-public information about Firefox's financial results and business
conditions which allegedly was not disclosed, improperly recognized certain
revenues and failed to keep adequate reserves and participated in drafting,
reviewing and/or approving alleged misleading statements, releases, analyst
reports and other public representations, including disclaimers and warnings,
of and about Firefox. Firefox has reviewed the allegations in the lawsuit,
believes them to be without merit, and intends to defend itself and its
officers and directors vigorously if the complaint is amended. In order to
support an adequate defense, Firefox may be required to expend substantial
sums for legal and expert fees and costs. The cost of defending the litigation
and the outcome of the litigation are uncertain and cannot be estimated. If
the lawsuit were determined adversely to Firefox, Firefox could be required to
pay a substantial judgment. For further information concerning the reasons for
the court's dismissal of the complaint, see "Recent Developments."
Litigation Against FTP. On March 14, 1996, a class action lawsuit was filed
in the United States District Court for the District of Massachusetts, naming
FTP, certain of its officers and two former officers as defendants. The
lawsuit alleges that the defendants publicly issued false and misleading
statements and omitted to disclose material facts necessary to make statements
not false and misleading, which the plaintiffs contend caused an artificial
inflation in the price of the FTP Common Stock. Specifically, the complaint
alleges that the defendants knowingly concealed adverse facts and made false
or misleading forward and non-forward looking statements concerning the
operating results and financial condition of FTP, the effects of its July 1995
corporate restructuring and changing competitive factors in FTP's industry.
The lawsuit, which is purportedly brought on behalf of a class of purchasers
of the FTP Common Stock during the period from July 14, 1995 to January 3,
1996, alleges violations of Section 10(b) and Section 20(a) of the Exchange
Act and Rule 10b-5 thereunder and seeks relief in the form of unspecified
compensatory damages, costs and expenses and such other and further relief as
the Court deems proper and just. FTP has reviewed the allegations in the
lawsuit, believes them to be without merit, and intends to defend itself and
its officers vigorously. In order to support an adequate defense, FTP may be
required to expend substantial sums for legal and expert fees and costs. The
cost of defending the litigation and the outcome of the litigation are
uncertain and cannot be estimated. If the lawsuit were determined adversely to
FTP, FTP could be required to pay a substantial judgment. See "Recent
Developments."
General Economic Conditions. Over the past several years, the economy has
experienced strong growth, due to, among other things, low interest rates,
increased capital spending and other factors. In addition, businesses have
been deploying sophisticated computer network technology to make them more
competitive and better able to serve their customers. This has resulted in
strong growth in many segments of the computer industry, including the PC,
semiconductor and software industries. Recent announcements by some PC and
semiconductor manufacturers of slowing sales growth, however, may in turn
result in a similar slowdown in sales growth in the networking software
segment of the industry in which FTP and Firefox participate. See "FTP
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
30
Significant Firefox Product Concentration. To date, Firefox has derived
substantially all of its revenues from sales of its connectivity products,
and, specifically, sales of Firefox's NOV*IX products have accounted for a
majority of these revenues. Firefox expects that NOV*IX and other connectivity
products will continue to account for substantially all of Firefox's revenues
for the foreseeable future. Furthermore, because NOV*IX and Firefox's other
products have been developed for LANs running Novell's NetWare LAN operating
system, sales of Firefox's products could be materially adversely affected by
market developments adverse to Novell or NetWare. Firefox may be required to
enhance such products to anticipate or respond adequately to changes in
technology and customer preferences. There can be no assurance that Firefox
will be successful at making such enhancements at all or in a timely fashion.
The combined company's future operating results will depend in substantial
part upon its ability to increase unit volume sales of its connectivity
products and to begin to generate significant product revenues from its
client-server and mail products and from its messaging products currently
under development. Because Firefox's client-server products are designed to be
used with specific vendors' client-based applications, the combined company's
sales of client-server products will depend in part on its ability to maintain
compatibility with such vendors' client-based applications. There is no
assurance that the combined company will be able to maintain compatibility
with these vendors' products, and the failure to maintain compatibility would
adversely affect the combined company's sales of client-server products. Any
failure to increase revenues from connectivity products or to generate
significant revenues from Firefox's other products, whether due to
competition, technological change or otherwise, would have a material adverse
effect on the combined company's business, financial condition and results of
operation. See "Information Regarding Firefox--Products."
Certain Anti-Takeover Provisions. The FTP Articles and FTP Bylaws and
Massachusetts law contain provisions that could have the effect of impeding
the removal of incumbent directors and inhibiting a non-negotiated merger or
other business combination. The provisions provide for a classified Board of
Directors and impose various procedural and other requirements that could make
it more difficult for stockholders to effect certain actions. In addition, the
Board of Directors of FTP adopted a stockholders' rights plan in December
1995, which plan may have the effect of delaying, deferring or preventing a
change in control of FTP, thereby possibly having the effect of depriving
stockholders of the opportunity to receive a premium for their shares. Such
provisions, as well as the stockholders' rights plan, could have the effect of
making FTP less attractive to a potential acquirer and could result in FTP
stockholders receiving less for their shares of FTP Common Stock than might
otherwise be available in the event of a take-over attempt. Certain provisions
of Massachusetts law may have a similar effect. See "Description of FTP
Capital Stock."
THE FTP MEETING
DATE, TIME AND PLACE OF MEETING
The FTP Meeting will be held on July 22, 1996 at 11:00 a.m., local time, at
the Andover Country Club, 60 Canterbury Street, Andover, Massachusetts 01810.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of the FTP Common Stock at the close of business on
the FTP Record Date are entitled to notice of and to vote at the FTP Meeting
and any postponements or adjournments thereof. As of the close of business on
the FTP Record Date, there were 26,966,604 shares of FTP Common Stock
outstanding, held of record by 315 stockholders (although FTP has been
informed that there were approximately 19,000 beneficial owners as of such
date). Each such record holder of the FTP Common Stock is entitled to one vote
for each share of FTP Common Stock held as of the FTP Record Date.
VOTING AND REVOCATION OF PROXIES
The FTP proxy accompanying this Joint Proxy Statement/Prospectus is
solicited on behalf of the Board of Directors of FTP for use at the FTP
Meeting. Stockholders are requested to complete, date and sign the
31
accompanying proxy and promptly return it in the accompanying envelope or
otherwise mail it to FTP. All proxies that are properly executed and returned,
and that are not revoked, will be voted at the FTP Meeting in accordance with
the instructions indicated on the proxies, or, IF NO DIRECTION IS INDICATED,
TO APPROVE THE ISSUANCE OF THE SHARES OF FTP COMMON STOCK TO BE ISSUED
PURSUANT TO THE MERGER. FTP's Board of Directors does not currently intend to
bring any other business before the FTP Meeting and is not aware of any other
matters to be brought before the FTP Meeting. As to any business that may
properly come before the FTP Meeting, however, it is intended that proxies, in
the form enclosed, will be voted in respect thereof in accordance with the
judgment of the persons named in and voting such proxies.
Each FTP stockholder who has given a proxy may revoke it at any time before
it is exercised at the FTP Meeting, by (i) delivering to the Clerk of FTP a
written notice, bearing a date later than the date of the proxy, stating that
the proxy is revoked, (ii) signing and so delivering a proxy relating to the
same shares and bearing a later date prior to the vote at the FTP Meeting or
(iii) attending the FTP Meeting and voting in person (although attendance at
the FTP Meeting will not, by itself, revoke a proxy).
VOTE REQUIRED
Approval of the issuance of the shares of FTP Common Stock to be issued
pursuant to the Merger will require the affirmative vote of a majority of the
shares of FTP Common Stock entitled to vote and present at the FTP Meeting, in
person or by proxy.
As of the FTP Record Date, all executive officers and directors of FTP and
their affiliates as a group beneficially owned 552,337 shares of FTP Common
Stock (approximately 2.0% of the shares of FTP Common Stock then outstanding).
Each of the directors and executive officers of FTP has advised FTP that he or
she intends to vote or direct the vote of all shares of FTP Common Stock over
which he or she has voting control, subject to and consistent with any
fiduciary obligations in the case of shares held as a fiduciary, for approval
of the issuance of the shares of FTP Common Stock to be issued pursuant to the
Merger.
QUORUM; ABSTENTIONS AND BROKER NON-VOTES
The required quorum for the transaction of business at the FTP Meeting will
be a majority of the shares of FTP Common Stock issued and outstanding on the
FTP Record Date. Abstentions and broker non-votes will be included in
determining the presence of a quorum. Neither abstentions nor broker non-votes
(in the case of a broker returning an executed proxy indicating that the
broker does not have discretionary authority to vote on any matter with
respect to certain shares of FTP Common Stock that the broker holds in street
name) will have any effect on the vote on the proposal to approve the issuance
of the shares of FTP Common Stock to be issued pursuant to the Merger.
SOLICITATION OF PROXIES AND EXPENSES
FTP will bear the cost of the solicitation of proxies in the enclosed form
from its stockholders, which solicitation will primarily be by mail. In
addition to solicitation by mail, the directors, officers and employees of FTP
may solicit proxies from stockholders by telephone, telecopy, special letter
or in person. Such persons will not receive additional compensation but may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation. FTP has retained a proxy solicitation firm, Morrow &
Company, Inc., to aid it in the solicitation process. FTP will pay a fee of
$6,000 to such firm, plus hourly fees and expenses, with total costs
anticipated to be approximately $11,000. Following the original mailing of the
proxies and other soliciting materials, FTP will request brokers, custodians,
nominees and other record holders to forward copies of the proxy, this Joint
Proxy Statement/Prospectus and other soliciting materials to persons for whom
they hold shares of FTP Common Stock and to request authority for the exercise
of proxies. In such cases, FTP, upon the request of such record holders, will
reimburse such holders for their reasonable expenses.
32
RECOMMENDATION OF FTP'S BOARD OF DIRECTORS
The Board of Directors of FTP has unanimously approved the issuance of the
shares of FTP Common Stock to be issued pursuant to the Merger and has
unanimously determined that such issuance is in the best interests of FTP and
its stockholders. THE FTP BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT FTP
STOCKHOLDERS APPROVE THE ISSUANCE OF THE SHARES OF FTP COMMON STOCK PURSUANT
TO THE MERGER. The primary factors considered and relied upon by the FTP Board
of Directors in reaching its recommendation are described in "The Merger and
Related Transactions--Reasons for the Merger."
THE FIREFOX MEETING
DATE, TIME AND PLACE OF MEETING
The Firefox Meeting will be held on July 22, 1996 at 9:00 a.m., local time,
at Firefox's corporate headquarters, 2953 Bunker Hill Lane, Suite 400, Santa
Clara, California 95054.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of the Firefox Common Stock at the close of business
on the Firefox Record Date are entitled to notice of and to vote at the
Firefox Meeting. As of the close of business on the Firefox Record Date, there
were 6,735,484 shares of Firefox Common Stock outstanding and entitled to
vote, held of record by 55 stockholders (although Firefox has been informed
that there are approximately 3,000 beneficial holders). Each such record
holder of the Firefox Common Stock is entitled to one vote for each share of
Firefox Common Stock held as of the Firefox Record Date.
VOTING AND REVOCATION OF PROXIES
The Firefox proxy accompanying this Joint Proxy Statement/Prospectus is
solicited on behalf of the Board of Directors of Firefox for use at the
Firefox Meeting. Stockholders are requested to complete, date and sign the
accompanying proxy and promptly return it in the accompanying envelope or
otherwise mail it to Firefox. All proxies that are properly executed and
returned, and that are not revoked, will be voted at the Firefox Meeting in
accordance with the instructions indicated on the proxies, or, IF NO DIRECTION
IS INDICATED, TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE MERGER.
Firefox's Board of Directors does not presently intend to bring any business
before the Firefox Meeting other than such proposal and is not aware of other
matters to be brought before the Firefox Meeting. As to any business that may
properly come before the Firefox Meeting, however, it is intended that
proxies, in the form enclosed, will be voted in respect thereof in accordance
with the judgment of the persons voting such proxies. Any proxy given pursuant
to this solicitation may be revoked by the person giving it at any time before
it is voted. Proxies may be revoked by (i) delivering to the Secretary of
Firefox (by any means, including facsimile) a written notice bearing a date
later than the date of the proxy, stating that the proxy is revoked, (ii)
signing and so delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the Firefox Meeting or (iii) attending the
Firefox Meeting and voting in person (although attendance at the Firefox
Meeting will not, by itself, revoke a proxy).
VOTE REQUIRED
Approval and adoption of the Merger Agreement and the Merger requires the
affirmative vote of the holders of a majority of the outstanding shares of
Firefox Common Stock entitled to vote thereon. As of the Firefox Record Date,
all executive officers and directors of Firefox and their affiliates as a
group beneficially owned 3,656,792 shares of Firefox Common Stock
(approximately 54.3% of the shares of Firefox Common Stock then outstanding),
which represents a sufficient number of Firefox shares to approve the Merger
Agreement and the Merger without additional stockholder votes. Each of the
executive officers and directors of Firefox has advised Firefox that he or she
intends to vote or direct the vote of all shares of Firefox Common Stock over
which he or she has voting control, subject to and consistent with any
fiduciary obligations in the case of shares held as a fiduciary, for approval
of the Merger Agreement and the Merger. FTP and each of John A. Kimberley,
Firefox's
33
President and Chief Executive Officer, Peter R. Simkin, Firefox's Vice
President and Chief Technical Officer, and Richard J. Whitehead, Firefox's
Vice President and Chief Scientist, have entered into a Stockholder Agreement
under which each such person has agreed to vote his shares of Firefox Common
Stock (and has delivered an irrevocable proxy to Sub to vote such shares): (i)
in favor of approval of the Merger and adoption of the Merger Agreement; and
(ii) against approval of any other merger, any sale of a material amount of
assets, any change in the Board of Directors of Firefox or any other action
that requires the approval of Firefox stockholders and which is intended, or
could reasonably be expected, to impede, interfere with, delay, postpone or
materially adversely affect the consummation of the Merger or the transactions
contemplated by the Merger Agreement. Each such proxy will remain in effect
until the earlier to occur of (i) the Effective Time, and (ii) such date and
time as the Merger Agreement is terminated. In each stockholder agreement,
each such person has also agreed (i) not to offer or dispose of his shares
until the Merger becomes effective or the Merger Agreement is terminated in
accordance with its terms and (ii) not to dispose of more than 500,000 of his
shares during any six-month period following the date of the Merger Agreement.
As of the Firefox Record Date, there were outstanding 6,735,484 shares of
Firefox Common Stock. As of such date, Messrs. Kimberley, Simkin and Whitehead
beneficially owned 1,474,298, 465,000 and 1,338,000 shares of Firefox Common
Stock, respectively, representing approximately 21.9%, 6.9% and 19.9%,
respectively, of the shares of Firefox Common Stock then outstanding.
QUORUM; ABSTENTIONS AND BROKER NON-VOTES
The required quorum for the transaction of business at the Firefox Meeting
will be a majority of the shares of Firefox Common Stock issued and
outstanding at the close of business on the Firefox Record Date. Abstentions
and broker non-votes will be included in determining the presence of a quorum
and will have the same effect as votes against the proposal to approve and
adopt the Merger Agreement and the Merger.
SOLICITATION OF PROXIES AND EXPENSES
Firefox will bear the cost of the solicitation of proxies in the enclosed
form from its stockholders. Firefox has retained MacKenzie & Partners to
assist in the solicitation of proxies at an estimated fee of $3,000 plus
reimbursement of reasonable expenses, with total costs anticipated to be
approximately $5,000. In addition, Firefox may reimburse brokerage firms and
other persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. Proxies also may
be solicited by certain Firefox directors, officers and employees personally
or by telephone, telegram or other means of communication. Such persons will
not receive additional compensation, but may be reimbursed for reasonable out-
of-pocket expenses incurred in connection with such solicitation. Following
the original mailing of the proxies and other soliciting materials, Firefox
will request brokers, custodians, nominees and other recordholders to forward
copies of the proxy, this Joint Proxy Statement/Prospectus and other
soliciting materials to persons for whom they hold shares of Firefox Common
Stock and to request authority for the exercise of proxies. In such cases,
Firefox, upon the request of such record holders, will reimburse such holders
for their reasonable expenses.
RECOMMENDATION OF FIREFOX'S BOARD OF DIRECTORS
The Board of Directors of Firefox has unanimously approved the Merger
Agreement and the Merger and has unanimously determined that the Merger is
fair to and in the best interests of Firefox and its stockholders. THE FIREFOX
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE MERGER BY THE FIREFOX STOCKHOLDERS. The primary factors
considered and relied upon by the Firefox Board of Directors in reaching its
recommendation are referred to in "The Merger and Related Transactions--
Reasons for the Merger."
RECENT DEVELOPMENTS
On February 23, 1996, a class action lawsuit was filed in the United States
District Court for the Northern District of California, San Francisco
Division, naming Firefox and certain of its officers and directors as
34
defendants. The lawsuit alleged that the defendants misrepresented or failed
to disclose material facts about Firefox's operations and financial results,
which the plaintiffs contend resulted in an artificial inflation of the price
of the Firefox Common Stock. The suit was purportedly brought on behalf of a
class of purchasers of the Firefox Common Stock during the period from August
3, 1995 to January 2, 1996. The complaint alleged claims for violations of
Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 thereunder and
sought relief in the form of unspecified compensatory damages, pre- and post-
judgment interest, attorneys' and expert witness fees and such extraordinary,
equitable and/or injunctive relief as permitted by law, equity and the federal
statutory provisions under which the suit was brought. Specifically, the
complaint alleged that each of the defendants knew or had access to allegedly
material adverse non-public information about Firefox's financial results and
business conditions which allegedly was not disclosed, improperly recognized
certain revenues and failed to keep adequate reserves and participated in
drafting, reviewing and/or approving alleged misleading statements, releases,
analyst reports and other public representations, including disclaimers and
warnings, of and about Firefox. On June 5, 1996, the District Court entered an
order dismissing plaintiffs' complaint. Certain of plaintiffs' claims that
alleged that Firefox was responsible for false and misleading analyst reports,
Firefox statements and financial statements were dismissed with leave to amend
on the grounds that as to each of these types of statements, the complaint had
failed to plead the false or misleading statements with the specificity
required by Federal Rule of Civil Procedure 9(b) and the Private Securities
Litigation Reform Act, and/or that plaintiffs failed to allege facts giving
rise to a strong inference that defendants acted intentionally and recklessly.
In addition, certain of plaintiffs' claims that warnings and disclosures in
Firefox's Form 10-Qs were false and misleading were dismissed with prejudice.
Because the District Court dismissed the claims in the complaint based on
violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, the
court also dismissed with leave to amend the "controlling person" liability
claim alleged under Section 20(a) of the Exchange Act against John A.
Kimberley, which requires allegations that the "controlled person" (here,
allegedly, Firefox) was liable under Section 10(b) or Rule 10b-5. The District
Court gave plaintiffs until July 5, 1996 to amend the complaint. Plaintiffs
have advised that they will amend the complaint and have requested that
defendants stipulate to an extension to July 22, 1996 for them to file the
amended complaint. Defendants have so stipulated in return for an extension to
September 4, 1996 to respond to the amended complaint. Firefox has reviewed
the allegations in the lawsuit, believes them to be without merit, and intends
to defend itself and its officers and directors vigorously if the complaint is
amended. In order to support an adequate defense, Firefox may be required to
expend substantial sums for legal and expert fees and costs. The cost of
defending the litigation and the outcome of the litigation are uncertain and
cannot be estimated. If the lawsuit were determined adversely to Firefox,
Firefox could be required to pay a substantial judgment. See "Risk Factors--
Risks Relating to FTP and Firefox--Litigation Against Firefox."
On March 14, 1996, a class action lawsuit was filed in the United States
District Court for the District of Massachusetts, naming FTP, certain of its
officers and two former officers as defendants. The lawsuit alleges that the
defendants publicly issued false and misleading statements and omitted to
disclose material facts necessary to make statements not false and misleading,
which the plaintiffs contend caused an artificial inflation in the price of
the FTP Common Stock. Specifically, the complaint alleges that the defendants
knowingly concealed adverse facts and made false or misleading forward and
non-forward looking statements concerning the operating results and financial
condition of FTP, the effects of its July 1995 corporate restructuring and
changing competitive factors in FTP's industry. The lawsuit, which is
purportedly brought on behalf of a class of purchasers of the FTP Common Stock
during the period from July 14, 1995 to January 3, 1996, alleges violations of
Section 10(b) and Section 20(a) of the Exchange Act and Rule 10b-5 thereunder
and seeks relief in the form of unspecified compensatory damages, costs and
expenses and such other and further relief as the Court deems proper and just.
FTP has reviewed the allegations in the lawsuit, believes them to be without
merit, and intends to defend itself and its officers vigorously. In order to
support an adequate defense, FTP may be required to expend substantial sums
for legal and expert fees and costs. The cost of defending the litigation and
the outcome of the litigation are uncertain and cannot be estimated. If the
lawsuit were determined adversely to FTP, FTP could be required to pay a
substantial judgment. See "Risk Factors--Risks Relating to FTP and Firefox--
Litigation Against FTP."
35
THE MERGER AND RELATED TRANSACTIONS
GENERAL
The Merger Agreement provides for the merger of the newly formed Firefox
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of FTP
("Sub"), with and into Firefox. Firefox will be the surviving corporation in
the Merger and will become a wholly-owned subsidiary of FTP as a result of the
Merger. The discussion in this Joint Proxy Statement/Prospectus of the Merger
and the description of the principal terms of the Merger Agreement are subject
to and qualified in their entirety by reference to the Merger Agreement, a
copy of which is attached to this Joint Proxy Statement/Prospectus as Appendix
A, and which is incorporated herein by reference.
The current directors and officers of FTP are expected to continue to serve
in their current capacities following the Merger. It is a condition to the
Merger that John A. Kimberley, currently President and Chief Executive Officer
and a Director of Firefox, be elected as a member of the Board of Directors of
FTP effective immediately following the Effective Time. It is expected that,
as of the Effective Time, Mr. Kimberley will also be elected as Vice Chairman
of FTP and Executive Vice President of Firefox, Peter R. Simkin, currently
Chief Technical Officer of Firefox, will be elected as Chief Technical Officer
of FTP, and Richard J. Whitehead, currently Vice President and Chief Scientist
of Firefox, will continue to serve as such. See "Management--Executive
Officers and Directors." The directors of Sub will be the directors of Firefox
as the surviving corporation following the Merger. Except as otherwise noted
above, the officers of Sub will be the officers of Firefox as the surviving
corporation following the Merger. The stockholders of Firefox will become
stockholders of FTP (as described below) upon consummation of the Merger, and
their rights as such will be governed by the FTP Articles and the FTP Bylaws
and by Massachusetts law. See "Comparison of Rights of Stockholders of FTP and
Firefox."
Conversion of Shares
Upon the consummation of the Merger, except as otherwise provided below,
each share of Firefox Common Stock issued and outstanding immediately prior to
the Effective Time (the "Outstanding Firefox Shares"), excluding Dissenting
Shares, shall be converted into the right to receive (i) that number of shares
of FTP Common Stock which equals the amount obtained by dividing (x)
$50,000,000 divided by the number of Outstanding Firefox Shares by (y) the
average closing price of the FTP Common Stock as quoted on the Nasdaq National
Market for the 10 trading days immediately preceding the date of the Firefox
Meeting (the "Average Price") (the "Exchange Ratio"), subject to the
provisions in the Merger Agreement relating to fractional shares, and (ii)
cash in the amount of $10,000,000 divided by the number of Outstanding Firefox
Shares (the "Cash Payment"), subject to adjustment as described below. Cash
(without interest) will be paid in lieu of issuing fractional shares.
The Exchange Ratio will be subject to adjustment as follows: (i) if the
Average Price of one share of FTP Common Stock is greater than $12.00, then
the Average Price shall be deemed to be $12.00, and (ii) if the Average Price
of one share of FTP Common Stock is less than $8.00, then the Average Price
shall be deemed to be $8.00. If the Average Price is less than $8.00 or
greater than $12.00 per share, the number of shares of FTP Common Stock to be
exchanged for shares of Firefox Common Stock pursuant to the Merger will be
6,250,000 or 4,166,666, respectively.
If the mean of the high and low sales prices of one share of FTP Common
Stock as quoted on the Nasdaq National Market on the day of the Effective Time
(or if the Effective Time is not a trading day, on the trading day immediately
preceding the Effective Time) (the "Effective Time Closing Price") is less
than $7.00 per share, each Outstanding Firefox Share shall be entitled to
receive that number of additional shares of FTP Common Stock equal to (i) the
amount obtained by dividing (A) the difference between $7.00 and the Effective
Time Closing Price by (B) $7.00, multiplied by (ii) (A) $10,000,000 divided by
(B) the number of Outstanding Firefox Shares, divided by (iii) the Effective
Time Closing Price (such number of additional shares of FTP Common Stock being
referred to as the "Share Adjustment Factor"), and the Cash Payment applicable
to each Outstanding Firefox Share shall be reduced by an amount equal to the
product of (i) the Share Adjustment Factor multiplied by (ii) the Effective
Time Closing Price. The purpose of the adjustment to the aggregate amount of
shares and the Cash Payment to be received described in the preceding sentence
is to preserve the status of the
36
Merger as a tax-free reorganization for United States federal income tax
purposes in the event that the Effective Time Closing Price of the FTP Common
Stock falls below $7.00 per share by assuring that at least 80% of the value
of the consideration to be issued in the Merger will be in the form of FTP
Common Stock.
The following table sets forth information concerning the consideration that
each holder of a share of Firefox Common Stock will be entitled to receive
pursuant to the Merger based on the capitalization of each of Firefox and FTP
at the Firefox Record Date and the FTP Record Date, respectively, at assumed
Average Prices of $12.00, $10.00 and $8.00, and, for illustrative purposes
only, includes an example of the possible effect on such consideration if the
Effective Time Closing Price were to be less $7.00 by using an assumed
Effective Time Closing Price of $6.00. The table also shows the total
consideration to be paid to Firefox stockholders pursuant to the Merger at
such assumed Average Prices and the percent of the total shares of FTP Common
Stock outstanding after the Merger to be held by Firefox stockholders.
PER SHARE MERGER
CONSIDERATION TOTAL MERGER CONSIDERATION
--------------------------- -------------------------------
PERCENT OF FTP COMMON
STOCK OUTSTANDING AFTER
ASSUMED NUMBER OF SHARES OF NUMBER OF SHARES OF THE MERGER HELD BY
AVERAGE PRICE FTP COMMON STOCK CASH FTP COMMON STOCK CASH FIREFOX STOCKHOLDERS
------------- ------------------- ------- ------------------- ----------- -----------------------
$12.00 .6186 $1.4847 4,166,666 $10,000,000 13.38%
$10.00 .7423 $1.4847 5,000,000 $10,000,000 15.64%
$ 8.00 .9279 $1.4847 6,250,000 $10,000,000 18.82%
PER SHARE MERGER
CONSIDERATION TOTAL MERGER CONSIDERATION
--------------------------- -------------------------------
PERCENT OF FTP COMMON
ASSUMED STOCK OUTSTANDING AFTER
EFFECTIVE TIME NUMBER OF SHARES OF NUMBER OF SHARES OF THE MERGER HELD BY
CLOSING PRICE FTP COMMON STOCK CASH FTP COMMON STOCK CASH FIREFOX STOCKHOLDERS
-------------- ------------------- ------- ------------------- ----------- -----------------------
$6.00 .9633 $1.2726 6,488,095 $8,571,429 19.39%
Firefox stockholders may call 800-322-2885 at any time prior to the date of
the Firefox Meeting for current information concerning the Average Price,
Exchange Ratio and Cash Payment.
Conversion of Options
Upon consummation of the Merger, each then outstanding Firefox Stock Option
granted under the Firefox 1995 Stock Option Plan and the Firefox 1995 Outside
Director Stock Option Plan, whether vested or unvested, will be deemed assumed
by FTP and deemed to constitute an option to acquire the number of shares of
FTP Common Stock (rounded down to the nearest whole number) equal to the
aggregate of (i) that number of shares of FTP Common Stock (based on the
Exchange Ratio) as the holder of such Firefox Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such
option in full immediately prior to the Effective Time (not taking into
account whether or not such option was in fact exercisable) plus (ii) that
number of additional shares of FTP Common Stock calculated by dividing (A) the
aggregate Cash Payment that the holder of such Firefox Stock Option would have
been entitled to receive pursuant to the Merger had such holder exercised such
option in full immediately prior to the Effective Time (not taking into
account whether or not such option was in fact exercisable) by (B) the Average
Price. The exercise price for each such Firefox Stock Option shall be the
price per share equal to (x) the aggregate exercise price for the shares of
Firefox Common Stock otherwise purchasable pursuant to such Firefox Stock
Option divided by (y) the number of shares of FTP Common Stock deemed
purchasable pursuant to such Firefox Stock Option. FTP intends to file a
Registration Statement on Form S-8 with the Commission with respect to the
issuance of shares of FTP Common Stock upon exercise of the assumed Firefox
Stock Options.
As of the Firefox Record Date, 70,950 shares of Firefox Common Stock were
subject to outstanding Firefox Stock Options. Assuming Average Prices of
$12.00, $10.00 and $8.00, respectively, such options would be converted into
options to purchase approximately 52,669, 63,203 and 79,003 shares,
respectively, of FTP Common Stock.
37
At the Effective Time, each then outstanding Firefox Scheme Option may be
assumed by FTP and converted into an option to purchase a number of shares of
FTP Common Stock (rounded down to the nearest whole number) equal to the
aggregate of (i) that number of shares of FTP Common Stock (based on the
Exchange Ratio) as the holder of such Firefox Scheme Option would have been
entitled to receive pursuant to the Merger had such holder exercised such
option in full immediately prior to the Effective Time (not taking into
account whether or not such option was in fact exercisable) plus (ii) that
number of additional shares of FTP Common Stock calculated by dividing (A) the
aggregate Cash Payment that the holder of such Firefox Scheme Option would
have been entitled to receive pursuant to the Merger had such holder exercised
such option in full immediately prior to the Effective Time (not taking into
account whether or not such option was in fact exercisable) by (B) the Average
Price. The exercise price for each such Firefox Scheme Option shall be the
price per share equal to (x) the aggregate exercise price for the shares of
Firefox Common Stock otherwise purchasable pursuant to such Firefox Scheme
Option divided by (y) the number of shares of FTP Common Stock deemed
purchasable pursuant to such Firefox Scheme Option. Such assumption and
conversion is conditioned upon the written agreement of each holder of a
Firefox Scheme Option. Absent such written agreement, Firefox Scheme Options
will, in accordance with the terms of the Firefox 1994 Option Scheme, become
exercisable in full for a six-month period beginning at the Effective Time for
the same number of shares of FTP Common Stock as calculated pursuant to the
first sentence of this paragraph at the same exercise price as calculated
pursuant to the second sentence of this paragraph. At the end of such six-
month period, any Firefox Scheme Options which have not been assumed and
converted or exercised will terminate. Shares of FTP Common Stock acquired
upon exercise of any Firefox Scheme Options may become eligible for resale in
the public market immediately in accordance with Rule 701 under the Securities
Act or later in accordance with Rule 144 under the Securities Act.
As of the Firefox Record Date, 243,296 shares of Firefox Common Stock were
subject to Firefox Scheme Options. Assuming Average Prices of $12.00, $10.00
and $8.00, respectively, and the consent of the holders to the assumption and
conversion of such options as described above, such options would be converted
into options to purchase approximately 180,608, 216,729 and 270,911 shares,
respectively, of FTP Common Stock.
BACKGROUND OF THE MERGER
At Firefox Board of Directors meetings in June and September 1995, the
Firefox Board discussed various business opportunities and strategic
objectives, which included improving distribution, expanding product offerings
and increasing market penetration and research and development capabilities.
Following these meetings, Firefox management continued to investigate these
opportunities and considered the possible risks and benefits of consolidation
or alliances with industry partners. Discussions were held in Boston on
September 11, 1995 between management representatives of Firefox and FTP
concerning the possibility of an OEM arrangement or other strategic alliance,
at which meeting a representative of Cowen was present. Discussions continued
at a subsequent meeting in California on September 19, 1995 between certain
members of management of each company, at which meeting a representative of
Montgomery was present.
To facilitate discussions between FTP and Firefox, on October 2, 1995,
Firefox and FTP delivered confidentiality letters under which each party
agreed to keep confidential the other party's confidential information.
On October 9 and 10, 1995, Messrs. Zirkle and Kimberley, the Chief Executive
Officers of FTP and Firefox, respectively, discussed the possibility of a
strategic combination of the two companies. Following these conversations, the
senior management teams of each company began to explore the feasibility of a
strategic business combination.
Beginning on October 9, 1995, management, legal, accounting and financial
advisor representatives of Firefox and FTP conducted due diligence, and
management of the two companies held a number of discussions exploring
potential synergies and operational issues associated with a business
combination.
On October 13, 1995, Firefox formally engaged Cowen to serve as financial
advisor with regard to possible business combinations. On that same date,
FTP's legal advisors presented a draft merger agreement, stockholder agreement
and ancillary documents to Firefox's counsel. Discussions then ensued between
counsel for FTP and Firefox regarding the principal terms of the proposed
merger agreement and stockholder agreements.
On October 16, 1995, FTP formally engaged Montgomery as its financial
advisor with respect to the proposed business combination.
38
On October 18, 1995, at a meeting of the Firefox Board of Directors,
Firefox's management made an initial presentation on the considerations
regarding, and received questions and comments of the Firefox Board with
respect to, a possible business combination with FTP, including a preliminary
presentation regarding the companies' respective product lines and possible
benefits and risks of the proposed combination. Outside legal counsel to
Firefox made a presentation regarding the directors' fiduciary duties in
considering a proposed business combination. Management presented the results
of due diligence conducted through the date of the Firefox Board meeting.
Cowen reviewed certain financial analyses related to the proposed business
combination. Management and legal counsel reviewed with the Firefox Board the
proposed terms of the draft merger and stockholder agreements. After
consideration of these presentations, the Firefox Board concluded that
management should continue discussions with FTP concerning a strategic
business combination.
The FTP Board of Directors also met on October 18, 1995. Members of Firefox
management made a presentation to the FTP Board on the business and prospects
of Firefox, and senior management members of FTP made a presentation to the
FTP Board describing the results of their due diligence investigations and
explaining the potential synergies of a business combination between FTP and
Firefox. At this meeting, representatives of Montgomery made a presentation to
the FTP Board in which Montgomery reviewed certain strategic and financial
analyses related to the proposed business combination. In addition, management
reviewed with the FTP Board the principal terms of the proposed merger and
stockholder agreements. After consideration and discussion of these
presentations, the FTP Board of Directors authorized management to continue
discussions with Firefox, to continue due diligence and to negotiate final
documentation as to a possible business combination, subject to final approval
by the FTP Board.
Following the October 18 board meetings, Firefox and FTP representatives
held various meetings to discuss the business, operations and technologies of
each company and of the combined company. Representatives of each company also
met to discuss the potential terms of a business combination. Although no
definitive offers were made, the terms discussed included valuation, exchange
ratio adjustments, termination provisions, closing conditions and
representations and warranties. On October 24, 1995, the parties mutually
determined that they could not reach agreement with respect to valuation and
related issues. Firefox's and FTP's management then suspended discussions
concerning a merger of the two companies and began discussions regarding a
joint product development agreement. On November 30, 1995, the parties
executed an agreement (the "Development Agreement") to develop internetworking
solutions in NetWare and Windows NT environments for the enterprise and the
Internet.
On several occasions during December 1995 and early January 1996, Messrs.
Zirkle and Kimberley discussed informally, in person and by telephone, the
continued possibility of a business combination between FTP and Firefox.
On January 5, 1996, the Firefox Board of Directors discussed the possibility
of formally renewing discussions with FTP concerning a strategic business
combination and authorized management to commence such discussions. On January
7, 1996, senior management of Firefox and FTP and their respective financial
advisors met to discuss the possibility of renewing such discussions. From
January 10 through January 12, 1996, Messrs. Zirkle and Kimberley and the
respective financial advisors of FTP and Firefox had telephone discussions
regarding a mutually acceptable exchange ratio and other issues relating to
the terms and feasibility of a merger. On January 15, 1996, a tentative
agreement was reached between Mr. Zirkle and Mr. Kimberley regarding an
exchange ratio to be recommended to the respective Boards of Directors of FTP
and Firefox. On January 16 and 17, 1996, management and legal and financial
advisors for each company conducted additional due diligence and held
discussions regarding terms of the proposed merger agreement and stockholder
agreements, including the terms of exchange ratio adjustments, termination
provisions, closing conditions and representations and warranties.
On January 17, 1996, at a meeting of the Firefox Board of Directors, (i)
outside legal counsel for Firefox reviewed the Firefox Board's fiduciary
duties in considering a strategic business combination and reviewed the
principal terms of the merger agreement and stockholder agreements, (ii)
Firefox management made
39
presentations regarding the risks and possible synergies and benefits of the
proposed Merger and (iii) representatives of Cowen, Firefox's financial
advisors, made a presentation regarding certain financial analyses relating to
the proposed Merger and delivered its oral opinion to the Firefox Board,
confirmed in writing that date, that the consideration to be received by
Firefox stockholders in the Merger, as then proposed, was fair from a
financial point of view. After consideration of these presentations and other
factors, the Firefox Board unanimously approved the original merger agreement
and the Merger, concluding that the Merger was fair to and in the best
interests of the Firefox stockholders.
On January 17, 1996, the FTP Board of Directors met by conference telephone
to review in detail the terms of the proposed business combination. Earlier
that day, Montgomery, FTP's financial advisor, had delivered to the members of
FTP's senior management its oral opinion, subsequently confirmed in writing,
that the exchange ratio to be paid by FTP pursuant to the Merger, as then
proposed, was fair to FTP, from a financial point of view, as of that date,
and described the financial analyses that they had conducted supporting that
opinion. At the FTP Board meeting, members of senior management of FTP
described the Montgomery opinion and summarized the underlying analyses to the
FTP Board. Representatives of Montgomery were not present at that meeting.
With the advice and participation of management, the FTP Board of Directors
reviewed the various strategic, technological, financial and business factors
associated with the proposed Merger, including the then-proposed pooling of
interests accounting treatment, Firefox's historical and projected revenues
and income and the effect of the proposed Merger on FTP's earnings per share.
After consideration of these and other factors and information, the Board of
Directors of FTP authorized the officers of FTP to enter into the original
merger agreement and all related agreements.
On January 17, 1996, the parties executed the original merger agreement
(which provided for the conversion in the Merger of each outstanding share of
Firefox Common Stock into one share of FTP Common Stock, subject to adjustment
of the Average Price if the FTP Common Stock was greater than $14.50 per share
or less than $11.60 per share), and Messrs. Kimberley, Simkin and Whitehead
entered into stockholder agreements with FTP.
On February 19, 1996, at a meeting of the Firefox Board of Directors,
Firefox management presented results of further due diligence investigation of
FTP and discussed integration plans and potential synergies developed in
meetings with FTP management.
On February 23, 1996, a class action lawsuit was filed in the Northern
District of California naming Firefox and certain of its officers and
directors as defendants (the "Firefox Litigation"). See "Risk Factors--Risks
Relating to FTP and Firefox--Litigation Against Firefox" and "Recent
Developments." Discussions ensued between the management of Firefox and FTP
and their respective legal advisors regarding the effect of the pending
litigation on the Merger and the merger agreement.
On March 11, 1996, at a meeting of the Firefox Board of Directors, Firefox's
legal advisors reviewed with the Firefox Board of Directors the pending
lawsuit against Firefox and a proposal by FTP to amend the merger agreement to
provide an escrow (the "Escrow"), for the benefit of FTP and certain related
persons, of $15 million of shares of FTP Common Stock (valued at the Average
Price) to be issued in the Merger (the "Escrow Shares"), with no recourse
against the Escrow Shares unless expenses of litigation and amounts paid in
settlement or judgment, if any, exceeded the amounts recovered under Firefox's
$10 million directors' and officers' liability insurance coverage plus $5
million, and FTP's agreement that the lawsuit as filed would not be grounds
for FTP to refuse to consummate the Merger. The Firefox Board of Directors
then discussed with its legal and financial advisors the possible terms of an
escrow arrangement and the risks and benefits of the proposed amendment to the
merger agreement as well as other alternatives available to Firefox. After
consideration, the Firefox Board authorized Firefox's management and legal and
financial advisors to negotiate with FTP regarding an amendment to the merger
agreement which would include such an escrow.
On March 12, 1996, the FTP Board of Directors met and reviewed with FTP's
legal counsel the pending lawsuit and FTP's proposal as described in the
preceding paragraph. The FTP Board of Directors discussed with its legal
counsel the likely timetable for the litigation, the risks and benefits of the
proposal, and the other
40
alternatives available to FTP. Senior management advised the FTP Board that
they had discussed the proposed amendments to the merger agreement with
Montgomery and had requested Montgomery to issue an additional fairness
opinion taking those proposed amendments into account. After discussion and
consideration of those and related matters, the FTP Board of Directors
approved the merger agreement as proposed to be amended to reflect the
proposal described above.
On March 13, 1996, FTP's legal counsel delivered a draft amendment to the
merger agreement, including the Escrow provisions, to Firefox and its counsel,
and discussions ensued among the managements and legal and financial advisors
of Firefox and FTP concerning the terms of the amendment.
On March 14, 1996, at a meeting of the Firefox Board of Directors, Firefox's
legal counsel reviewed with the Firefox Board of Directors the terms of the
proposed amendment, including the terms of the Escrow and the scope of the
waiver by FTP of its right not to consummate the Merger as a result of the
Firefox Litigation as currently filed. Representatives of Firefox's financial
advisor, Cowen, delivered Cowen's oral opinion, confirmed in writing on March
16, 1996, that as of such date the consideration to be received by Firefox
stockholders in the Merger, as then proposed, was fair from a financial point
of view, without placing any value on the Escrow Shares or expressing any
opinion on the merits of the Firefox Litigation, in view of its early
procedural stage. After consideration of these presentations and other
factors, the Firefox Board of Directors unanimously approved the merger
agreement, as amended, and the Merger, concluding that the Merger was fair to
and in the best interests of the Firefox stockholders.
FTP, Firefox and Sub executed an amended and restated merger agreement on
March 16, 1996. On March 18, 1996, Montgomery delivered its written opinion
that the exchange ratio to be paid by FTP pursuant to the Merger, as then
proposed, was fair to FTP, from a financial point of view, as of that date,
assuming that the amount of all damages, costs and expenses to be borne
directly or indirectly by FTP as a result of the then-pending lawsuit against
Firefox would not exceed $5 million. The parties issued a press release on
March 18, 1996 announcing that the parties were proceeding with the Merger and
that shares of FTP Common Stock, having a value of approximately $15 million,
that would otherwise be delivered at the Effective Time of the Merger would be
placed in the Escrow pending the outcome of the Firefox Litigation and related
claims.
On March 14, 1996, a class action lawsuit was filed in the United States
District Court for the District of Massachusetts naming FTP and certain of its
officers and two former officers as defendants. See "Risk Factors--Risks
Relating to FTP and Firefox--Litigation Against FTP" and "Recent
Developments." FTP and Firefox management learned of the lawsuit on March 18,
1996. Discussions ensued between the management of Firefox and FTP and their
respective legal counsel regarding how the pending litigation against FTP
might affect the Merger or the merger agreement. Firefox management proposed
the elimination of the Escrow, as well as the removal of the condition to
either party's obligation to consummate the Merger in the event of a material
adverse change with regard to the other party, in light of the possible delay
in the consummation of the Merger and the adverse effect of such delay and
resulting uncertainties regarding the Merger on Firefox operations and
personnel. FTP management agreed to eliminate the material adverse change
condition, but refused to eliminate the Escrow in light of the adjustment to
the exchange ratio already provided to Firefox stockholders if the FTP Common
Stock were to trade below $11.60 per share, such price being below recent
trading levels at the time, subject to FTP's right to terminate if the Average
Price were below $8.60 per share as well as the marketability of the shares of
FTP Common Stock not held in the Escrow following the Merger. In response to
concerns expressed by Firefox, FTP proposed that the Firefox Litigation be
subject to the supervision and oversight of a special committee of the FTP
Board of Directors, comprised of non-employee directors of FTP, including John
A. Kimberley, and Firefox management agreed to this proposal.
On March 22, 1996, at a meeting of the Firefox Board of Directors, Firefox's
legal counsel reviewed with the Firefox Board of Directors the pending lawsuit
against FTP, the Firefox proposal, as described in the preceding paragraph,
and FTP management's response to such proposal. The Firefox Board of Directors
discussed with management, and Firefox's legal counsel and financial advisor,
the risks of the FTP lawsuit, the potential conflict of interest of FTP
regarding the management and settlement of the Firefox Litigation in light
41
of the FTP lawsuit and the effect of the establishment of a special committee
of the FTP Board of Directors to supervise and oversee the Firefox Litigation
in light of such conflict, the risks and benefits of the proposal to eliminate
the material adverse change condition, the continuing risks to Firefox
stockholders regarding the Escrow, and the other alternatives available to
Firefox. Representatives of Firefox's financial advisor, Cowen, delivered
Cowen's oral opinion, confirmed in writing on March 25, 1996, that as of such
date, the consideration to be received by Firefox stockholders in the Merger,
as then proposed, was fair from a financial point of view, without placing any
value on the Escrow Shares, expressing any opinion on the merits of the
Firefox Litigation, in view of its early procedural stage, or giving any
effect to the direct or indirect consequences of the Firefox Litigation or the
FTP litigation. After consideration of these presentations and other factors,
the Firefox Board of Directors unanimously approved the amendment to the
merger agreement to eliminate the material adverse change condition and
authorized Firefox management and legal counsel to negotiate the amendment,
concluding that the Merger was fair to and in the best interests of the
Firefox stockholders.
Firefox and FTP management and financial advisors conducted further due
diligence regarding the respective operations of the companies. The legal
counsel of Firefox and FTP finalized the amendment to the merger agreement,
and FTP, Firefox and the Merger Sub executed a second amended and restated
Merger Agreement on March 25, 1996.
On March 25, 1996, Montgomery delivered its written opinion that the
exchange ratio to be paid by FTP pursuant to the Merger, as then proposed, was
fair to FTP, from a financial point of view, as of that date, assuming that
the amount of all damages, costs and expenses to be borne directly or
indirectly by FTP as a result of the pending Firefox Litigation would not
exceed $5 million.
Subsequently, based upon its expectation of slower growth throughout the
TCP/IP marketplace and its analysis of corresponding changes in FTP's and
Firefox's business models reflecting reductions in anticipated revenue growth,
FTP management contacted John Kimberley of Firefox on May 15, 1996 and
requested a meeting to discuss the terms of the proposed Merger. Members of
management of both companies met on May 17, 1996 and FTP management indicated
that FTP would not be willing to proceed with the proposed Merger unless the
terms of the Merger were revised to provide for the Firefox stockholders to
receive an aggregate of $50 million of shares of FTP Common Stock and $10
million in cash for their shares of Firefox Common Stock. The business
combination would then be treated as a purchase and not a pooling. In
connection with these changes, FTP expressed its willingness to eliminate the
Escrow. During those discussions, FTP management noted to Firefox management
that under the merger agreement FTP had the right to decline to consummate the
Merger if Montgomery withdrew its opinion to FTP that the Merger was fair,
from a financial point of view, to FTP, and, furthermore, had the right to
terminate the merger agreement if the FTP Board of Directors withdrew its
recommendation in favor of the Merger. FTP management indicated that they did
not believe that they could obtain FTP stockholder approval of the Merger
under the then-current terms, and that Montgomery was unwilling to permit the
use of its March 25, 1996 fairness opinion in connection with the solicitation
of FTP's stockholders. The revised terms of the Merger reflected FTP's view of
the appropriate valuation of Firefox in light of its then current expectations
of slower revenue growth as well as its desire to compensate, in part, for the
reduction in valuation by paying a portion of the Merger consideration in
cash, but not so much as to jeopardize the status of the Merger as a tax-free
reorganization. See "--Certain United States Federal Income Tax Matters"
below.
Counsel for FTP delivered a draft of an amendment and restatement of the
merger agreement for consideration by the parties on May 18, 1996. Firefox
representatives made various counterproposals regarding the proposed
amendments. These counterproposals included eliminating or changing the $8.00
and $12.00 Average Price limits on adjustment of the Exchange Ratio,
eliminating the closing condition that the opinion of FTP's financial advisor
not have been withdrawn as of the Effective Time and modifying the closing
condition concerning litigation against Firefox to exclude any litigation that
might be brought against Firefox with respect to the Merger. Discussions
ensued among the legal advisors for FTP and Firefox concerning the terms of
the amendments.
42
On May 18, 1996, the FTP Board of Directors met by telephone and discussed
the proposed revised terms of the Merger described above with members of FTP
management, together with FTP's legal counsel. After discussion, and taking
into account the developments described above, together with the recent
dismissal of the plaintiff's claims (with leave to amend) in the Firefox
Litigation, the FTP Board of Directors unanimously approved the proposed
revisions to the terms of the Merger and the execution of the amended and
restated merger agreement reflecting those changes, subject to receipt of an
opinion from Montgomery that the revised terms of the Merger were fair to FTP,
from a financial point of view. On May 21, 1996, Montgomery delivered its oral
opinion confirming its written opinion dated May 20, 1996.
On May 21, 1996, the Firefox Board met and discussed the terms of the
proposed amendments to the Merger Agreement, including the change in
consideration to be received by Firefox stockholders, the tax consequences of
the changed structure, the removal of the Escrow, the change in accounting
treatment and related matters. The Firefox Board then discussed with its legal
and financial advisors the risks and benefits of the proposed amendments, as
well as other alternatives available to Firefox, including whether claims for
damages could be asserted against FTP, the possibility of continuing to
operate independently, and the possibility of obtaining an alternative offer
for Firefox from a third party. The Firefox Board took into account the
expected slower growth of the combined company, increased competition in the
TCP/IP marketplace, the condition in the Merger Agreement requiring that
Montgomery not withdraw its opinion to FTP that the Merger was fair to FTP
stockholders, the indication from FTP that Montgomery would withdraw such
opinion on the terms of the Merger previously agreed upon, and the concern
that FTP stockholders might not approve the Merger as proposed. The Firefox
Board also considered the reasons for the Merger described below. The Firefox
Board of Directors reviewed with its financial and legal advisors the
negotiations regarding the consideration to be received by Firefox
stockholders under the Merger Agreement as proposed to be amended.
Representatives of Firefox's financial advisor, Cowen, delivered Cowen's oral
opinion, confirmed in writing that same date, that as of such date the
consideration to be received by Firefox stockholders in the Merger, as
provided under the amended Merger Agreement, was fair, from a financial point
of view, without giving any effect to the direct or indirect consequences of
the Firefox Litigation or the FTP litigation. After consideration of these
presentations and other factors, the Firefox Board of Directors unanimously
approved the amendments to the Merger Agreement to change the consideration to
be provided to Firefox stockholders and to eliminate the Escrow. The Firefox
Board authorized Firefox management and legal counsel to negotiate and execute
the amended Merger Agreement, concluding that the Merger, as revised, was fair
to and in the best interests of the Firefox stockholders.
On May 21, 1996, FTP and Firefox executed the amended and restated Merger
Agreement.
REASONS FOR THE MERGER
The reasons for the Merger described below include forward-looking
statements. Such statements involve risks and uncertainties, and actual
results could differ materially from those set forth in these forward-looking
statements for a variety of reasons. These reasons include, but are not
limited to, competition, technological change, increased demands on management
as a result of planned expansion, risks of integration of the two companies
and the other factors described above under "Risk Factors."
Joint Reasons for the Merger
Having cooperated under the Development Agreement and having had continued
productive discussions about the potential synergies between FTP and Firefox,
the respective management teams of FTP and Firefox have identified several
potential mutual benefits of the Merger, which were reviewed with the FTP and
Firefox Boards of Directors. Both FTP and Firefox believe that these potential
benefits and other factors will contribute to the success of the combined
company. Some of the important potential benefits of the Merger that FTP and
Firefox anticipate are:
. The combined company's potential to provide on a global basis a more
complete suite of solutions addressing TCP/IP-based applications and
networks for client-based, departmental and LAN-based users.
. The combined company's potential to leverage FTP's and Firefox's
complementary distribution channels and customer bases.
43
. The combined company's potential to leverage the respective companies'
research and development capabilities and spending on new product
development through the integration of the two companies' competency
centers, providing the potential for the combined company to provide a
full range of products, from client-based to server-based software.
. The combined company's potential to provide enhanced solutions for
existing and new customers by combining FTP's client-based IP
application suites and Firefox's server-based TCP/IP products for the
Novell NetWare market.
Both Boards of Directors also considered the strategic alternatives for each
of the companies in the absence of the Merger and the effect that each company
pursuing such alternatives separately would likely have on the other company.
In FTP's case, the strategic alternatives considered included attempting to
develop technology similar to that of Firefox and acquiring other competitors
of Firefox. The former was rejected on the basis of timing and market issues;
the latter, on the basis that FTP's Board of Directors believed that no such
competitor had a product and business scope or customer acceptance comparable
to those of Firefox. In Firefox's case, the strategic alternatives included
business combinations or strategic relationships with other industry
participants and developing additional distribution and broader product lines
as a stand-alone entity. The former were not pursued because the Firefox Board
believed that the Merger would offer a higher likelihood of consummation and
greater potential appreciation than other possible transactions; the latter,
because of cost and timing issues. In addition to the joint reasons discussed
above, the Board of Directors of each company also considered separate reasons
for approving the Merger, which reasons are summarized below.
FTP's Reasons for the Merger
The Board of Directors of FTP believes that the following are additional
reasons for stockholders of FTP to vote FOR approval of the issuance of the
shares of FTP Common Stock to be issued pursuant to the Merger.
. The Merger is expected to allow FTP to enhance its offerings of
networking products to address the needs of departments and work groups,
with particular emphasis initially on the Novell NetWare market and
later on the Microsoft NT market, and allow FTP's client applications to
take advantage of Firefox's server-based access control and firewall
technology.
. The Merger is expected to enable FTP to take advantage of Firefox's
sales and support presence in the European marketplace, enhancing FTP's
ability to meet the growing global demands for IP systems and solutions.
. The Merger is expected to enable FTP to enhance the design, performance,
functionality and cost of applications by optimizing the use of server-
and client-based solutions.
. The Merger is expected to enable FTP to address customers' desires to
connect their local networks to Internet and intranet resources in a
secure and centrally managed way.
In the course of its deliberations, the Board of Directors of FTP reviewed
and considered with FTP's management a number of other factors relevant to the
Merger, including, among other things: (i) information concerning FTP's and
Firefox's respective businesses, prospects, financial performances, financial
conditions, operations, technologies, managements and products; (ii) the
comparative stock prices of the FTP Common Stock and the Firefox Common Stock;
(iii) premiums to market and multiples paid in other comparable merger and
acquisition transactions in the software industry; (iv) an analysis of the
respective contributions to revenue, operating profits and net profits of the
combined company based on internal estimates; (v) the compatibility of the
corporate cultures of FTP and Firefox; (vi) FTP's business strategy and
Firefox's potential contribution to the strategy; (vii) the opinions of
Montgomery and Montgomery's description of the financial analyses underlying
those opinions; (viii) the requirement in the Merger Agreement that the
opinion of Montgomery shall not have been withdrawn, amended or modified; and
(ix) reports from FTP's management, accountants and legal advisors as to the
results of their due diligence investigations of Firefox.
The Board of Directors of FTP also considered a variety of potentially
negative factors in the course of its deliberations concerning the Merger,
including: (i) the slower historical growth rate of Firefox compared to the
historical growth rate of FTP and Firefox's unfavorable operating results in
past periods; (ii) the possible dilutive
44
effect of the issuance of the shares of FTP Common Stock pursuant to the
Merger; (iii) the risk that the public market price of the FTP Common Stock
might be adversely affected by announcement of the Merger; (iv) the charges
expected to be incurred in connection with the Merger, including the
transaction costs and costs of integrating the businesses of the companies;
(v) the risks of managing a large subsidiary with multiple sites located at
considerable distance from FTP's main facilities; (vi) the additional demands
on FTP's management resources; (vii) the risk that other benefits sought to be
obtained by the Merger will not be obtained; (viii) the risk that the Firefox
Litigation could be resolved adversely to Firefox or the officers and
directors named as defendants; and (ix) other risks described above under
"Risk Factors."
In view of the wide variety of factors, both positive and negative,
considered by FTP's Board of Directors, the FTP Board of Directors did not
find it practical to, and did not, quantify or otherwise assign relative
weights to the specific factors considered. After taking into consideration
all of the factors set forth above, the FTP Board of Directors determined that
the issuance of the shares of FTP Common Stock pursuant to the Merger was in
the best interests of FTP and its stockholders and that FTP should proceed
with the Merger.
Firefox's Reasons for the Merger
The Board of Directors of Firefox believes that the following are additional
reasons for the stockholders of Firefox to vote FOR approval and adoption of
the Merger Agreement and the Merger.
. The Merger is expected to create the potential to expand the market
presence of Firefox products in the United States and globally through
FTP's significant market presence.
. By combining with FTP, Firefox expects to be able to concentrate its
development efforts on server technology and management and
administration tools and leverage those efforts through FTP's
development resources, customer base, sales and distribution channels,
and support services.
. The Merger is expected to enhance Firefox's ability to develop and
acquire technologies by making available the business and financial
resources of a larger combined business enterprise.
. The Merger is expected to generate potential economies of scale in
product manufacturing and enhance and facilitate customer order
fulfillment.
. The Merger is expected to increase the potential for enhanced liquidity
for Firefox stockholders through their ownership of FTP Common Stock,
due to FTP's greater market capitalization and trading volume.
. The Merger is expected to allow Firefox to realize savings in selling,
general and administrative expenses by enabling it to utilize FTP's
infrastructure.
. The Merger is expected to enable Firefox to reduce its dependence on
third party vendors.
In the course of its deliberations on October 18, 1995, January 5, 1996,
January 17, 1996, February 19, 1996, March 11, 1996, March 14, 1996, March 22,
1996 and May 21, 1996, the Firefox Board of Directors reviewed with Firefox's
management a number of additional factors relevant to the Merger. In
particular, the Firefox Board of Directors considered, among other things: (i)
information concerning FTP's and Firefox's respective businesses, prospects,
historical financial performances and conditions, operations, technologies,
managements, competitive positions, product mixes, customer mixes and future
product development plans; (ii) the historical market prices, volatility and
trading information with respect to the Firefox Common Stock and the FTP
Common Stock; (iii) the consideration to be received by Firefox stockholders
in the Merger and the relationship between the market value of the shares of
FTP Common Stock to be issued in exchange for Firefox Common Stock and the
market value of the Firefox Common Stock; (iv) a comparison of comparable
merger transactions; (v) the terms of the Merger Agreement regarding Firefox's
right to consider and negotiate other acquisition proposals in certain
circumstances as well as the possible effects of the termination fee and the
stockholder agreements; (vi) an analysis of the relative value that Firefox
might contribute to the future business and prospects of the combined company;
(vii) an evaluation of the prospects of Firefox on a stand-alone basis and the
adverse effects of the delay of the Merger on Firefox's operations and
personnel; (viii) financial presentations by Cowen, including the oral
opinions of Cowen delivered at the January 17, 1996, March 14, 1996, March 22,
1996 and May 21, 1996 Firefox Board meetings, confirmed in writing on January
17, 1996, March 16, 1996, March 25, 1996 and May 21, 1996, respectively, to
the effect that, as of the respective dates of
45
such opinions, the consideration to be received by the Firefox stockholders
was fair from a financial point of view; (ix) the requirement that Firefox
receive an opinion from Cowen as of the Effective Time to the same effect as a
condition to the Merger; (x) the compatibility of the managements and
businesses of Firefox and FTP, as well as the facts that Firefox would have
representation on the combined company's Board of Directors and that certain
members of Firefox's senior management would continue in similar capacities
for the combined company; (xi) reports from Firefox's management, financial
and legal advisors on the results of their due diligence investigations of
FTP; (xii) the fact that the Merger is expected to qualify as a tax-free
reorganization; and (xiii) the removal of the Escrow related to the Firefox
Litigation for $15 million of shares of FTP Common Stock to be issued in the
Merger.
The Board of Directors of Firefox also considered a variety of potentially
negative factors in its deliberations concerning the Merger, including, among
other things: (i) the slower growth of FTP's revenues in fiscal 1995 compared
to the potential growth in Firefox's revenues as a stand alone entity; (ii)
the potential loss of revenues to the combined company as a result of
confusion in the marketplace and the possible exploitation of such confusion
by competitors of the combined company; (iii) the possibility of management
disruption associated with the Merger and the risk that, despite the efforts
of the combined company, the combined company may not be able to retain key
technical, sales and management personnel of Firefox; (iv) the substantial
accounting charges and related cash requirements expected to be incurred in
connection with the Merger; (v) the risk that the combined company's ability
to increase or maintain revenue might be diminished by product transitions,
loss of personnel or other factors resulting from the Merger; (vi) the risk
that the benefits sought to be achieved by the Merger will not be achieved;
(vii) the fact that certain Firefox stockholders may have taxable income to
the extent of the Cash Payments received with respect to their shares of
Firefox Common Stock; (viii) the risk that the litigation against FTP could be
resolved adversely; and (ix) other risks described above under "Risk Factors."
In view of the wide variety of factors, both positive and negative,
considered by the Firefox Board of Directors, the Firefox Board of Directors
did not find it practical to, and did not, quantify or otherwise assign
relative weights to the specific factors considered. After taking into
consideration all of the factors set forth above, the Firefox Board of
Directors unanimously determined that the Merger was fair to and in the best
interests of Firefox and its stockholders and that Firefox should proceed with
the Merger.
BOARD RECOMMENDATIONS
THE BOARD OF DIRECTORS OF FTP BELIEVES THAT THE ISSUANCE OF THE SHARES OF
FTP COMMON STOCK TO BE ISSUED PURSUANT TO THE MERGER IS IN THE BEST INTERESTS
OF FTP AND ITS STOCKHOLDERS AND THEREFORE UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF SUCH ISSUANCE.
THE BOARD OF DIRECTORS OF FIREFOX BELIEVES THAT THE MERGER, AND THE TERMS
THEREOF, ARE FAIR TO AND IN THE BEST INTERESTS OF FIREFOX AND ITS STOCKHOLDERS
AND THEREFORE UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND APPROVAL OF THE MERGER.
CERTAIN PROJECTIONS
Set forth below are projections (the "Combined Company Projections") that
were prepared by FTP on May 29, 1996 on the basis of the then most recent
information concerning and reflecting FTP's and Firefox's business models and
reflecting FTP and Firefox on a combined basis for the periods covered. Also
set forth below are certain projections (collectively, the "Separate Company
Projections") prepared by FTP and Firefox on May 16, 1996 and May 10, 1996,
respectively, with respect to the projected results of their respective
businesses based on the assumption that the Merger is not consummated. These
projections were not prepared with a view to public disclosure or in
compliance with published guidelines of the Commission regarding projections
or the guidelines established by the American Institute of Certified Public
Accountants regarding projections and are included herein only because the
information was developed in connection with the Merger and may be relevant to
a shareholder's evaluation of the Merger. The Separate Company Projections
represented the best estimates of FTP and Firefox, respectively, and the
Combined Company Projections represented the best estimates of FTP
46
(based in part on data furnished by Firefox), for which such parties believed
they had a reasonable basis as of the time of preparation thereof, based on a
variety of assumptions that FTP and Firefox believed were reasonable as of such
date, including those described below.
The projections set forth below are inherently forward-looking statements
and, like all forward-looking statements, involve risks and uncertainties,
including those noted in this paragraph, as well as those described under "Risk
Factors." The projections, while presented with numerical specificity, were
based on numerous estimates and assumptions, including but not limited to those
listed below, which involved judgments with respect to, among other things,
future economic and competitive conditions, technological and industry
developments and future business decisions. These estimates and assumptions may
not be realized and are inherently subject to significant business, economic
and competitive uncertainties, many of which are beyond the control of the
companies, including those described under "Risk Factors." Therefore, there can
be no assurance that the projections set forth below will prove to be reliable
estimates of probable future performance. It is likely that actual results will
vary materially from these estimates. In light of the uncertainties inherent in
projections of any kind, the inclusion of projections herein should not be
regarded as a representation by any party that the estimated results will be
realized. There can be no assurances in this regard. The projections were not
prepared in accordance with generally accepted accounting principles and were
not audited or reviewed by any independent accounting firm, nor did any
independent accounting firm perform any other services with respect thereto.
On May 1, 1996, based on its estimate of approximately $132 to $137 million
of total revenue for 1996, FTP announced in a conference call with analysts
that it expected 1996 total revenue to be flat as compared with 1995 total
revenue.
FTP and Firefox do not as a matter of course regularly make public forecasts
or projections as to future performance. In connection with discussions of the
Merger, FTP and Firefox provided one another with certain financial projection
data, including the Separate Company Projections presented below, which were
prepared in connection with the preparation of each company's business models
during the course of such discussions. Projection data provided by FTP was used
by Montgomery and projection data provided by Firefox and FTP was used by Cowen
in preparing their respective opinions concerning the fairness, from a
financial point of view, of the consideration to be paid pursuant to the
Merger. Montgomery used financial projection data regarding Firefox prepared by
FTP, but not the Separate Company Projections of Firefox or the Combined
Company Projections in rendering its opinion. Cowen used the Separate Company
Projections, but not the Combined Company Projections, in rendering its
opinion. See "--Opinion of Financial Advisor to FTP" and "--Opinion of
Financial Advisor to Firefox" below. The combined company projection data
furnished to each financial advisor, as well the assumptions used by each
financial advisor in analyzing the data, differed in certain respects from the
data and assumptions underlying the Combined Company Projections set forth
below. The significant difference between the combined company projection data
furnished to each financial advisor and the Combined Company Projections is
that the data furnished to Montgomery and Cowen was based upon an assumed
estimated charge for acquired in-process technology of $25 million (the
information necessary to develop an actual estimate having been unavailable at
the time projections were delivered to such advisors), while the Combined
Company Projections presented below were based upon an actual estimated charge
for acquired in-process technology of $41.6 million. Montgomery and Cowen have
advised FTP and Firefox, respectively, that the Combined Company Projections
set forth below, as well as the underlying assumptions, do not alter the
respective conclusions of either financial advisor regarding the fairness of
the Merger.
The Combined Company Projections and Separate Company Projections set forth
below represented possible future operating experience as of the time they were
prepared. Neither FTP nor Firefox has or presently intends to update or
publicly revise either the Combined Company Projections or the Separate Company
Projections to reflect circumstances existing or developments occurring after
the preparation of such information or to reflect the occurrence of events that
were unanticipated at the time the projections were prepared.
Combined Company Projections
The key assumptions underlying the Combined Company Projections are as
follows:
1. Benefits related to selling Firefox products through FTP's global
distribution channels as well as selling
47
FTP products to a larger Firefox customer base in the United Kingdom were
estimated to be approximately $2 million in the six months ending December
31, 1996 and approximately $10.5 million in the year ending December 31,
1997, which yielded projected operating income at an estimated rate of 66%
of those benefits;
2. Benefits related to anticipated lower manufacturing costs, royalty
expenses, facilities costs, personnel expenses and professional fees were
offset by anticipated increases in product development costs
and sales and marketing expenses, the effect of which resulted in estimated
net operating cost benefits of approximately $200,000 in the six months
ending December 31, 1996 and approximately $1.03 million in the year ending
December 31, 1997.
3. Investment income was estimated to decrease by approximately $400,000
in the six months ending December 31, 1996 and by approximately $900,000 in
the year ending December 31, 1997.
4. Amortization of capitalized technology was estimated to be
approximately $1.25 million in the six months ending December 31, 1996 and
approximately $2.5 million in the year ending December 31, 1997.
5. An effective tax rate of 37% was estimated for each of the applicable
periods.
6. Approximately 5.1 million additional shares of FTP Common Stock
(including 100,000 shares attributable to Firefox stock options) were
estimated to be issued and outstanding for six months in 1996 and for all
of 1997.
7. The combined company's global distribution capabilities, particularly
in Europe and the Asia Pacific region, were assumed to have been
successfully expanded.
8. The Merger was assumed to have been consummated on July 1, 1996.
Each of these key assumptions is subject to significant risks and, as noted
above, no assurance can be given that these assumptions or the Combined
Company Projections will be realized.
SIX MONTHS YEAR
ENDING ENDING
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
Revenues.................................. $92,246 $204,500
Operating income.......................... 7,704 26,275
Pretax income............................. 10,095 31,260
Net income................................ 6,360 19,694
Earnings per share........................ $ .19 $ .57
Average shares of common stock
outstanding.............................. 33,000 34,700
The Separate Company Projections were prepared independently by FTP and
Firefox, respectively. The Separate Company Projections differ from, and are
not directly comparable with, the Combined Company Projections principally in
that the Separate Company Projections were prepared by each of FTP and Firefox
on the basis that it would remain an independent enterprise and would pursue
the development of its business on an independent basis, utilizing its
existing product base, independent product development capabilities and
current marketing and sales organizations and distribution channels. Moreover,
the projection data used by FTP in preparing the Combined Company Projections
were not the data from the Separate Company Projections of Firefox below,
which were developed by Firefox, but rather were projection data regarding
Firefox's business developed independently by FTP on the basis of FTP's
analysis of the projected results of Firefox as combined with FTP. FTP
developed the Combined Company Projections based on the assumption, among
others, that the combined company would develop and sell products that neither
company would have developed in the near term had the Merger not been
consummated and each company had continued to operate independently. FTP
assumed for purposes of developing the Combined Company Projections that the
combined company would benefit from the expected synergies of combining FTP
and Firefox, would pursue a different product development, marketing and
distribution strategy than either company would have pursued independently and
would have broader and more rapid product development capabilities.
48
Separate Company Projections
FTP
The key assumptions underlying the Separate Company Projections of FTP are
as follows:
1. Revenue for the last six months of 1996 was assumed to increase by
approximately 20% from that expected for the first half of 1996. Revenue
was assumed to be flat from the fourth quarter of 1996 to the first quarter
of 1997 and thereafter to increase by $1 million per quarter for each of
the last three quarters of 1997.
2. Gross margin was assumed to continue at approximately 85% for the
remainder of 1996 and 1997. Operating expenses were assumed to increase by
approximately 5% for the last six months of 1996 as compared to that
expected for the first six months of 1996. For 1997, operating expenses
were assumed to increase by approximately 10% as compared to 1996 with the
exception of general and administrative expenses, which were assumed to
decrease slightly from 1996 due to the elimination of a non-recurring
expense.
3. Investment income was estimated to increase by approximately $250,000
in the last six months of 1996 as compared to that expected for the first
six months of 1996 and to remain at the fourth quarter 1996 amount for each
quarter of 1997.
4. An effective tax rate of 37% was estimated for each of the applicable
periods.
5. FTP's global distribution capabilities, particularly in the United
Kingdom and the Asia Pacific region, were assumed to have been successfully
expanded.
6. Products intended to address the large, complex enterprise TCP/IP
market were assumed to have been successfully developed on a timely basis.
Each of these key assumptions is subject to significant risks and, as noted
above, no assurance can be given that these assumptions or the Separate
Company Projections of FTP would be realized if the Merger were not
consummated.
SIX
MONTHS YEAR
ENDING ENDING
DECEMBER DECEMBER
31, 1996 31, 1997
-------- ---------
Revenues..................................................... $ 74,996 $ 163,000
Operating income............................................. 5,688 17,050
Pretax income................................................ 8,059 21,835
Net income................................................... 5,077 13,756
Earnings per share........................................... .19 .47
Average shares of common stock outstanding .................. 27,000 29,500
Firefox
The key assumptions underlying the Separate Company Projections of Firefox
are as follows:
1. Firefox's staff levels in all areas of its United States operations
were assumed to increase early in the third quarter of 1996, including as a
result of the recruitment of key managers.
2. Firefox's new product, NOV*IX for NT, was assumed to be released
during the third quarter of 1996 in order to address the expected expansion
of the NT market.
3. Firefox's own Web Server product was assumed to be released in July
1996 in order to meet the growing demand for this product.
4. New products designed to address the mail and messaging markets were
assumed to be released during the fourth quarter of 1996.
5. Firefox's existing product set was assumed to be repositioned early in
the third quarter of 1996 in order to meet the needs of the market more
successfully, in part by distinguishing between Internet and intranet
solutions.
49
6. New products intended to address the large complex enterprise TCP/IP
market were assumed to be released during the fourth quarter of 1996.
7. Firefox's European business was assumed to grow in line with
management's expectations, by approximately 26% between 1995 and 1996 and
approximately 40% between 1996 and 1997.
8. Firefox was assumed to continue to invest in product development and
to expand its sales and marketing resources. Total operating expenses were
estimated to increase by approximately 4.3% for the last six months of 1996
as compared to that expected for the first six months of 1996. For 1997,
operating expenses were estimated to increase by approximately 26% as
compared to 1996.
9. Gross margin was assumed to continue at approximately 82% for the
remainder of 1996 and 1997.
Each of these key assumptions is subject to significant risks and, as noted
above, no assurance can be given that these assumptions or the Separate
Company Projections of Firefox would be realized if the Merger were not
consummated.
SIX
MONTHS YEAR
ENDING ENDING
DECEMBER DECEMBER
31, 1996 31, 1997
-------- --------
Revenues...................................................... $15,250 $36,500
Operating income.............................................. 1,546 2,980
Pretax income 1,966 3,830
Net income.................................................... 1,179 2,298
OPINION OF FINANCIAL ADVISOR TO FTP
Pursuant to an engagement letter dated October 16, 1995, FTP retained
Montgomery to act as its financial advisor in connection with the
consideration by FTP of the Merger. Montgomery is a nationally recognized firm
and, as part of its investment banking activities, is regularly engaged in the
valuation of businesses and their securities in connection with merger
transactions and other types of acquisitions, negotiated underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. FTP selected Montgomery as
its financial advisor on the basis of Montgomery's experience and expertise in
transactions similar to the Merger, its reputation in the software and
investment communities and its existing investment banking relationship with
FTP.
On May 20, 1996, Montgomery delivered its written opinion that the
consideration to be paid by FTP in the Merger is fair to FTP from a financial
point of view, as of that date. The amount of such consideration was
determined pursuant to negotiations between FTP and Firefox and not pursuant
to recommendations of Montgomery. No limitations were imposed by FTP on
Montgomery with respect to the investigations made or procedures followed in
rendering its opinion.
The full text of Montgomery's written opinion to FTP is attached hereto as
Annex B and is incorporated herein by reference. The following summary of
Montgomery's opinion is qualified in its entirety by reference to the full
text of the opinion. Montgomery's opinion is directed to the Board of
Directors of FTP and does not constitute a recommendation to any stockholder
of FTP as to how such stockholder should vote with respect to the issuance of
the shares of FTP Common Stock to be issued pursuant to the Merger. In
furnishing its opinion, Montgomery did not admit that it is an expert within
the meaning of the term "expert" as used in the Securities Act, or that its
opinion constitutes a report or valuation within the meaning of Section 11 of
the Securities Act, and statements to such effect are included in the text of
Montgomery's written opinion.
In connection with its opinion, Montgomery, among other things: (i) reviewed
certain publicly available financial and other data with respect to FTP and
Firefox, including the consolidated financial statements for
50
recent years and interim periods to March 31, 1996 and publicly disclosed
financial information for the year ended December 31, 1995, and certain other
relevant financial and operating data relating to FTP and Firefox made
available to Montgomery from published sources and from the internal records
of FTP and Firefox; (ii) reviewed the Merger Agreement provided to Montgomery
by FTP; (iii) reviewed certain historical market prices and trading volumes of
the FTP Common Stock and the Firefox Common Stock as reported on the Nasdaq
National Market; (iv) compared FTP and Firefox from a financial point of view
with certain other companies in the software industry that Montgomery deemed
to be relevant; (v) considered the financial terms, to the extent publicly
available, of selected recent business combinations of companies in the
software industry that Montgomery deemed to be comparable, in whole or in
part, to the Merger; (vi) reviewed and discussed with representatives of the
managements of FTP and Firefox certain information of a business and financial
nature regarding FTP and Firefox, furnished to Montgomery by them; (vii)
reviewed and discussed with representatives of the managements of FTP and
Firefox financial forecasts and related assumptions of FTP and Firefox, which
were provided to Montgomery by FTP (see "--Certain Projections" above); (viii)
discussed the Firefox Litigation with the respective managements and legal
counsels of FTP and Firefox; (ix) made inquiries regarding and discussed the
Merger and the Merger Agreement and other matters related thereto with FTP's
legal counsel; and (x) performed such other analyses and examinations as
Montgomery deemed appropriate.
In connection with its review, Montgomery assumed and relied upon the
accuracy and completeness of the foregoing information and did not assume any
responsibility for independent verification of such information. With respect
to the financial forecasts provided to Montgomery as described above,
Montgomery assumed for purposes of its opinions that such forecasts had been
reasonably prepared on bases reflecting the best available estimates and
judgments of the management of FTP at the time of preparation as to the future
financial performance of FTP and Firefox, respectively, and that they provide
a reasonable basis upon which Montgomery could form its opinions. Neither FTP
nor Firefox publicly discloses internal management forecasts of the type
provided to Montgomery by FTP's management in connection with Montgomery's
review of the Merger. Such forecasts were not prepared with a view toward
public disclosure. In addition, such forecasts were based upon numerous
variables and assumptions that are inherently uncertain, including, without
limitation, factors related to general economic and competitive conditions.
Accordingly, actual results could vary significantly from those set forth in
such forecasts. Montgomery has assumed no liability for such forecasts.
Montgomery also assumed that there have been no material changes in FTP's or
Firefox's assets, financial condition, results of operations, business or
prospects since the respective dates of their last financial statements made
available to Montgomery, other than two acquisitions consummated by FTP, the
terms of which were described to Montgomery by FTP's management. Montgomery
relied on advice of counsel and independent accountants to FTP as to all legal
and financial reporting matters with respect to FTP, the Merger and the Merger
Agreement. In addition, Montgomery did not assume responsibility for making an
independent evaluation, appraisal or physical inspection of the assets or
individual properties of FTP or Firefox, nor was Montgomery furnished with any
such appraisals. Finally, Montgomery's opinion is based on economic, monetary
and market and other conditions as in effect on, and the information made
available to Montgomery as of, May 20, 1996.
Montgomery also assumed, with the consent of FTP's management, that the
Merger will be consummated in accordance with the terms described in the
Merger Agreement without any amendments thereto, and without waiver by FTP or
Firefox of any of the conditions to their respective obligations thereunder.
Montgomery was advised by Firefox, and with the consent of FTP's management
assumed without obligation of independent verification, that the first $10
million in losses, liabilities, claims, damages, costs and expenses in
connection with the Firefox Litigation ("Losses") incurred by Firefox would be
covered in full by Firefox's insurance, subject to retention and any agreement
on allocation. In addition, Montgomery was advised by Firefox that, based on
the limited information currently available to it at this early stage of the
litigation, it believes that the amount of Losses, if any, to be incurred in
connection with the litigation should not exceed the amount of available
insurance coverage of Firefox, subject to retention and any agreement on
allocation, and assumed, with the consent of FTP's management and without
obligation of independent verification, that such Losses will not exceed that
amount.
51
Set forth below is a brief summary of the analyses underlying Montgomery's
opinion.
Comparable Company Analysis. Using public and other available information,
Montgomery calculated the imputed per share value of the Firefox Common Stock
based on the multiples of estimated 1996 and 1997 revenues and net income at
which the following comparable companies were trading on May 17, 1996: FTP,
NetManage, Hummingbird Communications Ltd., Wall Data and XcelleNet Inc. The
May 17, 1996 stock prices of the comparable companies reflected the following
median multiples: 1.9x estimated 1996 revenues; 1.6x estimated 1997 revenues;
25.6x estimated 1996 net income; and 16.8x estimated 1997 net income.
Montgomery applied the foregoing median multiples to the applicable statistics
for Firefox provided by FTP management, made applicable adjustments to reflect
Firefox's net cash (defined as cash minus debt) at March 31, 1996, and applied
a control premium to the resulting totals. This analysis indicated an imputed
equity value (defined as aggregate value plus net cash) of Firefox of between
$65.5 million and $82.5 million, or between $9.73 and $12.25 per share of
Firefox Common Stock.
Discounted Cash Flow Analysis. Montgomery applied a discounted cash flow
analysis to Firefox's financial forecasts for the second half of 1996 and 1997
prepared by FTP's management and provided to Montgomery, and for 1998 through
2001 prepared by Montgomery and approved by management of FTP. FTP did not
provide Montgomery with any financial forecasts for periods beyond 1997. In
conducting such analysis, Montgomery assumed that Firefox would perform in
accordance with such forecasts. First, Montgomery calculated the estimated
future streams of free cash flows that Firefox would produce through 2000.
Second, Montgomery estimated Firefox's aggregate value at the end of 2000 by
applying multiples ranging from 15.0x to 19.0x to Firefox's estimated net
income for 2001 and subtracting Firefox's estimated net cash at the end of
2000. Such cash flow streams and aggregate value were discounted to present
values using discount rates ranging from 17.0% to 25.0%, chosen to reflect
different assumptions regarding FTP's cost of capital, and such present values
were then increased by Firefox's net cash as of March 31, 1996. This analysis
indicated an imputed equity value of Firefox of between $53.1 million and
$81.2 million, or between $7.89 and $12.05 per share of Firefox Common Stock.
Comparable Transactions Analysis. Montgomery reviewed the consideration paid
in the following acquisitions of comparable software companies that have been
announced since 1995 (target/acquiror): Tivoli Systems/IBM Corp.; TGV Software
Inc./Cisco Systems Inc.; Unipalm/UUNet Technologies; Collabra Software
Inc./Netscape Communications Corp.; and SPRY Inc./CompuServe Inc. Montgomery
analyzed the consideration paid in such transactions as a multiple of the
target companies' net revenues for the latest 12 months. Such analysis yielded
high, low and mean multiples of 17.5x, 2.8x and 8.5x, respectively. Montgomery
then applied the foregoing multiples to Firefox's revenues for the 12 months
ended March 31, 1996 and added Firefox's net cash as of March 31, 1996. This
analysis indicated an imputed equity value of Firefox of between $69.6 million
and $351.5 million, or between $10.34 and $52.19 per share of Firefox Common
Stock.
No other company or transaction used in the comparable transactions analysis
as a comparison is identical to Firefox or the Merger, respectively.
Accordingly, an analysis of the results of the foregoing is not mathematical;
rather, it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading value of the companies and
transactions to which Firefox and the Merger, respectively, are being
compared.
Earnings Accretion/Dilution Analysis. Using 1996 and 1997 financial
forecasts of FTP and Firefox provided to Montgomery by FTP management (which
forecasts differ both from the forecasts that were used by Cowen in connection
with preparation of its opinion and from the forecasts described under "--
Certain Projections" above), and giving effect to cost savings such management
expects to realize following the Merger in such areas as general and
administrative costs and manufacturing and distribution, Montgomery compiled
and reviewed pro forma financial information of the combined company assuming
consummation of the Merger, assuming a $9.625 market price for the FTP Common
Stock (which was the actual closing sale price of the FTP Common Stock on the
Nasdaq National Market on May 17, 1996). Such analysis indicated that the
Merger could be accretive for 1997.
52
While the foregoing summary describes all analyses and examinations that
Montgomery deems material to its opinion, it is not a comprehensive
description of all analyses and examinations actually conducted by Montgomery.
The preparation of a fairness opinion necessarily is not susceptible to
partial analysis or summary description. Montgomery believes that its analyses
and the summary set forth above must be considered as a whole and that
selecting portions of its analyses and of the factors considered, without
considering all analyses and factors, would create an incomplete view of the
processes underlying the analyses set forth in its presentation to FTP. In
addition, Montgomery may have given various analyses more or less weight than
other analyses, and may have deemed various assumptions more or less probable
than other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Montgomery's
view of the actual value of Firefox.
In performing its analyses, Montgomery made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of FTP and Firefox. The
analyses performed by Montgomery are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than those suggested by such analyses. Such analyses were prepared
solely as part of Montgomery's analysis of the fairness of the Merger to FTP
and were provided to FTP in connection with the delivery of Montgomery's
opinions. The analyses do not purport to be appraisals or to reflect the
prices at which a company might actually be sold or the prices at which any
securities may trade at any time in the future. Montgomery used in its
analyses various projections of future performance prepared by the managements
of FTP and Firefox. The projections are based on numerous variables and
assumptions which are inherently unpredictable and must be considered not
certain of occurrence as projected. Accordingly, actual results could vary
significantly from those set forth in such projections. Because such
projections are inherently subject to uncertainty, none of FTP, Firefox,
Montgomery or any other person assumes responsibility for their accuracy.
As described above, Montgomery's opinion and presentation to FTP were among
the many factors taken into consideration by FTP's Board of Directors in
making its determination to approve, and to recommend that its stockholders
approve, the issuance of the shares of FTP Common Stock to be issued pursuant
to the Merger.
Pursuant to a letter agreement dated October 16, 1995 (the "Engagement
Letter"), FTP engaged Montgomery to act as its financial advisor in connection
with the Merger. The Engagement Letter provides for FTP to pay Montgomery a
fee of $1.5 million for services rendered in connection with the Merger, one-
half of which was payable by FTP upon the execution of the Merger Agreement.
The fee is not conditioned on the outcome of Montgomery's opinion or whether
or not such opinion was deemed to be favorable for any party's purposes. FTP
is obligated to pay the remaining one-half of the fee upon the consummation of
the Merger. Pursuant to the Engagement Letter, FTP also has paid Montgomery a
non-refundable retainer of $50,000 for acting as financial advisor, which will
be credited against the fee that becomes payable upon consummation of the
Merger. The Engagement Letter also calls for FTP to reimburse Montgomery for
its reasonable out-of-pocket expenses. Pursuant to a separate letter
agreement, FTP has agreed to indemnify Montgomery, its affiliates and their
respective partners, directors, officers, agents, consultants, employees and
controlling persons against certain liabilities, including liabilities under
the federal securities laws, relating to or arising out of services performed
by Montgomery as financial advisor to FTP in connection with the Merger,
unless such liabilities arise out of Montgomery's gross negligence, bad faith
or willful misconduct. The terms of the fee arrangement with Montgomery, which
are customary in transactions of this nature, were negotiated at arms-length
between FTP and Montgomery, and the Board of Directors of FTP approved such
arrangement, including the payment of a significant portion of the aggregate
fee contingent upon consummation of the Merger.
In the ordinary course of its business, Montgomery actively trades the
equity securities of FTP and Firefox for its own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position
in such securities. Montgomery also has acted as an underwriter in connection
with public offerings of the FTP Common Stock in November 1993 and May 1994
and of the Firefox Common Stock in May 1995 and has performed various
investment banking services for FTP.
53
OPINION OF FINANCIAL ADVISOR TO FIREFOX
In October 1995, the Board of Directors of Firefox retained Cowen to act as
Firefox's financial advisor in connection with a possible combination with
FTP. Over the next several months Cowen attended meetings held by the parties
at which the structure, financial and other terms of a possible transaction
were discussed. On January 17, 1996, Cowen delivered to the Firefox Board, its
oral opinion and confirmed such opinion in writing on that date (the "January
17, 1996 Cowen Opinion") that, as of that date, based upon certain analyses
performed by Cowen and subject to certain assumptions, the consideration to be
received by the holders of Firefox Common Stock in the Merger, as then
proposed, was fair, from a financial point of view, to such holders. Cowen
performed its definitive valuation after the parties agreed on the terms of
the Merger, including the financial consideration to be paid to Firefox
stockholders.
On March 14, 1996, Cowen delivered to the Firefox Board of Directors its
oral opinion and confirmed such opinion in writing on March 16, 1996 (the
"March 16, 1996 Cowen Opinion") that, as of such date, based on certain
analyses performed by Cowen and subject to certain assumptions, the
consideration to be received by the holders of Firefox Common Stock in the
Merger, as then proposed, was fair, from a financial point of view, to such
holders. The March 16, 1996 Cowen Opinion was delivered to provide the Firefox
Board of Directors with an update, taking into account relevant intervening
factors since the delivery of the January 17, 1996 Cowen Opinion, including
(i) amendments to the Merger Agreement, (ii) the Firefox Litigation, (iii) the
current market factors and prospects of Firefox and FTP, based on discussions
with their respective managements, (iv) changes in the trading multiples of
the Selected Companies (as defined below), and (v) acquisition multiples in
recent transactions.
On March 22, 1996, Cowen delivered to the Firefox Board of Directors its
oral opinion and confirmed such opinion in writing on March 25, 1996 (the
"March 25, 1996 Cowen Opinion") that, as of such date, based on certain
analyses performed by Cowen and subject to certain assumptions, the
consideration to be received by the holders of Firefox Common Stock in the
Merger, as then proposed, was fair, from a financial point of view, to such
holders. The March 25, 1996 Cowen Opinion was delivered to provide the Firefox
Board of Directors with an update, taking into account relevant intervening
factors since the delivery of the March 16, 1996 Cowen Opinion, including (i)
amendments to the Merger Agreement, (ii) the FTP litigation, (iii) the current
market factors and prospects of Firefox and FTP, based on discussions with
their respective managements, (iv) changes in the trading multiples of the
Selected Companies and (v) acquisition multiples in recent transactions.
On May 21, 1996, Cowen delivered to the Firefox Board of Directors its oral
opinion and confirmed such opinion in writing on that date (the "May 21, 1996
Cowen Opinion") that, as of such date, based on certain analyses performed by
Cowen and subject to certain assumptions, the consideration to be received by
the holders of Firefox Common Stock in the Merger is fair, from a financial
point of view, to such holders. The May 21, 1996 Cowen Opinion was delivered
to provide the Firefox Board of Directors with an update, taking into account
relevant intervening factors since the delivery of the March 25, 1996 Cowen
Opinion, including (i) amendments to the Merger Agreement, (ii) the current
market factors and prospects of Firefox and FTP provided by their respective
managements and (iii) changes in the trading multiples of the Selected
Companies. While Cowen advised Firefox during the negotiation process, the
final structure and terms of the Merger, including the amount and type of
financial consideration, were agreed upon by Firefox and FTP as the result of
their arm's length negotiations.
The full text of the May 21, 1996 Cowen Opinion, which sets forth
assumptions made, procedures followed, matters considered, and limitations on
and the scope of the review undertaken by Cowen in rendering its opinion, is
attached as Appendix C to this Joint Proxy Statement/Prospectus. Firefox
stockholders are urged to read this opinion carefully and in its entirety. The
May 21, 1996 Cowen Opinion addresses only the fairness of the consideration to
be received by the holders of Firefox Common Stock in the Merger from a
financial point of view as of the date of such opinion, and does not
constitute an opinion as to the merits of the transaction contemplated by the
Merger Agreement or a recommendation to any stockholder of Firefox as to how
such stockholder should vote at the Firefox Meeting. Unless otherwise
indicated, the May 21, 1996 Cowen Opinion
54
does not take into effect any direct or indirect consequences of the Firefox
Litigation or the FTP litigation. The summary of the May 21, 1996 Cowen
Opinion set forth below is qualified in its entirety by reference to the full
text of the May 21, 1996 Cowen Opinion.
Cowen reviewed with the Firefox Board of Directors the general analyses
performed by Cowen in reaching its opinion, including the assumptions made and
the financial projections of Firefox and FTP considered therein. In connection
with its opinion, Cowen, among other things: (i) reviewed the Merger Agreement
and discussed with Firefox's management the terms of the Merger Agreement;
(ii) reviewed certain financial and other data with respect to Firefox
provided by management, including Firefox's consolidated financial statements
for each of the fiscal years ended December 31, 1993, 1994 and 1995 and for
the three-month period ended March 31, 1996, certain publicly available
filings with the Commission and certain other relevant financial and projected
operating data of Firefox; (iii) reviewed certain financial and other data
with respect to FTP provided by FTP management, including consolidated
financial statements for each of the fiscal years ended December 31, 1993,
1994 and 1995 and for the three-month period ended March 31, 1996, certain
publicly available filings with the Commission and certain other relevant
financial and projected operating data of FTP; (iv) held meetings and
discussions with management and senior personnel of FTP and Firefox to discuss
the business, operations, historical financial results and future prospects of
Firefox, FTP and the combined company; (v) reviewed the Separate Company
Projections furnished to Cowen by the managements of Firefox and FTP,
including, among other things, the capital structure, sales, net income, cash
flows, capital requirements, potential synergies and other data of Firefox,
FTP and the combined company deemed relevant (which projections differ both
from the projections that were used by Montgomery in connection with
preparation of its opinion and from the Combined Company Projections described
under "--Certain Projections" above); (vi) reviewed the valuation of Firefox
and FTP in comparison to other similar publicly traded companies; (vii)
compared the financial terms of the Merger contemplated by the Merger
Agreement with the financial terms, to the extent available, of similar
transactions; (viii) conducted a discounted cash flow analysis of Firefox's
projections, provided to Cowen by Firefox; (ix) analyzed the potential pro
forma financial effects of the transaction contemplated by the Merger
Agreement; (x) reviewed the historical market prices, trading volumes and
exchange ratios of the Firefox Common Stock and the FTP Common Stock; (xi)
reviewed Firefox's contribution to revenues and net income relative to its pro
forma ownership in FTP; (xii) discussed with Firefox's management potential
market reaction to the Merger, considering strategic, financial and structural
perspectives; and (xiii) conducted such other studies, analyses, inquiries and
investigations and considered such other financial, economic and market data
as Cowen deemed appropriate. In addition, Cowen contacted, sent public
information packages to and initiated discussions with several selected third
party candidates over a two-month period regarding a potential combination
with Firefox. No indications of interest were received as a result of this
process.
The following paragraphs summarize significant financial analyses performed
by Cowen in connection with the oral opinion delivered to the Firefox Board of
Directors on May 21, 1996 and confirmed in the May 21, 1996 Cowen Opinion.
Analysis of Certain Publicly Traded Companies. To provide contextual data
and comparative market information, Cowen compared selected data and ratios
for Firefox to the corresponding data and ratios of certain other companies
whose securities are publicly traded and which Cowen believes have operating,
market valuation and trading valuations similar to what might be expected of
Firefox. These companies included: FTP; Hummingbird Communications Ltd.;
NetManage; and Wall Data (the "Selected Companies"). Such data and ratios
include the market capitalization of common stock plus total debt less cash
and equivalents ("Adjusted Price") of the Selected Companies as a multiple of
calendar 1996 estimated revenue and the ratio of the then current stock prices
of the Selected Companies to the estimated calendar 1997 earnings per share
(as estimated by First Call Corporation) for these companies.
Such analysis indicated that, for the Selected Companies (i) the median
value of Adjusted Price as a multiple of calendar 1996 estimated revenue was
2.5x as compared to the corresponding multiples for Firefox implied by FTP's
offer (assuming an Average Price equal to the closing price of $9.75 for the
FTP Common Stock on May
55
20, 1996) ("FTP's Offer as of May 20, 1996") of 1.8x; and (ii) the median
value of price per share as a multiple of estimated calendar 1997 earnings per
share was 15.7x as compared to the corresponding multiple for Firefox implied
by FTP's Offer as of May 20, 1996 of 26.1x.
Although the Selected Companies were used for comparison purposes, none of
such companies is directly comparable to Firefox. The Average Price and thus
the multiples for Firefox implied by FTP's offer at the Effective Time could
be higher or lower than those implied by FTP's Offer as of May 20, 1996.
Selected Transaction Analysis. Cowen reviewed the financial terms, to the
extent publicly available, of certain selected transactions involving the
acquisition of public companies in the data networking and software
industries, which were announced or completed since July 1994. The
transactions include, in reverse chronological order, the acquisitions of TGV
Software Inc. by Cisco Corporation; ALANTEC Corp. by Fore Systems, Inc.;
NetWorth, Inc. by Compaq Computer Corp.; Xylogics, Inc. by Bay Networks, Inc.;
Chipcom Corporation by 3Com Corporation; Lotus Development Corp. by IBM;
Lannet Data Communications by Madge Networks N.V.; Xyplex, Inc. by Raytheon
Co.; and SynOptics Communications, Inc. by Wellfleet Communications, Inc.
(collectively the "Selected Transactions").
Cowen reviewed the Adjusted Price paid in the Selected Transactions as a
multiple of latest 12 months ("LTM") revenue. On the basis of the Adjusted
Price paid, the Selected Transactions had a median multiple of 3.1x LTM
revenue. The corresponding multiple of revenue for Firefox implied by FTP's
Offer as of May 20, 1996 is 2.3x.
Although the Selected Transactions were used for comparison purposes, none
of such transactions is directly comparable to the Merger. The Average Price
and thus the multiples for Firefox implied by FTP's offer at the Effective
Time could be higher or lower than those implied by FTP's Offer as of May 20,
1996.
Discounted Cash Flow Analysis. Cowen estimated the range of values for
Firefox's equity based upon the discounted present value of the projected
after-tax free cash flows of Firefox for the six months ended December 31,
1996 and the calendar years December 31, 1997 through December 31, 1999, and
of the residual value of Firefox at December 31, 1999, calculated using a
terminal value for Firefox based upon a multiple of Firefox's projected 1999
net income. After-tax cash flow was calculated by taking projected earnings
before interest expense and taxes and subtracting from such amount projected
taxes, capital expenditures less depreciation and amortization and changes in
working capital. The analysis was based upon certain assumptions derived from
projections supplied by and discussions held with the management of Firefox.
In performing this analysis, Cowen utilized discount rates ranging from 15% to
25% which were selected based on the estimated weighted average cost of
capital of the Selected Companies. Cowen utilized terminal multiples of net
income ranging from 12.0x to 16.0x, which represented the general range of
price/earnings ratio multiples for the Selected Companies. Utilizing this
methodology, Firefox's implied equity value ranged from $45 million to $65
million as compared to the aggregate consideration of FTP's Offer as of May
20, 1996 in the Merger of $60 million.
Contribution Analysis. Cowen compared the contribution of Firefox to
projected pro forma combined revenues and net income of the combined company
for calendar 1997 before synergies. Cowen noted that Firefox would contribute
approximately 18% of revenues and approximately 14% of net income as compared
with the approximately 15% pro forma ownership position that holders of
Firefox Common Stock would have in the combined company for the stock portion
of FTP's Offer as of May 20, 1996.
Pro Forma Merger Analysis. Cowen analyzed certain pro forma financial
information of the combined company based upon internal financial analyses and
the Separate Company Projections for Firefox and FTP prepared by their
respective managements (which forecasts differ from the forecasts that were
used by Montgomery in connection with preparation of its opinion and the
Combined Company Projections described under "--Certain Projections" above),
and FTP's Offer as of May 20, 1996. Such analyses indicated that, including
certain synergies expected by the managements of Firefox and FTP, pro forma
earnings per share of the combined company would be dilutive for calendar year
1997.
56
In its discussion with Firefox's Board of Directors concerning the fairness
from a financial point of view of the consideration to be received by the
Firefox stockholders in the Merger in connection with the January 17, 1996
Cowen Opinion, the March 16, 1996 Cowen Opinion, the March 25, 1996 Cowen
Opinion and the May 21, 1996 Cowen Opinion, respectively, Cowen reviewed,
among other things, the financial analyses described above and discussed with
the Firefox Board the limitations of each method of analysis relative to the
proposed Merger. Based upon Cowen's review and analysis, Cowen advised
Firefox's Board that as of the date of the delivery of the January 17, 1996
Cowen Opinion, the March 16, 1996 Cowen Opinion, the March 25, 1996 Cowen
Opinion and the May 21, 1996 Cowen Opinion, respectively, the consideration to
be received by the holders of Firefox Common Stock pursuant to the Merger, in
each case as then proposed, is fair, from a financial point of view, to such
holders.
The foregoing summary includes all material information relevant to the
analyses performed by Cowen but does not purport to be a complete description
of such analyses. The preparation of a fairness opinion is a complex process
and is not necessarily susceptible to a partial analysis or summary
description. Selecting portions of the analyses or the summary set forth above
without considering the analyses as a whole could create an incomplete view of
the process underlying the May 21, 1996 Cowen Opinion. In arriving at its
fairness determination, Cowen made numerous assumptions with respect to
industry performance, business and economic conditions and other matters. The
analyses were prepared solely for purposes of analyzing the financial
consideration to be received pursuant to the Merger and do not purport to be
appraisals or necessarily reflect the prices at which Firefox, FTP or their
securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses.
In rendering its opinion, Cowen relied upon, without independent
verification, the accuracy and completeness of all financial and other
information supplied to it by the managements of Firefox and FTP and other
publicly available information. In addition, Cowen assumed that the financial
projections that had been provided to it by Firefox and FTP were prepared on a
reasonable basis and reflected the best available estimates and judgments of
Firefox's and FTP's respective managements at the time of preparation
regarding the future financial performance of Firefox and FTP. Because such
projections are inherently subject to uncertainty, none of Firefox, FTP, Cowen
or any other person assumes responsibility for their accuracy. Cowen did not
make any independent valuation or appraisal of the assets or liabilities of
Firefox or FTP, nor has Cowen been furnished with any such appraisals. Cowen
made no independent investigations of any legal matters affecting either
Firefox or FTP, including the effect of any direct or indirect consequences of
the Firefox Litigation or the FTP litigation. Cowen based its opinion on the
economic, monetary and market conditions as of the date of such opinion and on
the information available to it on the date of such opinion and assumed that
there have been no material changes in either Firefox's or FTP's financial
condition, working capital, results of operations, business or prospects since
the respective dates of the most recent available financial statements or
other information of the constituent companies.
As compensation for acting as Firefox's financial advisor in connection with
the Merger, Cowen will receive a fee equal to 1.2% of the aggregate
consideration payable pursuant to and entirely contingent upon the
consummation of the Merger. In addition, Firefox agreed to reimburse Cowen for
its reasonable out-of-pocket expenses and to indemnify it and its controlling
persons, partners, directors, officers, employees and agents against any
losses or liabilities incurred in connection with the rendering of its
fairness opinions, as well as the advisory actions taken during the course of
the negotiations. Firefox has also agreed to indemnify Cowen against certain
liabilities, including liabilities under the federal securities laws, relating
to or arising out of services performed by Cowen as financial advisor to
Firefox in connection with the Merger, unless such liabilities arise out of
Cowen's gross negligence or willful misconduct. The terms of the fee
arrangement with Cowen, which are customary in transactions of this nature,
were negotiated at arms-length between Firefox and Cowen, and the Board of
Directors of Firefox was aware of such an arrangement, including the fact that
the fee payable to Cowen is contingent upon consummation of the Merger.
57
In the ordinary course of its business, Cowen prepares research reports on
the stock of many companies, including Firefox and FTP. Cowen also on a
regular basis trades both Firefox Common Stock and FTP Common Stock for its
own account and for the accounts of its customers. Accordingly, at any time
Cowen may hold either a long or short position in both Firefox Common Stock
and FTP Common Stock. In the past, Cowen and its affiliates have provided
financial advisory and financing services to Firefox, including acting as a
co-manager of Firefox's initial public offering in May 1995. Additionally,
Cowen has acted as underwriter for FTP in connection with public offerings of
the FTP Common Stock in November 1993 and May 1994 and acted as FTP's
financial advisor for the adoption of FTP's stockholders' rights plan on
December 1, 1995. Cowen has received customary fees from each of Firefox and
FTP for the rendering of these services.
Cowen is a nationally recognized investment banking firm and, as part of its
investment banking activities, is regularly engaged in the valuation of
businesses and securities in connection with merger transactions and other
types of acquisitions. The Board of Directors of Firefox selected Cowen
because of its expertise and reputation, particularly in the area of
conducting research on and advising technology companies. No limitations were
imposed on Cowen's investigation of Firefox, FTP or the Merger or on the
procedures to be followed by Cowen in rendering its opinions.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Firefox Board of Directors with
respect to the Merger, stockholders of Firefox should be aware that certain
members of Firefox's management and the Firefox Board of Directors have
interests in the Merger that are in addition to the interests of stockholders
of Firefox generally. The Firefox Board of Directors was aware of these
interests and considered them, among other matters, in approving the Merger
Agreement, the Merger and the transactions connected therewith.
Stock Options. Pursuant to the Merger Agreement, at the Effective Time, each
Firefox Stock Option then outstanding under the Firefox 1995 Stock Option Plan
and the Firefox 1995 Outside Director Stock Option Plan, whether vested or
unvested, shall be deemed assumed by FTP and deemed to constitute an option to
acquire the number of shares of FTP Common Stock equal to the aggregate of (i)
that number of shares of FTP Common Stock (based on the Exchange Ratio) as the
holder of such Firefox Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full
immediately prior to the Effective Time (not taking into account whether or
not such option was in fact exercisable) plus (ii) that number of additional
shares of FTP Common Stock calculated by dividing (A) the aggregate Cash
Payment that the holder of such Firefox Stock Option would have been entitled
to receive pursuant to the Merger had such holder exercised such option in
full immediately prior to the Effective Time (not taking into account whether
or not such option was in fact exercisable) by (B) the Average Price. To avoid
fractional shares, the number of shares of FTP Common Stock subject to an
assumed Firefox Stock Option will be rounded down to the nearest whole share.
As of the Firefox Record Date, no fully vested Firefox Stock Options were held
by the directors and executive officers of Firefox; however, James L. Clark, a
director of Firefox, holds an option to purchase 20,000 shares of Firefox
Common Stock, which, pursuant to its existing terms, will become fully vested
and exercisable as a result of the Merger. Mr. Clark's option has an exercise
price of $18.00 per share of Firefox Common Stock and will remain exercisable
for 12 months after the Effective Time.
Pursuant to the Merger Agreement, at the Effective Time, each then
outstanding Firefox Scheme Option shall be deemed assumed by FTP and deemed to
constitute an option to acquire the number of shares of FTP Common Stock
(rounded down to the nearest whole number) equal to the aggregate of (i) that
number of shares of FTP Common Stock (based on the Exchange Ratio) as the
holder of such Firefox Scheme Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full
immediately prior to the Effective Time (not taking into account whether or
not such option was in fact exercisable) plus (ii) that number of additional
shares of FTP Common Stock calculated by dividing (A) the aggregate Cash
Payment that the holder of such Firefox Scheme Option would have been entitled
to receive pursuant to the Merger had such holder exercised such option in
full immediately prior to the Effective Time (not taking into account whether
or not such option was in fact exercisable) by (B) the Average Price. The
exercise price for such Firefox Scheme
58
Options shall be price per share equal to (x) the aggregate exercise price for
the shares of Firefox Common Stock otherwise purchasable pursuant to such
Firefox Scheme Option divided by (y) the number of shares of FTP Common Stock
deemed purchasable pursuant to such Firefox Scheme Option. Such assumption and
conversion is conditioned upon the written agreement of each holder of a
Firefox Scheme Option. Absent such written agreement, Firefox Scheme Options
will, in accordance with the terms of the Firefox 1994 Option Scheme, become
exercisable in full for a six-month period beginning at the Effective Time for
the same number of shares of FTP Common Stock as calculated pursuant to the
first sentence of this paragraph at the same exercise price as calculated
pursuant to the second sentence of this paragraph. At the end of such six-
month period, any Firefox Scheme Options which have not been assumed and
converted or exercised will terminate. Any Firefox Scheme Options which are
exercised may become eligible for resale in the public market immediately in
accordance with Rule 701 under the Securities Act or later in accordance with
Rule 144 under the Securities Act. As of the Firefox Record Date, 60,000
shares of Firefox Common Stock were subject to Firefox Scheme Options held by
officers and directors of Firefox.
Election to FTP Board of Directors. The Merger Agreement provides that FTP
will take such action as is necessary to have John A. Kimberley, the current
President and Chief Executive Officer of Firefox, elected as a member of the
FTP Board of Directors effective immediately following the Effective Time and
will provide Mr. Kimberley with such indemnification and insurance as is
provided to other members of FTP's Board of Directors.
Employment Arrangements with Certain Firefox Officers. It is a condition of
the Merger that as of the Effective Time, each of John A. Kimberley and Peter
R. Simkin, the current Vice President and Chief Technical Officer of Firefox,
enter into an employment agreement (each, an "Employment Agreement") with FTP
and that Richard J. Whitehead, the current Vice President and Chief Scientist
of Firefox, enter into an employment agreement with Firefox, each of which
will provide for the commencement of an employment relationship with the
combined company at the Effective Time on terms substantially equivalent to
their respective terms of employment with Firefox prior to the Effective Time.
Currently, Messrs. Kimberley, Simkin and Whitehead (collectively, the
"Employees") are authorized to be paid salaries of $220,000, $150,000 and
$150,000, respectively, and are eligible to receive a bonus for 1996 of
$80,000, $40,000 and $40,000, respectively, subject to the terms of the
Firefox bonus plan. However, each such person has taken a voluntary reduction
of his salary to $88,000 per year. FTP and each Employee are currently
negotiating the terms of the Employment Agreements, but have agreed in
principle that the Employment Agreements will contain substantially the
following terms. Mr. Kimberley will be employed as Vice Chairman of FTP and
Executive Vice President of Firefox, Mr. Simkin will be employed as Chief
Technology Officer of FTP, and Mr. Whitehead will continue to be employed as
Vice President and Chief Scientist of Firefox, in each case for a period of
one year beginning at the Effective Time. Mr. Kimberley will be paid an annual
salary of $200,000 and each of Messrs. Simkin and Whitehead will be paid an
annual salary of $150,000. In addition, if a cash incentive or bonus
compensation plan is made available to executive officers of FTP generally, in
the cases of Messrs. Kimberley and Simkin, or officers of FTP and its
subsidiaries generally, in the case of Mr. Whitehead, and such person is not
then covered by any other cash incentive or bonus compensation plan, such
person will be entitled to participate in such plan in accordance with the
plan terms.
It is anticipated that the Employment Agreements for Messrs. Kimberley and
Simkin will contain the following termination provisions, among others:
(a) FTP will have the right to terminate such person's employment at any
time "for cause" (as such term is to be defined in the Employment
Agreements), in which event FTP shall have no further obligation to the
Employee, other than for base salary earned and unpaid at the date of
termination;
(b) FTP will have the right to terminate the Employee's employment other
than for cause at any time, in which event, if such termination occurs
either before or after a Change of Control Period (as defined below), until
the earlier of (i) 12 months following the date of such termination or (ii)
the date the Employee commences other employment (including self-
employment), FTP shall continue to pay the Employee his base salary at the
rate in effect on the date of termination, shall continue to contribute to
the cost of the Employee's participation in FTP's group medical and dental
plans, provided that the Employee is entitled
59
to continue such participation under applicable law and plan terms, and
shall pay certain costs of out placement services for the Employee;
provided, that if the Employee commences other employment before the end of
such 12-month period, FTP shall pay the Employee, in one lump sum, one-half
of the remaining balance of the base salary that would have been payable to
the Employee had the Employee not accepted such other employment;
(c) the Employee will have the right to terminate his employment at any
time for "good reason" (as such term is to be defined in the Employment
Agreements, and is expected to include matters such as a change in position
or material diminution in the nature or scope of the Employee's
responsibilities, duties or authority, work site relocation and the
material failure of FTP to provide the Employee the benefits specified in
his Employment Agreement), in which event FTP will be required to provide
the Employee pay and benefits as described in the preceding paragraph; and
(d) if on the date of, or within two years following, a change of control
(as such term is to be defined in the Employment Agreements) (a "Change of
Control Period"), FTP terminates the Employee's employment other than for
cause or the Employee terminates his employment for good reason, then FTP
will be required (subject to certain tax adjustments) to (i) pay the
Employee a lump sum payment equal to the greater of (A) the sum of his base
salary and the amount of any bonus paid or payable to him during the
remainder of the term of the Employment Agreement (which will automatically
be extended to be not less than 24 months from the date the change of
control occurs) or (B) the sum of his base salary and the amount of any
bonus paid or payable to him during the 12 months preceding the month
during which such termination occurs, (ii) pay the full cost of the
Employee's continued participation in FTP's group health and dental
insurance plans for so long as the Employee remains entitled to continue
such participation under COBRA and the applicable plan terms and (iii) pay
certain costs of out placement services for the Employee. In addition, upon
a change of control, all options to purchase FTP Common Stock then held by
the Employee will automatically accelerate and become exercisable in full.
Finally, the Employment Agreements will prohibit each Employee from selling
more than 40,000 shares of FTP Common Stock during any fiscal quarter of FTP
and will prohibit the Employee from competing with FTP and its affiliates for
a period of six months following termination of the Employee's employment.
The Employment Agreement for Mr. Whitehead, which will be governed by the
laws of the United Kingdom, is expected to contain provisions substantially
similar to those described above and such additional provisions as may be
required under the laws of the United Kingdom.
Registration Rights Agreement. It is a condition to the Merger that FTP
shall have entered into a Registration Rights Agreement (the "Registration
Rights Agreement") with each of Messrs. Kimberley, Simkin and Whitehead. The
proposed Registration Rights Agreement provides each such person with
piggyback registration rights with respect to the shares of FTP Common Stock
to be issued to each such person in the Merger on customary terms with pro
rata cutbacks. The proposed Registration Rights Agreement also provides for
the payment by FTP of certain expenses, including the legal fees of one
counsel acting on behalf of such persons.
Continuation of Rights to Indemnification; Limitation of Liability;
Directors' and Officers' Liability Insurance. The Merger Agreement provides
that as of the Effective Time, Firefox as surviving corporation in the Merger
will provide Mr. Kimberley and Mr. Simkin with such indemnification and
insurance as is provided to other members of the FTP Board of Directors and
other FTP executive officers, respectively. The Merger Agreement further
provides that the bylaws of Firefox as surviving corporation in the Merger
will contain the provisions with respect to indemnification contained in the
current Firefox bylaws and that such provisions will not be amended, repealed
or otherwise modified for a period of three years after the Effective Time in
any manner that would adversely affect the rights thereunder of individuals
who at any time prior to the Effective Time were directors or officers of
Firefox, unless such modification is required by law.
The Merger Agreement also provides that, after the Effective Time, Firefox
as surviving corporation in the Merger shall, to the fullest extent permitted
under the Firefox Restated and Amended Certificate of Incorporation
60
and Bylaws or under applicable law, indemnify and hold harmless each present
and former director, officer or employee of Firefox or any of its subsidiaries
against all costs, expenses, judgments, fines, losses, claims, damages,
liabilities and amounts paid in any settlement arising out of or pertaining to
the transactions contemplated by the Merger Agreement or otherwise with
respect to any acts or omissions occurring at or prior to the Effective Time,
to the same extent as provided in Firefox's Restated and Amended Certificate
of Incorporation or Bylaws or any applicable contract or agreement in effect
on the date of the Merger Agreement, in each case for a period of three years
after the Effective Time. Firefox as surviving corporation in the Merger is
also obligated to honor and fulfill in all respects Firefox's obligations
pursuant to indemnification agreements with Firefox's current or former
directors, officers and employees in effect at the Effective Time.
FTP has also agreed to cause Firefox to maintain for a period of three years
after the Effective Time policies of directors' and officers' liability
insurance covering those persons covered by Firefox's directors' and officers'
liability insurance policy at the date of the Merger Agreement on comparable
terms. In no event, however, shall FTP or Firefox be required to expend in
excess of 150% of the annual premium currently paid by Firefox for such
coverage, provided that if the annual premium for such coverage exceeds such
amount, FTP or Firefox is obligated to purchase a policy with the greatest
coverage available for 150% of the annual premium currently paid by Firefox.
Severance and Retention Payments. In May 1996, Firefox agreed to pay each of
Frank M. Richardson and Mark A. Rowlinson, currently executive officers and
directors of Firefox, and David J. Fallen, an executive officer of Firefox,
severance in the amount of $50,000, $75,000 and $25,000, respectively, if such
person's employment with Firefox is terminated (whether by such person or by
Firefox) at or following the Effective Time. Also in May 1996, Firefox agreed
to pay Mr. Rowlinson a retention bonus in the amount of $50,000 if he remains
as an employee of Firefox for a period of 30 days following the Effective
Time, to assist Firefox and FTP in the post-Merger integration process. It is
currently expected that the employment of each such person with Firefox will
not continue following the Effective Time or the end of such retention period,
as the case may be. In addition, Mr. Rowlinson has agreed to continue to
assist Firefox and FTP in the post-Merger integration process on a consulting
basis following his termination of employment with Firefox, as requested by
Firefox from time to time, for which services he will be paid at a rate of
$100 per hour.
Pursuant to a letter agreement between Firefox and Archibald A. Thomas
entered into in May 1995, Mr. Thomas is entitled to receive, and required to
give, six months notice of termination of his employment with Firefox. In May
1996, Firefox agreed to pay Mr. Thomas severance in the amount of $150,000 in
lieu of any such notice if Mr. Thomas' employment with Firefox is terminated
(whether by him or by Firefox) at or following the Effective Time. It is not
expected that Mr. Thomas' employment will continue after such time. Mr. Thomas
and Firefox are also parties to a Separation Agreement entered into in June
1995, which provides that, if Mr. Thomas' employment with Firefox is
terminated other than by Firefox for cause or by Mr. Thomas voluntarily, then
the Firefox stock option held by Mr. Thomas (which covers a total 40,000
shares of Firefox Common Stock) will thereafter be exercisable in accordance
with the terms of the stock option agreement but for no less than (i) one-
third of the total number of shares subject to such option if such termination
occurs after January 4, 1996 and before January 4, 1997 and (ii) all of such
shares if such termination occurs on or after January 4, 1997 and before
January 4, 1998. This option will accelerate in connection with the Merger.
The respective interests of the members of Firefox's management and Board of
Directors described above constitute all of the material interests of those
persons in the Merger that are known to Firefox to be different from, or that
constitute an extra or special benefit not shared on a pro rata basis with,
the stockholders of Firefox.
REPRESENTATIONS
Under the Merger Agreement, FTP, Sub and Firefox each made representations
that it is duly organized and validly existing and has the authority to enter
into the Merger Agreement, as well as representations, regarding, among other
things: (i) its organization and qualification; (ii) its charter documents;
(iii) its capital structure; (iv) its authority to execute and deliver the
Merger Agreement and perform its obligations thereunder; (v) the absence
61
of conflicts, the receipt of required consents and the completion of
Commission filings; (vi) compliance with laws and agreements; (vii) the
absence of certain changes or events; (viii) the absence of undisclosed
liabilities; (ix) the absence of litigation; (x) employee benefit plans and
employment agreements; (xi) certain labor matters; (xii) this Joint Proxy
Statement/Prospectus; (xiii) title to property; (xiv) taxes; (xv)
environmental matters; (xvi) intellectual property; (xvii) interested party
transactions; (xviii) insurance; (xix) accounts receivable; (xx) receipt of
the Cowen and Montgomery fairness opinions; and (xxi) broker fees. Firefox has
also made certain representations regarding the inapplicability of the
Delaware business combination statute to the Merger Agreement and the Merger,
change of control payments and estimated expenses. FTP has made an additional
representation that Sub was formed solely for purposes of consummating the
Merger and that there are no prior business activities by or relating to Sub.
CONDUCT OF FIREFOX'S AND FTP'S BUSINESSES PRIOR TO THE MERGER
Under the Merger Agreement, each of FTP and Firefox has agreed that, during
the period from the date of the Merger Agreement and continuing until the
earlier of the termination of the Merger Agreement pursuant to its terms or
the Effective Time, except to the extent that the other party otherwise
consents in writing, each of FTP and Firefox and each of its subsidiaries will
carry on its business in the ordinary course and that Firefox will keep
available the services of its present officers, employees and consultants and
preserve its relationships with customers, suppliers, and others having
significant business dealings with Firefox.
Firefox also has agreed that it will not, without the prior written consent
of FTP, during the period from the date of the Merger Agreement and continuing
until the earlier of the termination of the Merger Agreement pursuant to its
terms or the Effective Time, directly or indirectly do, or propose to do, any
of the following: (i) amend or otherwise change its charter or bylaws; (ii)
with certain exceptions, issue, sell, pledge, dispose of or encumber, or
authorize the issuance, sale, pledge, disposition or encumbrance of, any
shares of its capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
capital stock, or any other ownership interest in Firefox or any of its
subsidiaries or affiliates; (iii) sell, pledge, dispose of or encumber any
assets of Firefox or its subsidiaries, except for sales of assets in the
ordinary course of business and in a manner consistent with past practice,
dispositions of obsolete or worthless assets, and sales of immaterial assets
not in excess of $100,000 in the aggregate; (iv) with certain exceptions for
wholly-owned subsidiaries, declare, set aside, make or pay any dividends or
other distributions (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock; (v) (A) with certain
exceptions, acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof, (B) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any person or, except
in the ordinary course of business consistent with past practice, make any
loans or advances, (C) enter into or amend any material contract or agreement,
(D) authorize any material capital expenditures or purchase of fixed assets,
or (E) enter into or amend any contract, agreement, commitment or arrangement
to effect any of the foregoing actions in clauses (v) (A) through (E); (vi)
increase the compensation payable or to become payable to its officers or
employees, or grant any severance or termination pay which in the aggregate
exceeds $400,000 to, or enter into any employment or severance agreement
(except with regard to severance agreements that in the aggregate do not
exceed a liability of $400,000) with, any director, officer or other employee
of Firefox or any of its subsidiaries, or establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any current or former directors,
officers or employees, except, in each case, as may be required by law; (vii)
take any action to change accounting policies or procedures; (viii) make any
material tax election inconsistent with past practice or settle or compromise
any material federal, state, local or foreign tax liability or agree to an
extension of a statute of limitations; (ix) pay, discharge or satisfy any
material claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practices of liabilities reflected or reserved against in its financial
statements or incurred in the ordinary course of business and consistent with
past
62
practice; or (x) take, or agree in writing or otherwise to take, any of the
actions described in clauses (i) through (ix), or any action which would make
any of the representations or warranties of Firefox contained in the Merger
Agreement untrue or incorrect or prevent performance of its covenants
thereunder.
The Merger Agreement provides that until the Effective Time, Firefox will
conduct the defense of the Firefox Litigation having due regard for the
mitigation of costs and expenses, and shall consult with FTP regarding the
conduct of such litigation and afford FTP and its representatives the
opportunity to review and comment upon all pleadings and other papers to be
filed in court in connection with the Firefox Litigation. Prior to the
Effective Time, Firefox may not settle or otherwise compromise the Firefox
Litigation without FTP's prior written consent.
FTP has agreed it will not, without the prior written consent of Firefox,
during the period from the date of the Merger Agreement and continuing until
the earlier of the termination of the Merger Agreement or the Effective Time,
directly or indirectly do, or propose to do, any of the following: (i) amend
or otherwise change its charter or bylaws; (ii) with certain exceptions for
wholly-owned subsidiaries, declare, set aside, make or pay any dividend or
other distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock; or (iii) take, or agree in
writing or otherwise to take, any action that would make any of the
representations or warranties of FTP contained in the Merger Agreement untrue
or incorrect or prevent performance of its covenants thereunder.
NO SOLICITATION
The Merger Agreement provides, subject to certain exceptions described
below, that Firefox and its subsidiaries will not, and will not permit their
respective directors, officers, employees, representatives or agents to,
directly or indirectly, (i) solicit, initiate or encourage the initiation of
any inquiries or proposals regarding any merger, sale of substantial assets,
sale of shares of capital stock or similar transactions involving Firefox or
any of its subsidiaries (each, an "Acquisition Proposal") other than the
Merger, (ii) engage in negotiations or discussions concerning, or provide any
nonpublic information to any person relating to, any Acquisition Proposal, or
(iii) agree to, approve or recommend any Acquisition Proposal. Nonetheless,
the Firefox Board of Directors is not prevented from considering, discussing,
negotiating, agreeing to, approving and recommending to the stockholders of
Firefox a bona fide Acquisition Proposal not solicited in violation of the
Merger Agreement, provided that the Firefox Board of Directors determines in
good faith (upon advice of outside counsel) that it is required to do so in
order to discharge properly its fiduciary duties.
CONDITIONS TO THE MERGER
In addition to obtaining the Required Votes, the obligations of FTP, Sub and
Firefox to consummate the Merger are subject to the satisfaction, at or prior
to the Effective Time, of a number of other conditions, including: (i) the
effectiveness of the Registration Statement and the absence of any stop order
suspending the effectiveness of the Registration Statement or other similar
proceeding by the Commission; (ii) the absence of any temporary restraining
order, preliminary or permanent injunction or other court order preventing the
consummation of the Merger; (iii) the absence of any pending or threatened
action or proceeding by any governmental authority or administrative agency or
any effective judgment, decree or order of any governmental authority,
administrative agency or court of competent jurisdiction, in either case,
seeking to prohibit or limit FTP from exercising all material rights and
privileges pertaining to its ownership of the combined company or the
ownership or operation by FTP or any of its subsidiaries of all or a material
portion of the business or assets of FTP or its subsidiaries, or seeking to
compel FTP or any of its subsidiaries to dispose of or hold separate all or
any material portion of the business or assets of FTP or any of its
subsidiaries, as a result of the Merger or the transactions contemplated by
the Merger Agreement; and (iv) the aggregate number of Dissenting Shares and
fractional shares of FTP Common Stock payable in the Merger not being an
amount that would result in the Merger not constituting a reorganization for
U.S. federal income tax purposes. See "--Certain United States Federal Income
Tax Matters" below.
63
The obligations of FTP and Sub are also conditioned upon: (i) the accuracy
in every material respect of the representations and warranties made by
Firefox except for breaches, inaccuracies or omissions that would not have a
Material Adverse Effect (as defined in the Merger Agreement); (ii) the
performance in all material respects by Firefox of its agreements and
covenants contained in the Merger Agreement; (iii) the receipt of all
necessary third party consents, and the making of all required filings, by
Firefox; (iv) execution of Affiliate Agreements; (v) execution of the
Employment Agreements; (vi) the receipt of an opinion of FTP's counsel stating
that the Merger will constitute a reorganization for U.S. federal income tax
purposes; (vii) the May 20, 1996 fairness opinion of FTP's financial advisor
shall not have been amended, modified or withdrawn; (viii) the receipt of all
permits and authorizations necessary under "blue sky" laws to issue the shares
of FTP Common Stock to be issued pursuant to the Merger; and (ix) the release
and discharge of all liens, encumbrances and security interests relating to
Firefox's borrowing, financing or similar arrangements with any banking
institutions and the filing and recording of evidence of such release and
discharge.
The obligation of Firefox to consummate the Merger is also conditioned upon:
(i) the accuracy in every material respect of the representations and
warranties made by FTP and Sub except for breaches, inaccuracies or omissions
that would not have a Material Adverse Effect; (ii) the performance in all
material respects by FTP and Sub of their respective agreements and covenants
contained in the Merger Agreement; (iii) the receipt of all necessary third
party consents, and the making of all required filings, by FTP and Sub; (iv)
execution of the Employment Agreements; (v) execution and delivery of the
Registration Rights Agreements between FTP and Messrs. Kimberley, Simkin and
Whitehead; (vi) the receipt of an opinion of Firefox's counsel stating that
the Merger will constitute a reorganization for U.S. federal income tax
purposes; (vii) delivery of a fairness opinion of Firefox's financial advisor
as of the Effective Time without any substantial change from its opinion dated
May 21, 1996; and (viii) the approval for listing on the Nasdaq National
Market of the shares of FTP Common Stock to be issued pursuant to the Merger
(such listing was applied for on June 18, 1996).
At any time prior to the Effective Time, to the extent legally allowed, FTP
or Firefox, without approval of the stockholders of such company, may waive
compliance with any of the agreements or conditions contained in the Merger
Agreement for the benefit of that company. Neither FTP nor Firefox currently
intends to waive compliance with any such agreements or conditions. If FTP and
Firefox waive the condition regarding receipt of an opinion to the effect that
the Merger will be treated as a tax-free reorganization, they intend to
resolicit the approval of the Merger by their respective stockholders pursuant
to an amended or supplemented Joint Proxy Statement/Prospectus. Each company
also intends to resolicit the approval of its stockholders pursuant to an
amended or supplemented Joint Proxy Statement/Prospectus if it waives any
other condition contained in the Merger Agreement where such resolicitation is
required by law or is deemed appropriate by such company after consultation
with legal counsel.
EFFECTIVE TIME OF THE MERGER
The Merger will be consummated promptly after the Required Votes are
obtained and following the satisfaction or waiver of the other conditions to
consummation of the Merger set forth in the Merger Agreement. The parties
anticipate that all of the conditions to the Merger will have been satisfied
or waived soon after the Required Votes are obtained and that the Merger will
be consummated on or about July 22, 1996.
REGULATORY MATTERS
Under the HSR Act, and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and
specified waiting period requirements have been satisfied. The required
notifications and information were provided on April 5, 1996 and the
applicable waiting periods under the HSR Act have expired. At any time before
or after the Effective Time, the Antitrust Division, the FTC or a private
person or entity could seek under antitrust laws, among other things, to
enjoin the Merger or to cause FTP to divest itself, in whole or in part, of
Firefox. There can be no assurance that a challenge to the Merger will not be
made or, if such a challenge is made, that FTP and Firefox will prevail.
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Neither FTP nor Firefox is aware of any other governmental or regulatory
approvals required for the consummation of the Merger.
TERMINATION AND AMENDMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time (a) by the mutual written consent of both FTP and Firefox or (b) by
either such party: (i) if the Merger is not consummated on or before August
15, 1996 and the party seeking the termination has not caused the delay by
failing to fulfill its material obligations under the Merger Agreement; (ii)
if there is a final non-appealable order, decree, or ruling of a federal or
state court or governmental, regulatory or administrative agency or commission
or if there is any other action taken having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger; (iii) if the
Required Votes are not received by August 15, 1996; (iv) if the Board of
Directors of the other party withdraws, modifies or changes its approval or
recommendation of the Merger Agreement or the Merger in a manner adverse to
such party, if the Board of Directors of Firefox recommends to the Firefox
stockholders an Alternative Transaction (as defined in the Merger Agreement)
or if a tender offer or exchange offer for 25% or more of the outstanding
shares of Firefox Common Stock is commenced and the Firefox Board of Directors
recommends that its stockholders tender their shares; or (v) if any
representation or warranty of the other party in the Merger Agreement was
untrue when made or the other party breaches any covenant or agreement
contained in the Merger Agreement such that certain conditions set forth
therein cannot be met, provided such breach is not curable by August 15, 1996
(a "Terminating Breach"). FTP has the further right to terminate the Merger
Agreement if any person other than FTP or its affiliates is or becomes the
beneficial owner of 25% or more of the outstanding shares of Firefox Common
Stock prior to the Effective Time. If the Merger Agreement is terminated for
any of the reasons described above, the Merger Agreement shall become void and
there shall be no liability on the part of the parties thereto or any of their
affiliates, directors, officers or stockholders, except that certain specified
provisions, including those relating to payment of fees and expenses, shall
survive any termination. In spite of any termination of the Merger Agreement,
no party shall be relieved of liability for any breach of the Merger
Agreement.
The Merger Agreement may be amended by FTP and Firefox at any time before or
after approval of the FTP stockholders or the Firefox stockholders, except
that, after stockholder approval, no amendment may be made which by applicable
law requires the further approval of the FTP stockholders or the Firefox
stockholders unless such approval is obtained.
BREAK-UP FEE
In the event of a termination of the Merger Agreement by FTP or Firefox, as
a result of (i) the Firefox Board of Directors adversely withdrawing,
modifying or changing its approval or recommendation of the Merger Agreement
or Merger or resolving to do so, (ii) the Firefox Board of Directors
recommending to its stockholders an Alternative Transaction, or (iii) the
commencement of a tender offer or exchange offer for 25% or more of the
outstanding shares of Firefox Common Stock (other than by FTP or its
affiliate) and the Firefox Board of Directors recommends that the stockholders
of Firefox tender their shares in such tender or exchange offer, Firefox will
be required to pay to FTP, within one business day of Firefox entering into a
definitive agreement with a third party regarding an Alternative Transaction,
a fee of $2.4 million. In no event, however, will Firefox be required to pay
such fee and expenses if, immediately prior to the termination of the Merger
Agreement, FTP was in material breach of its obligations thereunder. The
Merger Agreement provides that if Firefox is required to pay such fee, payment
thereof shall be FTP's sole and exclusive remedy thereunder.
EXCHANGE OF STOCK CERTIFICATES
As soon as reasonably practicable after the Effective Time, FTP will
instruct State Street Bank and Trust Company (the "Exchange Agent") to mail to
each holder of record of a certificate representing shares of Firefox Common
Stock (each, a "Firefox Stock Certificate") (i) a letter of transmittal (which
shall specify that delivery of the Firefox Stock Certificates shall be
effected, and risk of loss and title to the Firefox Certificates shall pass,
65
only upon proper delivery of the Firefox Stock Certificates to the Exchange
Agent and shall be in such form and have such other provisions as FTP may
reasonably specify), and (ii) instructions for exchanging such holder's
Firefox Stock Certificates for certificates evidencing shares of FTP Common
Stock into which the shares of Firefox Common Stock formerly represented by
such certificate shall have been converted pursuant to the Merger and the
aggregate Cash Payment applicable to such shares. Firefox stockholders should
not submit their Firefox Stock Certificates for exchange unless and until they
have received the transmittal instructions and a form of letter of transmittal
from the Exchange Agent.
Any Dissenting Shares shall be converted into the right to receive from the
surviving corporation in the Merger such consideration as may be determined to
be due with respect to each such Dissenting Share pursuant to Section 262 of
the DGCL. Shares that are Dissenting Shares at the Effective Time and are held
by a holder who shall, after the Effective Time, withdraw his or her demand
for appraisal or lose his or her right of appraisal as provided in Section 262
of the DGCL, shall be deemed to be converted, as of the Effective Time, into
the right to receive the Merger Consideration (as defined below) in accordance
with the procedures specified in the Merger Agreement.
Upon surrender of a Firefox Stock Certificate for cancellation to the
Exchange Agent together with such letter of transmittal, duly executed, and
such other customary documents as may be required pursuant to such
instructions, the holder of such Firefox Stock Certificate shall be entitled
to receive in exchange therefor (i) certificates evidencing that number of
whole shares of FTP Common Stock which such holder has the right to receive in
accordance with the Exchange Ratio in respect of the shares of Firefox Common
Stock formerly evidenced by such Firefox Stock Certificate, (ii) any dividends
or other distributions (without interest) to which such holder is entitled,
(iii) cash (without interest) in respect of fractional shares of FTP Common
Stock and (iv) the aggregate Cash Payment (without interest) which such holder
is entitled to receive in respect of the shares of Firefox Common Stock
formerly evidenced by such Firefox Stock Certificate (the shares of FTP Common
Stock, dividends, distribution, cash in lieu of fractional shares and Cash
Payment being, collectively, the "Merger Consideration"), and the Firefox
Stock Certificate so surrendered shall forthwith be canceled. In the event of
a transfer of ownership of shares of Firefox Common Stock which is not
registered in the transfer records of Firefox as of the Effective Time, shares
of FTP Common Stock, dividends, distributions, cash in lieu of fractional
shares and the Cash Payment applicable to such shares may be issued and paid
to a transferee if the Firefox Stock Certificate evidencing such shares of
Firefox Common Stock is presented to the Exchange Agent accompanied by all
documents required to evidence and effect such transfer and by evidence that
any applicable stock transfer taxes have been paid. Until so surrendered, each
outstanding Firefox Stock Certificate that, prior to the Effective Time,
represented shares of Firefox Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence the ownership of the number of full shares of FTP
Common Stock into which such shares of Firefox Common Stock shall have been
converted pursuant to the Merger. The holder of a Firefox Stock Certificate
that prior to the Effective Time represented issued and outstanding shares of
Firefox Common Stock shall have no rights, after the Effective Time, with
respect to such shares except to surrender the certificates in exchange for
the Merger Consideration or to perfect the rights of appraisal as a holder of
Dissenting Shares that such holder may have pursuant to the applicable
provisions of the DGCL. See "--Dissenters' Rights" below.
CERTAIN UNITED STATES FEDERAL INCOME TAX MATTERS
The following discussion summarizes certain material United States federal
income tax consequences of the Merger that are generally applicable to FTP,
Firefox and Firefox's stockholders who receive shares of FTP Common Stock and
a Cash Payment in exchange for their shares of Firefox Common Stock as a
result of the Merger or who receive a cash payment in lieu of fractional
shares of FTP Common Stock or who receive cash upon the exercise of appraisal
rights with respect to their shares of Firefox Common Stock. This discussion
is based on currently existing provisions of the Internal Revenue Code of
1986, as amended (the "Code"), existing and proposed regulations thereunder
and current administrative rulings and court decisions, all of which are
subject to change. Any such change, which may or may not be retroactive, could
alter the tax consequences to FTP, Firefox or Firefox's stockholders as
described herein.
66
Firefox stockholders should be aware that this discussion does not deal with
all federal income tax considerations that may be relevant to particular
Firefox stockholders in light of their particular circumstances (such as
stockholders who acquired their shares in connection with employee stock
option or stock purchase plans or otherwise as compensation) or to Firefox
stockholders subject to special federal income tax treatment (such as
insurance companies, dealers in securities, certain retirement plans,
financial institutions, tax-exempt organizations or foreign persons). The
following discussion does not address the tax consequences of the Merger under
foreign, state or local tax laws or the tax consequences of transactions
effectuated prior to or after the Merger (whether or not such transactions are
in connection with the Merger), including without limitation transactions in
which shares of Firefox Common Stock are acquired or shares of FTP Common
Stock are transferred. FIREFOX STOCKHOLDERS ARE THEREFORE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES OF THE MERGER,
INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO
THEM OF THE MERGER IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
Neither FTP nor Firefox has requested a ruling from the Internal Revenue
Service (the "IRS") in connection with any of the tax consequences of the
Merger. Firefox and FTP have received signed tax opinions each dated June 24,
1996 from their respective legal counsel, Gray Cary Ware & Freidenrich and
Ropes & Gray, to the effect that the Merger will constitute a reorganization
under Section 368 of the Code (a "Reorganization"), based upon the assumption
that certain events will occur at or after the Effective Time.
It is a condition to the respective obligations of FTP and Firefox to
consummate the Merger that each party receive at the closing of the Merger
confirming tax opinions from their respective legal counsel (the "Tax
Opinions") to the effect that the Merger will constitute a Reorganization. The
Tax Opinions may be based upon, among other things, certain facts, statements,
representations, warranties and assumptions (including those noted or set
forth in the Tax Opinions or contained in the Merger Agreement, this Joint
Proxy Statement/Prospectus or otherwise furnished to counsel by FTP, Firefox
or Sub), and may be based upon or subject to, among other things, (i)
consummation of the Merger in accordance with the applicable laws of Delaware
and the terms of the Merger Agreement (including satisfaction of all covenants
and conditions to the obligations of the parties without amendment or waiver
thereof) and (ii) the truth, correctness and completeness of all facts,
statements, representations, warranties and assumptions noted or set forth in
such opinions or the Merger Agreement or contained in this Joint Proxy
Statement/Prospectus or otherwise furnished to counsel by FTP, Firefox or Sub,
including that, in the Merger, holders of Firefox Common Stock exchange,
solely for FTP Common Stock, an amount of Firefox Common Stock that
constitutes at least 80% of the total number of shares of Firefox Common Stock
outstanding immediately prior to the Merger, and that the significant historic
stockholders of Firefox have not disposed of shares of Firefox Common Stock in
contemplation of the Merger and do not have any plan or intention, existing at
or prior to the Effective Time of the Merger, to dispose of the shares of FTP
Common Stock to be received in the Merger such that they would not have a
significant continuing equity interest in Firefox after the Merger by virtue
of their ownership of FTP Common Stock, that Firefox after the Merger will
have retained substantially all its assets and that the parties intend Firefox
to continue its business as a wholly-owned subsidiary of FTP. An opinion of
counsel only represents counsel's best legal judgment, and has no binding
effect or official status of any kind, and no assurance can be given that
contrary positions may not be taken by the IRS or a court considering the
issues.
Both the Gray Cary Ware & Freidenrich and Ropes & Gray Tax Opinions provide
that, for federal income tax purposes, the Merger will constitute a
Reorganization, based upon the assumption that certain events will occur at or
after the Effective Time and subject to the limitations and qualifications
contained therein. Therefore, the following federal income tax consequences
should result from the Merger:
Tax Consequences to Holders of Firefox Common Stock That Receive Shares of
FTP Common Stock and a Cash Payment in the Merger
(a) No gain or loss will be recognized by the holders of shares of
Firefox Common Stock upon the exchange of such shares for shares of FTP
Common Stock and a Cash Payment in the Merger except that: (i) any gain
realized on the exchange will be recognized to the extent of the Cash
Payment; and (ii) a holder
67
of Firefox Common Stock who receives cash proceeds in lieu of a fractional
share interest in FTP Common Stock will recognize gain or loss equal to the
difference between such proceeds and the tax basis allocated to the
fractional share interest.
(b) The aggregate tax basis of the shares of FTP Common Stock so received
by a Firefox stockholder in the Merger will be the same as the aggregate
tax basis of the shares of Firefox Common Stock exchanged therefor,
increased by the gain, if any, recognized on the exchange, decreased by the
Cash Payment received in the exchange and reduced by the tax basis
allocable to any fractional share for which cash is received.
(c) The holding period of the FTP Common Stock so received by each
Firefox stockholder in the Merger will include the period for which the
Firefox Common Stock surrendered in exchange therefor was considered to be
held, provided that the Firefox Common Stock so surrendered is held as a
capital asset at the time of the Merger.
If the shares of Firefox Common Stock exchanged are held as a capital asset,
any gain recognized under (a) above will be capital gain unless the receipt of
the Cash Payment has the effect of a dividend. The determination whether such
stockholder recognizes capital gain or dividend income is made by reference to
the redemption rules of Section 302 of the Code. Under Section 302, the total
amount of such Cash Payment will be taxed as capital gain (but not in excess
of the total amount of gain realized in the Merger) if the deemed redemption
is a "substantially disproportionate redemption" of stock with respect to the
stockholder or is "not essentially equivalent to a dividend." For this
purpose, the Merger will be viewed as if all holders of Firefox Common Stock
had received only FTP Common Stock in the Merger and as if FTP had thereafter
redeemed appropriate portions of the FTP Common Stock in exchange for the Cash
Payment in the Merger. The deemed redemption is a "substantially
disproportionate redemption" if the stockholder's deemed share of FTP's voting
stock after the Merger but before the deemed redemption is reduced by more
than 20% as a result of the deemed redemption. The deemed redemption is "not
essentially equivalent to a dividend" if the stockholder experiences a
"meaningful reduction in his proportionate interest in the corporation" by
reason of the deemed redemption.
In determining whether a stockholder has a "substantially disproportionate
redemption" or experiences a "meaningful reduction in his proportionate
interest in the corporation," shares of FTP Common Stock considered to be
owned by the stockholder by reason of certain constructive stock ownership
rules set forth in Section 318 of the Code, as well as shares actually owned,
must be taken into account. (In general, under Section 318 of the Code, a
stockholder constructively owns any stock which the holder has an option to
acquire, or any stock owned by: (1) the holder's spouse, children,
grandchildren or parents; (2) a partnership, trust or estate in which the
holder has an interest to the extent of the holder's interest; or (3) a
corporation to the extent of the holder's interest, but only if the
stockholder actually or constructively owns 50% or more in value of the
corporation's stock.)
The IRS has issued a published ruling indicating that a distribution of cash
to a stockholder (i) whose proportionate interest in the company (taking into
account the constructive ownership rules of Section 318 of the Code described
above) is reduced, (ii) whose relative stock interest in the surviving
corporation is minimal (an interest of less than 1% should satisfy this
requirement), and (iii) who exercises no control over company affairs, will be
treated as "not essentially equivalent to a dividend" under Section 302(b)(1)
of the Code. Based upon that ruling, a stockholder who, immediately after the
Merger, owns actually and constructively less than 1% of the outstanding
shares of FTP Common Stock, who is not an officer or director of FTP or
otherwise in a position to control FTP (or Firefox), and who has his or her
interest in FTP reduced by reason of the deemed redemption of FTP Common Stock
for the Cash Payment, should recognize capital gain up to the lesser of (i)
the amount of the Cash Payment or (ii) the total amount of gain realized in
the Merger (i.e., the fair market value of the shares of FTP Common Stock plus
the Cash Payment minus the tax basis of the Firefox Common Stock at the
Effective Time).
If neither of the redemption tests set forth above is satisfied, the Firefox
stockholder will be treated as having received a dividend equal to the amount
of such Firefox stockholder's recognized gain, assuming that such
stockholder's ratable share of the earnings and profits of Firefox (and/or
possibly FTP) equals or exceeds such recognized gain.
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If the Merger fails to qualify as a Reorganization, a holder of shares of
Firefox Common Stock who exchanges such shares for shares of FTP Common Stock
and a Cash Payment in the Merger will recognize gain or loss equal to the
difference between (i) the amount of cash (received either as a Cash Payment
or in lieu of fractional shares) plus the fair market value at the Effective
Time of the shares of FTP Common Stock received in the exchange and (ii) the
holder's tax basis in the shares of Firefox Common Stock exchanged therefor.
The aggregate tax basis of the shares of FTP Common stock so received by each
Firefox stockholder in the Merger will be equal to the fair market value of
such shares at the Effective Time. The holding period of the FTP Common Stock
so received by each Firefox stockholder in the Merger will begin on the day
after the Effective Time.
Even if the Merger qualifies as a Reorganization, a recipient of shares of
FTP Common Stock will recognize gain to the extent that such shares are
considered to be received in exchange for services or property (other than
solely Firefox Common Stock). All or a portion of such gain may be taxable as
ordinary income.
Tax Consequences to Firefox Stockholders That Dissent
A Firefox stockholder that exercises dissenters' rights, receives cash for
such holder's shares of Firefox Common Stock and who does not actually or
constructively (under the Code Section 318 rules described above) own any FTP
Common Stock after the Merger will recognize capital gain or loss (if the
Firefox Common Stock is a capital asset in the hands of the dissenting Firefox
stockholder) equal to the difference between such stockholder's basis in the
shares of Firefox Common Stock for which appraisal rights were sought and the
amount of cash received for such shares, exclusive of any interest.
A dissenting Firefox stockholder that actually or constructively owns FTP
Common Stock after the Merger will recognize gain or loss as described above
unless the exchange has the effect of a dividend. In determining whether the
redemption has the effect of a dividend under Section 302 of the Code, it is
unclear whether dividend equivalence is determined by reference to the
holder's reduction in actual or constructive ownership of Firefox Common Stock
just before the Merger or, instead, by reference to the reduction in actual or
constructive ownership in the FTP Common Stock after the transaction. In
either case, however, a holder may be able to avoid application of the family
attribution rules of Section 318 of the Code, discussed above, by filing a
timely waiver of these rules with the IRS pursuant to Section 302(c) of the
Code and Treas. Reg. (S)1.302-4. Such holders should consult their own tax
advisors.
Tax Consequences to FTP, Firefox and Sub
No gain or loss will be recognized by FTP, Firefox or Sub in connection with
the Merger.
Certain U.S. Tax Consequences to Non-U.S. Holders of Firefox Common Stock
If the receipt of the Cash Payment has the effect of a dividend with respect
to a Firefox stockholder that is (i) an individual who is not a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized outside the United States, or (iii) an estate or trust
the income of which is not subject to United States federal income taxation
regardless of source (each, a "Non-U.S. Holder"), such Cash Payment will
generally be subject to United States federal income tax, which will generally
be withheld at the rate of 30%, unless the rate is reduced by an applicable
treaty. If the Non-U.S. Holder is "resident" of the United Kingdom within the
meaning of the United States/United Kingdom income tax treaty, the treaty
withholding rate on dividends will be 15%, unless such Non-U.S. Holder is a
corporation that holds (directly or indirectly) at least 10% of the
outstanding FTP Common Stock immediately after the Merger, in which case the
withholding rate will be 5%. Under current law, FTP is entitled to determine
the applicable withholding rate pursuant to the appropriate tax treaty based
on the address of the recipient. In any case, a Non-U.S. Holder can establish
its entitlement to a reduced treaty rate of withholding by submitting IRS Form
1001 to FTP. A Non-U.S. Holder may obtain a refund of any excess amounts
withheld by filing a United States federal income tax return with respect to
the tax year in which the Effective Time occurs.
To the extent the receipt of cash in the Merger causes a Non-U.S. Holder to
recognize capital gain, the Non-U.S. Holder will not be subject to United
States federal income tax or withholding in respect of such gain
69
unless: (i) in the case of an individual Non-U.S. Holder that holds the
Firefox Common Stock as a capital asset, such Non-U.S. Holder is present in
the United States for 183 or more days in the taxable year in which the
Effective Time occurs and certain other requirements are met, or (ii) the Cash
Payment is effectively connected with the conduct by the Non-U.S. Holder of a
trade or business in the United States, and, if an income tax treaty with the
United States applies, the gain is attributable to a U.S. permanent
establishment. If the first of these conditions applies, gain recognized by
such Non-U.S. Holder will be subject to United States federal income tax
unless the rate is reduced or eliminated by an applicable income tax treaty
with the United States.
If the dividend income or capital gain is effectively connected with the
conduct by the Non-U.S. Holder (other than a partnership) of a trade or
business in the United States, the Non-U.S. Holder will generally be taxed at
the graduated rates that are applicable to United States citizens, resident
aliens and domestic corporations, and will not be subject to withholding if
the Non-U.S. Holder furnishes to FTP an IRS Form 4224, in advance of the Cash
Payment. In the case of a Non-U.S. Holder that is a corporation, such
effectively connected income may also be subject to the United States federal
branch profits tax (which is generally imposed on a foreign corporation on the
repatriation from the United States of effectively connected earnings and
profits) at a 30% rate (unless the rate is reduced or eliminated by an
applicable income tax treaty and the holder is a qualified resident of the
treaty country). In the case of a Non-U.S. Holder that is a partnership, a
payment from FTP to the partnership constituting dividend or capital gain
income that is effectively connected with the conduct of a trade or business
by the partnership in the United States will not be subject to withholding tax
if the partnership furnishes to FTP an IRS Form 4224 in advance of the Cash
Payment. In that case, however, the partners will generally be taxed on such
income at the graduated rates described above. Moreover, if the partnership
has foreign partners (i.e., persons that would be Non-U.S. Holders if they
held the Firefox Common Stock directly) such effectively connected income
would generally be subject to United States federal withholding tax at the
partnership level to the extent such income is allocable to any foreign
partner at a 35% rate, in the case of a partner that is a corporation, or a
39.6% rate, in the case of a non-corporate partner. Any foreign partner of
such a partnership would be entitled to a credit against his or her United
States federal income tax for his or her share of the withholding tax paid by
the partnership.
Backup Withholding
Federal income tax laws require that, to avoid backup withholding, each
holder of Firefox Common Stock must provide FTP with such holder's correct
taxpayer identification number on Form W-9 or, in the alternative, establish a
basis for exemption from backup withholding on Forms W-8 or W-9, as
applicable. Exempt holders (including, among others, all corporations and
certain foreign individuals) are not subject to backup withholding and
reporting requirements but may be required to provide the information outlined
below. If FTP is not provided with the correct taxpayer identification number
or an adequate basis for exemption, the holder of shares of Firefox Common
Stock may be subject to a $50 penalty imposed by the IRS, and "reportable
payments," such as the cash received pursuant to the Merger, may be subject to
backup withholding in an amount equal to 31% of such "reportable payments." If
withholding results in an overpayment of taxes, a refund may be obtained.
To prevent backup withholding, each holder of the shares of Firefox Common
Stock must either (i) provide such holder's correct taxpayer identification
number (or certify under penalty of perjury that such holder is awaiting a
taxpayer identification number), and certify that (a) such holder has not been
notified by the IRS that such holder is subject to backup withholding as a
result of a failure to report all interest and dividends or (b) the IRS has
notified such holder that he is no longer subject to backup withholding, or
(ii) provide an adequate basis for exemption. A substitute Form W-9 will be
sent to the Firefox stockholders with the letter of transmittal following the
Effective Time.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase and certain adjustments will
have to be made with respect to Firefox's assets and liabilities based upon
estimated fair market values. The actual adjustments will be made on the basis
of appraisals and evaluations as of the Effective Time.
70
AFFILIATES' RESTRICTIONS ON SALE OF FTP COMMON STOCK
The shares of FTP Common Stock to be issued in the Merger have been
registered under the Securities Act pursuant to the Registration Statement,
thereby allowing those shares to be traded without restriction by all former
holders of Firefox Common Stock who (i) are not deemed to be "affiliates" of
Firefox at the time of the Firefox Meeting (as "affiliates" is defined for
purposes of Rule 145 under the Securities Act) and (ii) who do not become
"affiliates" of FTP after the Merger. Firefox stockholders who are identified
by Firefox as its "affiliates" will be so advised prior to the Merger.
LISTING OF ADDITIONAL SHARES OF FTP COMMON STOCK ON THE NASDAQ NATIONAL MARKET
FTP has agreed to use its reasonable efforts to cause the shares of FTP
Common Stock issued pursuant to the Merger to be approved for quotation on the
Nasdaq National Market and applied for approval for such quotation on June 18,
1996. It is a condition to Firefox's obligation to consummate the Merger that
the quotation of such shares has been so approved.
EXPENSES
Fees and expenses incurred in connection with the Merger Agreement and the
Merger shall be paid by the party incurring such expenses, whether or not the
Merger is consummated. FTP and Firefox shall share equally all fees and
expenses, other than accountants' and attorneys' fees, incurred in connection
with the preparation of this Joint Proxy Statement/Prospectus.
DISSENTERS' RIGHTS
Firefox Stockholders
If the Merger is consummated, a holder of record of Firefox Common Stock on
the date of making a demand for appraisal, as described below, who continues
to hold such shares through the Effective Time, who has not voted such shares
in favor of the Merger and who strictly complies with the procedures set forth
under Section 262 of the DGCL ("Section 262"), will be entitled to have such
shares appraised by the Delaware Court of Chancery under Section 262 and to
receive payment of the "fair value" of such shares in lieu of the
consideration provided for in the Merger Agreement. THE STATUTORY RIGHT OF
APPRAISAL GRANTED BY SECTION 262 REQUIRES STRICT COMPLIANCE WITH THE
PROCEDURES SET FORTH IN SECTION 262. FAILURE TO FOLLOW ANY OF SUCH PROCEDURES
MAY RESULT IN A TERMINATION OR WAIVER OF APPRAISAL RIGHTS UNDER SECTION 262.
The following is a summary of certain of the provisions of Section 262 and
is qualified in its entirety by reference to the full text of Section 262, a
copy of which is attached to this Joint Proxy Statement/Prospectus as Appendix
D.
This Joint Proxy Statement/Prospectus is being sent to all holders of record
of Firefox Common Stock at the record date and constitutes notice of the
appraisal rights available to such holders under Section 262.
A holder of Firefox Common Stock electing to exercise appraisal rights under
Section 262 must deliver a written demand for appraisal of such stockholder's
shares to Firefox before the taking of the vote on the approval of the Merger
Agreement and the Merger at the Firefox Meeting. Such written demand must
reasonably inform Firefox of the identity of the stockholder of record and of
such stockholder's intention to demand appraisal of such stockholder's shares.
All such demand should be delivered to Firefox Communications Inc., Attention:
Mark A. Rowlinson, Secretary.
Holders of shares of Firefox Common Stock on the date of making such written
demand for appraisal who continuously hold such shares through the Effective
Time are entitled to seek appraisal. Demand for appraisal must be executed by
or for the holder of record, fully and correctly, as such holder's name
appears on the holder's stock certificates representing shares of Firefox
Common Stock. If Firefox Common Stock is owned of
71
record in a fiduciary capacity, such as by a trustee, guardian or custodian,
the demand should be made in that capacity, and if Firefox Common Stock is
owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand should be made by or for all owners of record. An
authorized agent, including one or more joint owners, may execute the demand
for appraisal for a holder of record; however, such agent must identify the
record owner or owners and expressly disclose in such demand that the agent is
acting as agent for the record owner or owners of such shares.
Within 120 days after the Effective Time, Firefox or any Firefox stockholder
who has complied with the requirements of Section 262 may file a petition in
the Delaware Court of Chancery demanding a determination of the fair value of
the shares of Firefox Common Stock held by all stockholders seeking appraisal.
A petitioning stockholder must serve a copy of such petition on Firefox. If no
petition is filed by either Firefox or a dissenting stockholder within such
120-day period, the rights of all dissenting stockholders to appraisal shall
cease. Firefox stockholders seeking to exercise appraisal rights should not
assume that Firefox will file a petition with respect to the appraisal of the
fair value of their shares or that Firefox will initiate any negotiations with
respect to the fair value of such shares. Firefox is under no obligation to
and has no present intention to take any action in this regard. Accordingly,
Firefox stockholders who wish to seek appraisal of their shares should
initiate all necessary action with respect to the perfection of their
appraisal rights within the time periods and in the manner prescribed in
Section 262. FAILURE TO FILE THE PETITION ON A TIMELY BASIS WILL CAUSE THE
STOCKHOLDER'S RIGHT TO AN APPRAISAL TO CEASE.
Within 120 days after the Effective Time, any Firefox stockholder who has
complied with subsections (a) and (d) of Section 262 is entitled, upon written
request, to receive from Firefox a statement setting forth the aggregate
number of shares of Firefox Common Stock with respect to which demands for
appraisal have been received by Firefox and the number of holders of such
shares. Such statement must be mailed within 10 days after the written request
therefor has been received by Firefox or within 10 days after expiration of
the time for delivery of demands for appraisal under Section 262, whichever is
later.
If a petition for an appraisal is timely filed, at the hearing of such
petition, the Delaware Court of Chancery will determine which stockholders are
entitled to appraisal rights and will appraise the shares of Firefox Common
Stock owned by such stockholders, determining the fair value of such shares,
exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest to be paid,
if any, upon the amount determined to be the fair value. In determining fair
value, the court is to take into account all relevant factors. The Delaware
Supreme Court has stated that "proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal
proceedings. The Delaware Supreme Court has stated that, in making this
determination of fair value, the court must consider "market value, asset
value, dividends, earnings prospects, the nature of the enterprise and any
other facts which were known or which could be ascertained as of the date of
the merger which throw any light on future prospects of the merged
corporation." The Delaware Supreme Court has also held that "elements of
future value, including the nature of the enterprise, which are known or
susceptible of proof as of the date of the merger and not the product of
speculation, may be considered." In addition, Delaware courts have decided
that the statutory appraisal remedy, depending on factual circumstances, may
or may not be a dissenter's exclusive remedy.
Firefox stockholders considering seeking appraisal should consider that the
fair value of their shares of Firefox Common Stock determined under Section
262 could be more, the same, or less than the value of the consideration to be
received pursuant to the Merger Agreement without the exercise of appraisal
rights, and that investment banking opinions as to fairness from a financial
point of view are not necessarily opinions as to fair value as determined
under Section 262. The cost of the appraisal proceeding may be determined by
the Delaware Court of Chancery and assessed against the parties as the Court
deems equitable in the circumstances. Upon application of a stockholder, the
court may order that all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding (including without
limitation reasonable attorneys' fees and the fees and expenses of experts) be
charged pro rata against the value of all shares of Firefox Common Stock
entitled to appraisal. In the absence of such a determination or assessment,
each party bears its own expenses.
72
Any Firefox stockholder who has fully demanded appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote such
Firefox Common Stock for any purpose or receive payment of dividends or other
distributions on such stock, except for dividends or distributions payable to
stockholders of record at a date prior to the Effective Time.
A Firefox stockholder may withdraw a demand for appraisal and accept the
terms of the Merger at any time within 60 days after the Effective Time, or
thereafter may withdraw such demand with the written approval of Firefox. In
the event an appraisal proceeding is properly instituted, such proceeding may
not be dismissed as to any stockholder without the approval of the Delaware
Court of Chancery, and any such approval may be conditioned on the terms the
Court of Chancery deems just.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF DELAWARE LAW, ANY
STOCKHOLDER OF FIREFOX WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS SHOULD
CONSULT HIS OR HER LEGAL ADVISOR.
FTP Stockholders
Stockholders of FTP who vote against the issuance of the shares of FTP
Common Stock to be issued pursuant to the Merger will not be entitled to
rights of appraisal under the Massachusetts Business Corporation Law.
73
UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated financial statements have been derived
from FTP's and Firefox's respective historical consolidated financial
statements and should be read in conjunction with the notes set forth
immediately thereafter and with the historical consolidated financial
statements of FTP and Firefox and the notes related thereto included elsewhere
herein. The accompanying unaudited pro forma consolidated balance sheet
combines FTP's balance sheet with Firefox's balance sheet, each as of March
31, 1996, giving effect to the Merger as if it had occurred on March 31, 1996.
The accompanying unaudited pro forma consolidated statements of income combine
FTP's results of operations for the year ended December 31, 1995 and the three
months ended March 31, 1996 with Firefox's results of operations for the same
periods, giving effect to the Merger as if it had occurred on January 1, 1995,
applying the purchase method of accounting. The unaudited pro forma
consolidated financial information does not purport to represent the actual
financial position or results of operations of FTP or Firefox had the Merger
actually occurred at the indicated dates, nor does it project FTP's or
Firefox's financial position or results of operations for any future date or
period.
74
FTP SOFTWARE, INC. AND FIREFOX COMMUNICATIONS INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996
(IN THOUSANDS)
HISTORICAL PRO FORMA
----------------- ------------------------
FTP FIREFOX ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents........ $ 31,446 $ 6,519 $ (3,989)(A) $ 33,976
Short-term investments........... 17,357 9,021 (9,021)(A) 17,357
Accounts receivable, net......... 22,024 5,654 27,678
Inventories...................... 894 -- 894
Prepaid license fees............. -- 3,015 $ (2,437)(B) 578
Prepaid expenses and other
current assets.................. 6,932 1,468 (1,304)(A) 7,096
Income taxes..................... 15,969 700 1,335 (Q) 18,004
-------- ------- -------- ---------
Total current assets........... 94,622 26,377 (15,416) 105,583
Property and equipment, net........ 19,651 1,679 (581)(C) 20,749
Purchased software, net............ 6,192 -- 4,928 (D) 11,120
Investments........................ 57,303 -- 57,303
Deferred income taxes.............. 1,396 -- 1,396
Other assets....................... 3,927 -- 82 (D) 4,009
-------- ------- -------- ---------
Total assets................... $183,091 $28,056 $(10,987) $ 200,160
======== ======= ======== =========
LIABILITIES AND STOCKHOLDERS' EQ-
UITY
Current liabilities:
Accounts payable................. 12,794 1,209 14,003
Income taxes payable............. -- -- -- --
Accrued liabilities.............. 3,546 1,604 (214)(A)
500 (E)
694 (E) 6,130
Current portion of long-term
obligations..................... 576 -- 576
Deferred revenue................. 8,406 2,194 (2,194)(P) 8,406
Current portion of capital lease
obligations..................... -- 137 137
-------- ------- -------- ---------
Total current liabilities...... 25,322 5,144 (1,214) 29,252
Deferred income taxes.............. -- -- 2,000 (D) 2,000
Long-term obligations.............. 821 -- 821
Capital lease obligations, less
current portion................... -- 62 62
-------- ------- -------- ---------
Total liabilities.............. 26,143 5,206 786 32,135
-------- ------- -------- ---------
Stockholders' equity:
Common stock..................... 270 7 50 (F) 320
(7)(G)
Additional paid-in capital....... 93,358 23,666 49,950 (F) 145,958
2,650 (H)
(23,666)(G)
Retained earnings................ 63,688 (754) (41,573)(I) 21,361
754 (G)
Equity adjustments............... (368) (69) 69 (G) (368)
-------- ------- -------- ---------
Total stockholders' equity..... 156,948 22,850 (11,773) 168,025
-------- ------- -------- ---------
Total liabilities and
stockholders' equity........ $183,091 $28,056 $(10,987) $ 200,160
======== ======= ======== =========
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
75
FTP SOFTWARE, INC. AND FIREFOX COMMUNICATIONS INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL PRO FORMA
---------------- ----------------------
FTP FIREFOX ADJUSTMENTS COMBINED
-------- ------- ----------- --------
Revenue:
Product revenue................... $123,024 $17,665 $140,689
Service revenue................... 13,352 2,103 $ (250)(J) 15,205
-------- ------- ------- --------
Total revenue................... 136,376 19,768 (250) 155,894
-------- ------- ------- --------
Cost of revenue:
Product cost...................... 8,091 2,695 2,464 (K) 13,250
Service cost...................... 9,753 940 10,693
-------- ------- ------- --------
Total cost of revenue........... 17,844 3,635 2,464 23,943
-------- ------- ------- --------
Gross margin........................ 118,532 16,133 (2,714) 131,951
-------- ------- ------- --------
Operating expenses:
Sales and marketing............... 40,605 10,270 50,875
Research and development.......... 30,768 2,534 55 (K) 33,107
(250)(J)
General and administrative........ 14,213 2,933 (200)(C) 16,946
-------- ------- ------- --------
Total operating expenses........ 85,586 15,737 (395) 100,928
-------- ------- ------- --------
Income from operations before non-
recurring charges(b)............... 32,946 396 (2,319) 31,023
Investment income................... 6,156 656 (800)(L) 6,012
Interest expense.................... -- (88) (88)
-------- ------- ------- --------
Income before income taxes.......... 39,102 964 (3,119) 36,947
Provision for income taxes.......... 14,468 446 (247)(M) 14,667
-------- ------- ------- --------
Net income before non-recurring
charges(b)......................... 24,634 518 (2,872) 22,280
Accretion for preference shares..... -- (64) 64 (N) --
-------- ------- ------- --------
Income attributable to common
stock.............................. $ 24,634 $ 454 $(2,808) $ 22,280
======== ======= ======= ========
Net income per common share at an
assumed Average Price of $12....... $ .87 $ .68
======== ========
Weighted average common and common
equivalent shares.................. 28,263 4,267 (O) 32,530
======== ======= ========
Net income per common share at an
assumed Average Price of $10....... $ .87 $ .67
======== ========
Weighted average common and common
equivalent shares.................. 28,263 5,100 (O) 33,363
======== ======= ========
Net income per common share at an
assumed Average Price of $8........ $ .87 $ .64
======== ========
Weighted average common and common
equivalent shares.................. 28,263 6,350 (O) 34,613
======== ======= ========
Net income per common share at an
assumed Average Price of $6........ $ .87 $ .64
======== ========
Weighted average common and common
equivalent shares.................. 28,263 6,588 (O) 34,851
======== ======= ========
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
76
FTP SOFTWARE, INC. AND FIREFOX COMMUNICATIONS INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL PRO FORMA
----------------- ---------------------
FTP FIREFOX ADJUSTMENTS COMBINED
-------- ------- ----------- --------
Revenue:
Product revenue.................... $ 24,974 $ 3,538 $ 28,512
Service revenue.................... 4,030 645 4,675
-------- ------- --------
Total revenue..................... 29,004 4,183 33,187
-------- ------- --------
Cost of revenue:
Product cost....................... 2,576 651 $ 616 (K) 3,843
Service cost....................... 2,650 322 2,972
-------- ------- ----- --------
Total cost of revenue............. 5,226 973 616 6,815
-------- ------- ----- --------
Gross margin........................ 23,778 3,210 (616) 26,372
-------- ------- ----- --------
Operating expenses:
Sales and marketing................ 12,494 3,069 15,563
Research and development........... 20,773 917 14 (K) 21,704
General and administrative......... 4,940 1,176 (50)(C) 6,066
-------- ------- ----- --------
Total operating expenses.......... 38,207 5,162 (36) 43,333
-------- ------- ----- --------
Income (loss) from operations before
non-recurring charges(b)........... (14,429) (1,952) (580) (16,961)
Investment income................... 1,029 222 (200)(L) 1,051
Interest expense.................... -- (9) (9)
-------- ------- ----- --------
Income (loss) before income taxes... (13,400) (1,739) (780) (15,919)
Provision (benefit) for income tax-
es................................. (4,958) (697) (62)(M) (5,717)
-------- ------- ----- --------
Net income (loss) before non-recur-
ring charges(b).................... (8,442) (1,042) (718) (10,202)
Accretion for preference shares..... -- -- --
-------- ------- ----- --------
Income (loss) attributable to common
stock.............................. (8,442) (1,042) $(718) $(10,202)
======== ======= ===== ========
Net income per common share at an
assumed Average Price of $12....... $ (.31) $ (.33)
======== ========
Weighted average common and common
equivalent shares.................. 26,939 4,167(O) 31,106
======== ===== ========
Net income per common share at an
assumed Average Price of $10....... $ (.31) $ (.32)
======== ========
Weighted average common and common
equivalent shares.................. 26,939 5,000(O) 31,939
======== ===== ========
Net income per common share at an
assumed Average Price of $8........ $ (.31) $ (.31)
======== ========
Weighted average common and common
equivalent shares.................. 26,939 6,250(O) 33,189
======== ===== ========
Net income per common share at an
assumed Average Price of $6........ $ (.31) $ (.31)
======== ========
Weighted average common and common
equivalent shares.................. 26,939 6,488(O) 33,427
======== ===== ========
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
77
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DESCRIPTION OF THE TRANSACTION
On May 21, 1996, FTP entered into the Merger Agreement. Under the terms of
the Merger Agreement, FTP will issue that number of shares of FTP Common Stock
representing $50,000, subject to adjustment, based upon the Average Price of
the FTP Common Stock on the Nasdaq National Market ("NNM") calculated in
accordance with the Merger Agreement, and each option to purchase shares of
Firefox Common Stock outstanding under certain Firefox employee and director
stock option plans (see "The Merger and Related Transactions--Conversion of
Options") will be deemed to be converted into options to purchase shares of
FTP Common Stock. In addition, FTP will make Cash Payments totaling $10,000 to
each of the Firefox stockholders, and incur other costs. The total resulting
purchase price is estimated to be approximately $71,615. The actual purchase
price will depend upon the average of the average closing sales prices for FTP
Common Stock on the NNM for the 10 trading days prior to the date of the
Firefox Meeting. See "The Merger and Related Transactions--General." The
Merger will be accounted for as a purchase.
The pro forma consolidated financial statements are intended for information
purposes and are not necessarily indicative of the future consolidated
financial position or future results of operations of the combined entity.
These pro forma consolidated financial statements should be read in
conjunction with the historical consolidated financial statements of each of
FTP and Firefox and notes related thereto appearing elsewhere herein.
PURCHASE PRICE ALLOCATION
The following is a summary of the purchase price and the allocation of the
purchase price to the net assets to be acquired as a result of the Merger,
calculated using an assumed Average Price of the FTP Common Stock of $10.00:
Purchase Price:
Fair value of shares of FTP Common Stock............................. $50,000
Cash Payments to Firefox stockholders................................ 10,000
Fair value of stock options.......................................... 2,650
Estimated transaction costs.......................................... 4,100
Assumed liabilities.................................................. 4,865
-------
Total purchase price............................................... $71,615
=======
Allocation of the Purchase Price:
Current assets....................................................... $23,934
Property and equipment............................................... 1,098
Purchased technology and other intangible assets..................... 5,010
In-process technology................................................ 41,573
-------
$71,615
=======
The purchase price was allocated to the assets of Firefox based on their
estimated respective fair values. Completed technology that has reached
technological feasibility is valued using a risk adjusted cash flow model
under which future cash flows were discounted, taking into account risks
related to existing and future markets and assessments of the life expectancy
of the completed technology. In-process technology that has not reached
technological feasibility and that has no alternative future use is valued
using the same method. Expected future cash flows associated with in-process
technology are discounted considering risks and uncertainties related to the
viability of and to the potential changes in future target markets and to the
completion of the products expected to ultimately be marketed by FTP. The in-
process technology relates to three products that management
78
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
intends to further develop to the point of technological feasibility. The
first product will be a new client application-based software product intended
to include server connectivity software technology for a Windows NT platform.
The second product will be a new client-server product intended to provide
centralized management capabilities and improved network administration
productivity. The third product will be a new messaging and directory product
intended to enable the user to locate and send messages or files to specific
names, objects and locations. This product is intended to work both within the
same and different protocols. Management estimates that the cost to complete
these three products will be approximately $3.8 million.
PRO FORMA ADJUSTMENTS TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) The pro forma consolidated balance sheet reflects the acquisition of
Firefox as if the Merger had occurred on March 31, 1996. The pro forma
adjustments to reflect the excess of the estimated fair value of the net
assets of Firefox over the purchase price have been allocated pro rata to the
values assigned to the non-current assets of Firefox. The ultimate allocation
of the purchase price to the assets acquired is subject to change based on the
final determination of their respective fair values.
(b) The pro forma consolidated statements of income have been prepared
assuming the acquisition of Firefox occurred on January 1, 1995. Pro forma
adjustments to the pro forma statements of income do not give effect to i) an
anticipated charge for in-process technology, which is non-deductible for tax
purposes and which is expected to be charged to operations upon consummation
of the Merger, or ii) the write-off of capitalized costs discussed in Note B
below and the associated tax benefits, which will be recorded upon
consummation of the Merger. The allocation of the purchase price to the fair
value of the in-process technology related to Firefox is subject to change
based on the final determination of the fair values of the assets of Firefox.
The charges described in the preceding paragraph are currently expected to
amount to $41,573 and $1,462 (net of the resulting income tax benefit),
respectively. If these charges were reflected as if the Merger had been
consummated on January 1, 1995, the pro forma combined net income per common
share for the year ended December 31, 1995 at assumed Average Prices of $12,
$10, $8 and $6 would be reduced by $1.32, $1.29, $1.24 and $1.24 per share,
respectively.
The pro forma combined per share amounts in the unaudited pro forma
consolidated statements of income are based upon the historical weighted
average number of shares of FTP Common Stock and dilutive common stock
equivalents of FTP outstanding during each period presented, except for loss
periods as their effect would be antidilutive. In addition, the shares of FTP
Common Stock to be issued pursuant to the Merger (see "The Merger and Related
Transactions--Conversion of Shares") (based on assumed Average Prices of $12,
$10, $8 and $6) and the options to purchase FTP Common Stock into which
options outstanding under certain Firefox employee and director stock option
plans (see "The Merger and Related Transactions--Conversion of Options") will
be deemed to be converted pursuant to the Merger (based on such assumed
Average Price and the number of shares of Firefox Common Stock subject to such
options as of the Firefox Record Date) are treated as if they were issued on
January 1, 1995.
Certain financial statement balances of Firefox have been reclassified to
conform with the FTP financial statement presentation.
The following pro forma adjustments are reflected in the unaudited pro forma
consolidated financial statements.
(A) To record cash payments totaling $14,100 to be made in connection
with the Merger which include the aggregate $10,000 Cash Payments to
Firefox stockholders, $3,200 of Merger-related expenses including
investment advisory fees, legal and accounting expenses and other
transaction costs and $900 of other direct costs associated with the
Merger. Such payments have been recorded as a reduction in cash and cash
equivalents of $3,989, short-term investments of $9,021 and prepaid
expenses and other current assets of $1,304, net of $214 of accrued
liabilities recorded as prepaid expenses and other current assets in the
historical March 31, 1996 balance sheet.
79
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(B) To record the write-off of $2,437 of capitalized costs relating to
products made redundant by the Merger, resulting in a $975 income tax
benefit.
(C) To record the estimated fair value of property and equipment acquired
as a result of the Merger and to adjust depreciation expense over their
remaining estimated useful lives.
(D) To record the estimated fair value of acquired completed technology
of $4,928 and employment agreements of $82 entered into in connection with
the Merger and the associated deferred tax liability.
(E) To record estimated additional liabilities assumed as a result of the
Merger, including $500 of additional tax liabilities and $694 of costs
expected to be incurred as a result of assumed contractual obligations.
(F) To record the issuance of $50,000 of $.01 par value FTP Common Stock
in exchange for $.001 par value Firefox Common Stock.
(G) To eliminate Firefox stockholders' equity.
(H) To record additional paid-in capital related to the estimated fair
value of the options to purchase FTP Common Stock deemed to be exchanged
for the outstanding options to acquire Firefox Common Stock described
above.
(I) To record the impact to retained earnings of the charge for acquired
in-process technology expected to be recorded upon consummation of the
Merger.
(J) To eliminate the development fee paid by FTP to Firefox under the
Development Agreement entered into by such parties in October 1995.
(K) To record the amortization of completed technology and other
intangibles over their estimated useful lives of two years and one and one-
half years, respectively.
(L) To record reduced interest income resulting from the Cash Payments
made in connection with the Merger calculated assuming a rate of 5.5%.
(M) To record the income tax benefit associated with Notes C, D, K and L
above.
(N) To reverse accretion associated with preferred stock of Firefox
outstanding prior to June 1995, assumed to have been converted into shares
of FTP Common Stock upon consummation of the Merger as if the Merger had
occurred on January 1, 1995.
(O) To record the issuance in the Merger of the 4,167,000, 5,000,000,
6,250,000 and 6,488,000 shares of FTP Common Stock at an assumed Average
Price of $12.00, $10.00, $8.00 and $6.00, respectively, and, for the year
ended December 31, 1995, approximately 100,000 common stock equivalents
representing options to acquire shares of FTP Common Stock deemed to be
exchanged for the Firefox stock options described above pursuant to the
Merger.
(P) To eliminate deferred revenue associated with maintenance contracts.
(Q) To record the income tax benefit of $360 related to the $900 of other
direct costs associated with the Merger discussed in Note A above and the
income tax benefit of $975 related to the write-off of capitalized costs
discussed in Note B above.
80
SELECTED HISTORICAL FINANCIAL DATA
FTP
Set forth below is certain selected historical consolidated financial data
of FTP for each of the five years in the period ended December 31, 1995 and
for the three months ended March 31, 1995 and 1996 and as of December 31,
1991, 1992, 1993, 1994 and 1995 and March 31, 1996. The following consolidated
statement of income data of FTP for the years ended December 31, 1993, 1994
and 1995 and for the three months ended March 31, 1995 and 1996 and the
consolidated balance sheet data of FTP as of December 31, 1994 and 1995 and
March 31, 1996 were derived from the historical consolidated financial
statements of FTP for and as of such dates included elsewhere in this Joint
Proxy Statement/Prospectus. The following consolidated statement of income
data of FTP for the years ended December 31, 1991 and 1992 and consolidated
balance sheet data of FTP as of December 31, 1991, 1992 and 1993 were derived
from the audited historical consolidated financial statements of FTP for and
as of such dates not included herein. The data should be read in conjunction
with "FTP Management's Discussion and Analysis of Financial Condition and
Results of Operations" and FTP's historical consolidated financial statements
and the notes related thereto included elsewhere herein.
FTP SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- -------
STATEMENT OF INCOME
DATA:
Total revenue........... $21,419 $33,132 $58,726 $93,245 $136,376 $31,314 $29,004
Income (loss) from
operations............. 8,698 13,103 26,250 33,609 32,946 11,516 (14,429)
Income (loss) before
income taxes........... 8,997 13,412 26,935 36,741 39,102 12,559 (13,400)
Net income (loss)(1).... 5,398 8,047 16,324 22,975 24,634 7,850 (8,442)
Net income (loss) per
share (fully diluted).. $ .24 $ .34 $ .60 $ .79 $ .87 $ .27 $ (.31)
Weighted average common
and common equivalent
shares outstanding
(fully diluted)........ 22,419 23,429 27,361 29,070 28,263 28,721 26,939
DECEMBER 31, MARCH
----------------------------------------- 31,
1991 1992 1993 1994 1995 1996
------- ------- ------- -------- -------- --------
BALANCE SHEET DATA:
Cash and cash equivalents... $ 3,219 $ 4,978 $12,760 $ 10,896 $ 30,417 $ 31,446
Working capital(2).......... 7,247 9,575 69,242 53,482 87,731 69,300
Total assets................ 13,508 18,775 83,711 129,142 189,968 183,091
Total liabilities........... 3,439 5,739 7,633 16,458 25,160 26,143
Stockholders' equity........ 10,069 13,036 76,078 112,684 164,808 156,948
Dividends(3)................ 6,132 7,365 -- -- -- --
Dividends per share......... .42 .44 -- -- -- --
- --------
(1) From January 1, 1990 through June 30, 1992, FTP operated as an S
corporation under Subchapter S of the Internal Revenue Code of 1986, as
amended, and comparable provisions of certain state tax laws. The
provision for income taxes for the years ended December 31, 1991 and 1992
reflect pro forma federal and state income taxes as if FTP had been
subject to federal and state income taxation as a C corporation during
such periods. Pro forma adjustments are not applicable to the years ended
December 31, 1993, 1994 and 1995 or to the three months ended March 31,
1995 and 1996.
(2) The reduction in working capital from 1993 to 1994 is principally due to
the classification of a significant amount of FTP's investments as long-
term.
(3) Dividends in 1991 and 1992 included distributions made to stockholders of
approximately $5.2 million and $3.5 million, respectively, to satisfy
federal and state income tax obligations of the stockholders attributable
to FTP's S corporation earnings for the years 1990, 1991 and 1992.
81
FIREFOX
Set forth below is certain selected historical consolidated financial
information of Firefox for each of the five years in the period ended December
31, 1995 and for the three months ended March 31, 1995 and 1996 and as of
December 31, 1991, 1992, 1993, 1994 and 1995 and March 31, 1996. The following
consolidated statement of operations data of Firefox for the years ended
December 31, 1993, 1994 and 1995 and the three months ended March 31, 1995 and
1996 and the consolidated balance sheet data of Firefox as of December 31,
1994 and 1995 and March 31, 1996 were derived from the historical consolidated
financial statements of Firefox for and as of such dates included elsewhere in
this Joint Proxy Statement/Prospectus. The following consolidated statement of
operations data of Firefox for the year ended December 31, 1992 and the
consolidated balance sheet data of Firefox as of December 31, 1993 were
derived from the audited consolidated financial statements of Firefox for and
as of such dates not included herein. The following consolidated statements of
operations data of Firefox for the year ended December 31, 1991 and the
consolidated balance sheet data of Firefox as of December 31, 1991 and 1992
were derived from the unaudited historical consolidated financial statements
of Firefox for and as of such dates not included herein. The data should be
read in conjunction with "Firefox Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Firefox's historical
consolidated financial statements and notes thereto included elsewhere herein.
FIREFOX SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS
ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
---------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------ -------
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $ 772 $ 2,442 $ 5,172 $13,536 $19,768 $4,722 $ 4,183
Gross margin............ 646 2,202 4,380 11,117 16,133 3,868 3,210
Income (loss) from oper-
ations................. (328) 307 (241) 1,199 396 511 (1,952)
Net income (loss)....... (286) 126 (209) 616 518 279 (1,042)
Income (loss) attribut-
able to common stock... (286) 126 (225) 419 454 234 (1,042)
Net income (loss) per
share(1)............... $ (.06) $ .03 $ (.05) $ .08 $ .07 $ .04 $ (.15)
Shares used in per share
computation............ 4,569 4,569 4,569 5,486 6,398 5,486 6,735
DECEMBER 31,
------------------------------------ MARCH 31,
1991 1992 1993 1994 1995 1996
----- ----- ------ ------ ------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 1 $ -- $ 960 $ 191 $ 6,547 $ 6,519
Working capital (deficit)...... (656) (579) 453 942 22,152 21,233
Total assets................... 646 962 3,542 6,986 29,537 28,056
Capital lease obligations, less
current portion............... 81 53 150 293 104 62
Redemption obligation for pref-
erence shares................. -- -- 1,125 1,385 -- --
Total stockholders' equity (de-
ficiency)..................... (556) (349) (265) 335 23,935 22,850
- --------
(1) See Note 1 of the notes to the audited historical consolidated financial
statements of Firefox included elsewhere herein.
82
COMPARATIVE PER SHARE MARKET PRICE DATA
FTP. The FTP Common Stock commenced trading on November 23, 1993 on the
Nasdaq National Market under the symbol FTPS. Quarterly high and low sales
prices for the FTP Common Stock as reported by the Nasdaq National Market are
shown below for the periods indicated:
HIGH LOW
------ ------
1994:
First Quarter.......................................... $31.25 $24.00
Second Quarter......................................... 27.75 12.50
Third Quarter.......................................... 24.00 11.50
Fourth Quarter......................................... 33.50 21.50
1995:
First Quarter.......................................... $35.50 $25.125
Second Quarter......................................... 32.375 20.25
Third Quarter.......................................... 32.50 20.50
Fourth Quarter......................................... 40.625 21.75
1996:
First Quarter.......................................... $29.00 $10.375
Second Quarter (through June 25, 1996)................. 13.625 8.25
Firefox. The Firefox Common Stock commenced trading on May 11, 1995 on the
Nasdaq National Market under the symbol FFOX. Quarterly high and low sales
prices for the Firefox Common Stock as reported by the Nasdaq National Market
are shown below for the periods indicated:
HIGH LOW
------ ------
1995:
Second Quarter (commencing May 11, 1995)................ $29.25 $21.50
Third Quarter........................................... 27.375 15.875
Fourth Quarter.......................................... 26.00 16.75
1996:
First Quarter........................................... $22.63 $ 8.75
Second Quarter (through June 25, 1996).................. 11.25 7.375
On January 16, 1996, the last business day immediately preceding the public
announcement of the Merger, and on May 21, 1996, the last business day
immediately preceding the public announcement of the most recent amendment to
the Merger Agreement, the closing sales prices for the FTP Common Stock as
reported on the Nasdaq National Market were $11.75 and $13.625 per share,
respectively, and the closing sales prices for the Firefox Common Stock as
reported by the Nasdaq National Market were $9.25 and $11.25 per share,
respectively. On June 25, 1996, the closing sales price for the FTP Common
Stock as so reported was $8.375 per share, and the closing sales price for the
Firefox Common Stock as so reported was $7.375 per share.
As of the FTP Record Date, there were 315 record holders of the FTP Common
Stock, as shown on the records of FTP's transfer agent. As of the Firefox
Record Date, there were 55 record holders of the Firefox Common Stock, as
shown on the records of Firefox's transfer agent for such shares.
FTP has not since 1992, and Firefox has never, paid or declared any cash
dividends on its stock, and each anticipates that for the foreseeable future
it will continue to retain any earnings for use in the operation of its
respective business.
BECAUSE THE MARKET PRICE OF THE FTP COMMON STOCK THAT HOLDERS OF FIREFOX
COMMON STOCK WILL RECEIVE IN THE MERGER MAY INCREASE OR DECREASE PRIOR TO THE
MERGER, STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS.
83
INFORMATION REGARDING FTP
OVERVIEW
FTP designs, develops, markets and supports software products that enable
personal computer users to find, access and use heterogeneous hardware,
information and applications resources across local area, enterprise-wide and
global networks, including the Internet and its World Wide Web. FTP's
principal networking products, OnNet and PC/TCP, which are based upon the
industry standard TCP/IP data communications protocol suite, enable remote
access, file and resource sharing and other applications across a variety of
operating systems, computing platforms and network environments. Other FTP
products allow users to search, organize and share information, view and
convert documents in a large number of different formats, including legacy
formats, and collaborate with other users. FTP's products emphasize
performance, reliability, functionality, robustness and compatibility, which
FTP believes are the key purchasing criteria, along with technical support and
special engineering capability, for organizations establishing and expanding
enterprise-wide networks.
FTP introduced version 1.0 of its PC/TCP product in 1986. In subsequent
years FTP has both added functionality to and improved the performance of this
product. In 1994, FTP introduced a new generation of its networking software,
OnNet, which included a new 32-bit kernel and was based on virtual device
driver technology. Later in 1994, FTP introduced Explore, a Windows-based
Internet access product that includes a World Wide Web browser. In early 1995,
FTP acquired a line of document viewer and conversion products. These
introductions and acquisitions are part of FTP's strategy of expanding its
product offerings beyond client-server connectivity products to include
applications that enable users to find and organize information and to harness
the power of computer networks to help users work collaboratively with others.
In order to help implement this strategy, in July 1995, FTP reorganized its
business into two units, the Networking Products Business Unit and the New
Ventures Business Unit. The Networking Products Business Unit included, FTP's
core OnNet and PC/TCP product lines and was responsible for extending those
product lines to new platforms, including secure, wireless and mobile
connectivity, and developing and acquiring server and other products to
provide services for enterprise networks. The New Ventures Business Unit was
created to develop, acquire and commercialize new technologies, including
emerging Internet technologies. During February 1996, FTP acquired the Mariner
product line of Network Computing Devices, Inc. In March 1996, FTP acquired
substantially all of the assets of HyperDesk Corporation, including its
GroupWorks collaborative product. In April 1996, FTP acquired Campbell
Services, Inc., the Southfield, Michigan-based developer of OnTime, a client-
server solution for group scheduling, through a merger of a subsidiary of FTP
into Campbell Services, which continues to operate as a wholly-owned
subsidiary of FTP. See "FTP Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
Following the July 1995 reorganization described above, FTP concluded that
the increasingly rapid evolution of the Internet market was resulting in
increasing confusion among even sophisticated users of TCP/IP and Internet
products as to both the capabilities and the interplay of the various TCP/IP
and Internet products available in the market, including the potential for the
combination of such products to form private intranets. As a result, and in
connection with its determination to effect certain cost-cutting measures, FTP
decided to recombine its business units and reorganize its operations to
better position itself to deal with such confusion and to take advantage of
the market potential for intranet product suites incorporating traditional
TCP/IP and Internet products.
PRODUCTS
OnNet and PC/TCP Product Family
OnNet and PC/TCP, FTP's principal product lines, allow PC users to share
information, access data from other sources, run host-based applications and
use network services across an organization's entire computing environment.
OnNet and PC/TCP consist of FTP's own implementation of the TCP/IP protocol
suite, called the OnNet or PC/TCP Kernel, respectively, and numerous
networking and other applications. FTP's OnNet and
84
PC/TCP products are compatible with all major personal computer client-server
and network operating systems, including 16-bit and 32-bit Windows (including
Windows 95 and Windows NT), MS-DOS, OS/2, NetWare, LAN Manager, Pathworks,
Windows for WorkGroups and Vines. Both OnNet and PC/TCP operate over all major
local and wide-area network topologies and media, including Ethernet, Token
Ring, StarLAN, ProNet 10, Serial line, X.25, ISDN, Token Bus and FDDI. FTP's
design emphasis on compatibility is intended to both enhance and protect its
customers investments in different networking hardware and software and to
provide its customers flexibility for future investments.
The OnNet and PC/TCP Kernels are high performance, highly reliable
implementations of the core TCP/IP suite of protocols which run under DOS and
in multi-tasking environments such as Windows and DesqView/X. The OnNet and
PC/TCP Kernels include a number of advanced features such as gateway fallback
and router discovery that allow for performance optimization, network
redundancy, easy configuration and error recovery in complex networks. The
OnNet and PC/TCP Kernels are typically bundled and sold with FTP's networking
applications. The OnNet and PC/TCP Kernels are also sold separately to
developers and to end users to run third party applications or other resource
sharing products. In addition, FTP offers a software development kit to enable
end users and third parties to develop application programs.
In addition to the Kernels, both OnNet and PC/TCP contain a panoply of
networking applications and features, including network file and printer
sharing, terminal emulation, electronic mail ("e-mail"), remote file transfer,
remote command, remote printing, remote tape backup, Kerberos-based user
authentication and data encryption as well as access level restrictions based
on the Internet Protocol Security Option (IPSO), installation and
configuration utilities, and a World Wide Web browser based upon NCSA Mosaic.
OnNet and PC/TCP are also available in a version compatible with OS/2 which
provides much of the same functionality as the Windows/DOS version.
InterDrive
InterDrive 95 and InterDrive NT are client applications that provide network
users with access to printers, directories and files systems on network
servers running the NFS server software. InterDrive 95 is available for
Windows 95 and InterDrive NT is available for the Windows NT operating system.
In addition to these separate products, InterDrive 95 is incorporated in
OnNet.
Explore
Explore is a Windows-based Internet access software product that includes
automatic configuration, a World Wide Web browser enhanced by FTP based on
NCSA Mosaic, and a Windows-based e-mail reader. Explore also includes other
applications such as Gopher (a search tool for tapping into universities,
libraries and other data sources worldwide), File Transport Protocol and
Telnet (a full-featured terminal emulation program that allows users to log on
to other computers on the Internet).
Explore Anywhere for Windows ties corporate LANs and users into the Internet
infrastructure and simplifies switching between LAN-based and remote access to
the Internet. Explore Anywhere includes FTP's Explore 2.0 suite of Windows-
based Internet access applications for remote and mobile workers, small
companies and home-based PC users, and provides LAN drivers and a new
switching capability that makes it easy for users to manage their connections
whether they are remote or LAN-attached. Explore Anywhere coexists with Banyan
Vines and Novell NetWare networks and supports other TCP/IP-based networks.
Web Server Products
FTP's line of Web server products are based upon technology developed by
Open Market, Inc. ("Open Market") and FTP. These products enable organizations
to use the Internet to expand their internal information and communications
systems to geographically dispersed facilities in a secure fashion. FTP
distributes Open Market's Unix-based WebServer, Secure WebServer and
WebReporter products. FTP also has developed
85
versions of these products for Windows NT, which it markets directly as its
Esplanade line of products and distributes through Open Market. WebServer and
Secure WebServer allow hundreds of simultaneous connections to the World Wide
Web and incorporate open standards such as the Common Gateway Interface (CGI),
a standard interface for server scripts, and Hypertext Transport Protocol
(HTTP), which provides interoperability with all existing Web clients. Secure
WebServer combines WebServer with security technology to protect business
transactions being conducted on the Internet. WebReporter enables businesses
to generate customized end-user access and browsing pattern reports.
WebReporter is compatible with WebServer and any other Web server which
supports the standard logfile format. FTP's line of Web server products
coupled with FTP's Explore products family provide a complete, easily
administered electronic business solution for connecting to the World Wide Web
and for utilizing Internet-based technologies to reinvest internal business
processes, such as publishing internal documents on a FTP-wide network.
Mariner
Mariner is a product that allows users to search, organize and share
information on the Internet. It provides users the ability to organize
information by subject, regardless of its location on the Internet, and build
a personal "roadmap" of Internet sessions. The Mariner product was acquired by
FTP in early 1996 from Network Computing Devices, Inc. In addition to
marketing Mariner as a stand-alone product, FTP expects to incorporate parts
of the Mariner technology in its other products.
Collaborative Products
In February 1996, FTP acquired substantially all of the assets of HyperDesk
Corporation, including its GroupWorks product. GroupWorks is a graphical
workflow management product for small teams (up to approximately 15 persons)
collaborating on a shared project. The product incorporates distributed OLE
technology. It implements a peer-to-peer networking model so that no separate
server is required. GroupWorks is currently available for the Windows 3.1,
Windows 95 and Windows NT operating systems.
In April 1996, FTP acquired Campbell Services, Inc. and its OnTime product
line. The OnTime product line is a family of personal calendaring and group
scheduling applications that provides real-time calendar information to allow
users to check common time availability and schedule group meetings. The
OnTime products include security, optional e-mail notification, pager
notification, search capabilities and facilities to manage to-do lists. They
also provide a wide variety of printouts and support many laptop and palmtop
computers so that their users can be part of the group scheduling activity.
Keyword Products
In early 1995, FTP acquired substantially all of the assets of Keyword
Office Technologies Ltd. ("Keyword"), the Calgary, Alberta-based developer of
protocol-independent document interchange and viewing technology software. FTP
currently markets two products based on this technology: KEYpak and KEYview.
KEYpak is a server-based product that enables users to share documents
across client-based through document interchange and document conversion.
KEYpak contains an extensive library of conversion software that supports both
standard document interchange formats as well as popular mainframe and
minicomputer legacy systems, such as IBM Profs and Wang.
KEYview is a DOS/Windows client product that incorporates the KEYpak
conversion technology. It enables users to instantly view and print more than
100 different e-mail file attachments, including UNIX-based and legacy
systems. It provides users with the option of converting attachments to their
preferred format (e.g., converting a native Microsoft Word document directly
into a native Lotus Notes format). KEYview automatically integrates with Lotus
cc:Mail, Lotus Notes, Microsoft Mail and HP OpenMail, and in NetWare and Vines
environments. KEYview also automatically integrates into Mosaic and other
popular browsers, including Netscape's browser, allowing users to view
documents, spread sheets and graphics found on the World Wide Web even if
those documents are not in a standard format.
86
Certain Keyword technology has also been integrated into FTP's Explore and
OnNet products, as well as FTP's recently announced Esplanade Web server.
Intelligent Agent Products
FTP is using agent-based enabling technology to develop applications for
managing corporate networks and provide end users with new tools to find and
exploit the information resources of the Internet.
FTP's CyberAgent Software Development Kit (SDK) enables network
administrators to build software "intelligent agents" which can travel from PC
to PC accomplishing pre-assigned tasks, including data gathering, remote
execution and reporting. Intelligent agents also have the ability to make
real-time decisions and modify their behavior based on the changing conditions
of a network. For example, an agent can modify its pre-set travel plan to
return to a busy PC again at a later time, or generate a report listing
unavailable PCs. The SDK includes ready-to-launch time synchronization, virus
checking and configuration information collecting agents. The SDK provides
security features to allow the authentication of incoming agents and prevent
unauthorized use of agents. Agents developed with the SDK can work across
Windows 3.1, Windows for WorkGroups and Windows 95 platforms.
FTP also incorporates some of the Intelligent Agents technology into other
products, including OnNet and Explore, and may incorporate it into future
internally developed or acquired products.
Other Products
FTP has developed over the years a strong technology base in the networking
field. In addition to the products described above, the products described
below embody some aspects of this technology. Although these products do not
account for a material portion of FTP's revenue, they do illustrate areas of
FTP's technologic competence and may also be useful in combination with other
current or future products.
Services OnNet is a software product that includes a set of integrated
applications that enables peer-to-peer networking in PC-based TCP/IP
environments, which dramatically simplifies TCP/IP configuration management.
Services OnNet was the first commercially available Dynamic Host Configuration
Protocol (DHCP) server, which makes it easy to set up and configure TCP/IP
networks from small work groups to large corporate enterprises. This package
of applications is an add-on product to FTP's current OnNet products.
X OnNet (formerly EntranX/32 for Windows) is a software product that allows
Windows users to access networked applications based on the X-Windows (X.11)
standard. X OnNet is both powerful and easy to use, and can run on any Windows
Sockets compliant network software. FTP offers 16-bit and 32-bit versions of
this product.
FTP also sells PC/Bind, a domain name server for DOS that allows use of user
or host names instead of specific network addresses, and PC/SNMP Tools, a set
of network management tools implementing the Simple Network Management
Protocol. LANWatch is a software-based network analyzer for PCs running DOS.
It allows a network manager to capture and display packets moving over the
network in real time and to store packets and examine them in detail to
diagnose problems. LANCatch is a software-based trace utility for PCs running
DOS which complements LANWatch. LANCatch allows network administrators and
support engineers to troubleshoot a remote network by capturing network
traffic in real time and saving it to a trace file on disk.
Product Development
FTP's product development efforts with regard to its networking products are
focused on enhancing and broadening its current line of products, including
the development and acquisition of new networking application programs and the
release of improved versions of its products on a regular basis. FTP is
actively developing security technology, license management technology and
other enhancements for its networking products. FTP is also developing
technology to enable transmission of multimedia content over IP networks.
87
SALES AND MARKETING
FTP distributes its products through multiple channels, including direct
sales, value-added resellers, systems integrators, OEMs and a limited number
of distributors. FTP's distribution strategy is to select and to utilize the
various channels to address cost-effectively the broadest available market
while minimizing conflicts among its distribution channels.
As of May 2, 1996, FTP had 184 sales employees. FTP's sales operations are
conducted from its principal offices in Andover, Massachusetts, and additional
offices in Santa Clara, California and Arlington, Virginia. In addition, FTP
has sales support and marketing offices in Munich, Germany, Paris, France,
London, England, Singapore and Tokyo, Japan.
FTP generally seeks to market its products to large and mid-size
organizations with a wide range of connectivity requirements by identifying
various features and applications of FTP's products that address the
customer's connectivity needs. FTP further seeks to address the needs of
consumers to access the Internet and other networks worldwide. Marketing
activities include participation in trade shows and conferences, publication
in newsletters and technical journals, and participation in the TCP/IP and
Internet standards setting process.
United States. In the United States, FTP markets its networking products
directly to large and mid-size companies and educational institutions. These
companies and institutions generally have complex enterprise and
internetworking requirements that include a wide range of applications. FTP
believes it is important to maintain a close working relationship with its
customers to meet their demands and to provide reliable customer support. FTP
believes its direct sales force, assisted by a strong customer support staff,
is well-suited to address the needs of these customers and to differentiate
FTP's products and solutions from those of its competitors.
FTP also markets its products in the United States through value-added
resellers, systems integrators and OEMs. FTP's sales to the United States
federal, state and local governments are conducted directly and through
government resellers and OEMs.
International. In the years ended December 31, 1993, 1994 and 1995, FTP
derived 40%, 44% and 46% of its sales, respectively, from outside the United
States. FTP relies on a network of resellers, systems integrators and
distributors located in Europe, the Middle East, South America, Canada, Russia
and Asia Pacific to sell its products internationally. FTP's offices in
Germany, France, England, Singapore and Japan provide assistance to resellers,
systems integrators and distributors in their efforts to license FTP's
products; FTP's Calgary, Canada office provides such assistance with respect
to the licensing of certain of FTP's products. A Kanji version of PC/TCP has
been sold in Japan since 1988. A Korean version of PC/TCP has been sold in
Korea since 1993. Versions of OnNet and Explore are available in French,
German, Italian, Japanese and Spanish.
CUSTOMERS
FTP's customers include large corporations in the aerospace, automotive,
cable television, data processing, energy, financial services, mobile
communications, retail, telecommunications and other industries; federal,
state, local and foreign government organizations; and educational and
research institutions. No customer accounted for more than 10% of FTP's
revenue for 1995.
CUSTOMER SERVICE AND SUPPORT
FTP believes that a high level of continuing customer support and service is
critical to its objectives of developing long-term relationships with its
customers and establishing FTP as the leader in connectivity solutions. FTP's
service and support activities are related to software and network
configuration issues and are provided by telephone support and remote
telephone access from FTP's facilities located in North Andover,
Massachusetts. FTP also provides customers with on-site installation support
and training. FTP has established a training facility located at its corporate
headquarters. FTP has a toll-free technical support number available from 8:00
a.m. to 8:00 p.m. (Eastern time). Support is also available through e-mail and
electronic bulletin boards.
88
FTP offers maintenance contracts for site licenses. Site license customers
can purchase an initial 15-month maintenance contract at a price equal to 15%
of the aggregate site license price, which entitles them to unlimited
telephone support and free updates of the product during the maintenance
period. After the first 15 months, annual 12-month renewals may be purchased.
FTP also offers a Partnership Support Program for its strategic customers
that provides 24-hour support seven days a week. This program requires the
customer to establish and maintain a help desk on site to provide front-line
support to all users. A group of support engineers at FTP are available to
assist customer personnel at these help desks in providing support.
COMPETITION
The connectivity industry is highly competitive. The principal competitive
factors in this market are performance, reliability, compatibility,
functionality, price, customer support, ease of use, memory requirements,
availability of third party applications and technical reputation.
FTP competes with major computer and communications systems vendors,
including IBM, Microsoft, Novell and Sun, as well as networking software
companies such as NetManage, Attachmate and Wall Data. In certain markets, FTP
competes with Netscape, SPRY Inc. and other networking companies. FTP's
collaborative products compete with products of other vendors of collaborative
software, including Lotus and Netscape, as well as smaller companies. FTP's
Keyword products compete with products offered by the Mastersoft unit of Adobe
Systems Inc. and with Inso Corporation.
Many of FTP's competitors have substantially greater financial, technical,
sales, marketing and other resources than FTP. Several of these vendors,
including IBM and Novell, have developed proprietary protocols that compete
with TCP/IP. Also, certain of such vendors, such as Microsoft, Novell and Sun,
include versions of the TCP/IP protocol in their products. Because FTP's
products are based upon an open non-proprietary protocol, other companies may
enter the market with their own implementations of TCP/IP.
Increased competition from existing or new products could adversely affect
demand for FTP's products and could lead to increased price competition that
may adversely affect FTP's gross margins and operating results. See "Risk
Factors--Risks Relating to FTP and Firefox--Competition."
PROPRIETARY RIGHTS AND LICENSING
OnNet, Explore and PC/TCP are principally owned by FTP. A small portion of
the technology included in certain of FTP's products is licensed to FTP by
third parties, generally under an irrevocable license that also provides FTP
with access to source code to enable FTP to enhance and maintain the
technology.
The WebServer, Secure WebServer and WebReporter products are distributed by
FTP under a license from Open Market. The Windows NT versions of these
products included in FTP's Esplanade line of Web server products were created
by FTP pursuant to a license from Open Market that provides FTP with full
source code rights to allow it to maintain the products.
FTP relies on a combination of copyrights, trademarks, trade secret law and
contracts to protect its proprietary technology. FTP generally provides
software products to end users under non-exclusive shrink-wrap licenses, which
provide that the license may be terminated by FTP if the end user breaches the
terms of the license. These licenses generally require that the software be
used only internally and on a single PC. FTP authorizes its dealers to
sublicense software products to end users under similar terms. FTP also makes
available to end users master software licenses which permit either a
specified limited number of copies or an unlimited number of copies of the
software to be made for internal use. Certain provisions of these licenses,
including provisions protecting against unauthorized use, copying, transfer
and disclosure, may be unenforceable under the laws of certain jurisdictions.
FTP generally enters into confidentiality and/or license agreements with its
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consultants, distributors, customers and potential customers and limits access
to and distribution of its source code and other proprietary information.
Despite these precautions, unauthorized parties may attempt to copy aspects
of FTP's products or to obtain and use information that FTP regards as
proprietary. Policing unauthorized use of FTP's products is difficult, and,
while FTP is unable to determine the extent to which piracy of software
exists, software piracy can be expected to be a persistent problem,
particularly in some international markets. The laws and enforcement
authorities of some foreign countries do not protect FTP's proprietary rights
to as great an extent as the laws of the United States, and because of FTP's
significant international presence, there can be no assurance that FTP will be
able to protect its proprietary rights abroad. Although FTP's implementation
of TCP/IP is proprietary, the basic TCP/IP protocols are non-proprietary.
Anyone who wishes to use them may do so, without having to pay for the right.
Although FTP currently has no issued patents, the number of patents granted
on software inventions is increasing. Consequently, there is a growing risk of
third parties asserting patent claims against FTP. In the future, FTP may
receive communications from third parties asserting that FTP's products
infringe, or may infringe, the patents or other proprietary rights of such
third parties, or seeking indemnification against such infringement, or
asserting that FTP must obtain a license from such third parties. Such
communications, and any resulting litigation, could result in substantial
costs and diversion of resources and could have a material adverse effect
FTP's business, financial condition and results of operations. If any claims
or actions were to be asserted against FTP, and FTP were required to seek a
license of a third party's intellectual property, there can be no assurance
that FTP would be able to acquire such a license on reasonable terms or at
all, and no prediction can be made about the effect that such license might
have on FTP's business, financial condition or results of operations. Should
litigation with respect to any such claim commence, such litigation could be
extremely expensive and time consuming and could materially adversely affect
FTP's business, financial condition and results of operations regardless of
the outcome of the litigation. See "Risk Factors--Risks Relating to FTP and
Firefox--Proprietary Rights."
FTP has registered or applied for the registration of the trademarks FTP
Software, OnNet, PC/TCP, InterDrive, LANWatch, PC/BIND, LANCatch, CyberAgent,
Esplanade, HyperDesk, GroupWorks, Mariner and OnTime in the United States and
in certain foreign countries. Several other trademark registrations are in
process in both the United States and in various foreign countries.
This Joint Proxy Statement/Prospectus also contains trademarks of certain
other companies.
EMPLOYEES
As of May 2, 1996, FTP had 816 full-time employees, including 375 in
marketing, sales and service, 258 in product development, 29 in manufacturing
and 154 in general and administrative functions and management. FTP employees
are not represented by a labor union or other collective bargaining agent, and
FTP believes that its relations with its employees are good.
SUBSIDIARIES
FTP currently conducts its operations directly and through several
subsidiaries. FTP's subsidiaries include FTP Software Worldwide, Inc., FTP
Software Canada Ltd. (Canada), FTP Software (Asia Pacific) Pte Ltd (Asia
Pacific other than Japan) and FTP Software K.K. (Japan).
FACILITIES
FTP leases approximately 135,000 square feet at its facility in North
Andover, Massachusetts, approximately 107,000 square feet at its corporate
headquarters in Andover, Massachusetts and approximately 32,000 square feet at
its manufacturing facility in Wilmington, Massachusetts. FTP also leases
approximately 32,000 square feet for
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sales, sales support and marketing offices in Santa Clara, California,
Arlington, Virginia, Munich, Germany, London, England, Paris, France,
Singapore and Tokyo, Japan and office space in Calgary, Canada.
LEGAL PROCEEDINGS
On March 14, 1996, a class action lawsuit was filed in the United States
District Court for the District of Massachusetts, naming FTP, certain of its
officers and two former officers as defendants. The lawsuit alleges that the
defendants publicly issued false and misleading statements and omitted to
disclose material facts necessary to make statements not false and misleading,
which the plaintiffs contend caused an artificial inflation in the price of
the FTP Common Stock. Specifically, the complaint alleges that the defendants
knowingly concealed adverse facts and made false or misleading forward and
non-forward looking statements concerning the operating results and financial
condition of FTP, the effects of its July 1995 corporate restructuring and
changing competitive factors in FTP's industry. The lawsuit, which is
purportedly brought on behalf of a class of purchasers of the FTP Common Stock
during the period from July 14, 1995 to January 3, 1996, alleges violations of
Section 10(b) and Section 20(a) of the Exchange Act and Rule 10b-5 thereunder
and seeks relief in the form of unspecified compensatory damages, costs and
expenses and such other and further relief as the Court deems proper and just.
FTP has reviewed the allegations in the lawsuit, believes them to be without
merit, and intends to defend itself and its officers vigorously. In order to
support an adequate defense, FTP may be required to expend substantial sums
for legal and expert fees and costs. The costs of defending the litigation and
the outcome of the litigation are uncertain and cannot be estimated. If the
lawsuit were determined adversely to FTP, FTP could be required to pay a
substantial judgment. See "Risk Factors--Risks Relating to FTP and Firefox--
Litigation Against FTP" and "Recent Developments."
Following the Merger, Firefox will operate as a wholly-owned subsidiary of
FTP. For information regarding the Firefox Litigation and the indemnification
to be provided to FTP, Firefox as the surviving corporation and certain other
persons in respect thereof pursuant to the Merger Agreement, see "Risk
Factors--Risks Relating to FTP and Firefox--Litigation Against Firefox" and
"Recent Developments."
Except as discussed herein and under "Recent Developments," FTP is unaware
of any other litigation, pending or threatened, which could have a material
adverse effect on the business, financial condition or results of operations
of FTP.
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FTP MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis provides information that management
of FTP believes is relevant to an assessment and understanding of FTP's
consolidated results of operations and financial condition. This discussion
should be read in conjunction with FTP's historical consolidated financial
statements and the notes related thereto included elsewhere herein.
Forward-looking statements in this section and elsewhere in this Joint Proxy
Statement/Prospectus are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. All forward-looking
statements involve risks and uncertainties, and actual results could differ
materially from those projected in the forward-looking statements contained
herein for a variety of reasons. These reasons include, but are not
limited to, competition, technological change, increased demands on management
as a result of planned expansion, risks of integration of the two companies,
changes in distributor terms or performance or other risks outlined in "Risk
Factors."
As described above under "Information Regarding FTP--Overview," in early
July 1995 FTP reorganized its business into two business units, the Networking
Products Business Unit and the New Ventures Business Unit. The Networking
Products Business Unit included FTP's core OnNet and PC/TCP product lines, and
was responsible for extending those product lines to new platforms, including
secure, wireless and mobile connectivity, and developing and acquiring server
and other products to provide services for enterprise networks. To date,
substantially all of FTP's revenue has been attributable to sales of its OnNet
and PC/TCP product lines.
The New Ventures Business Unit was formed to develop, acquire and
commercialize new technologies. Since the July 1995 reorganization, FTP has
made substantial investments in new technologies. In February 1996, FTP
acquired the Mariner product line of Network Computing Devices, Inc. for a net
cash purchase price of approximately $7.4 million. In March 1996, FTP acquired
substantially all of the assets of HyperDesk Corporation, including its
GroupWorks product, for a net cash purchase price of approximately $6.3
million. In April 1996, FTP acquired Campbell Services, Inc. ("Campbell
Services"), the Southfield, Michigan-based developer of OnTime, for a net cash
purchase price of approximately $15 million through the merger of a subsidiary
of FTP into Campbell Services, which continues to operate as a wholly-owned
subsidiary of FTP. See "Information Regarding FTP--Overview" and "--Products."
Since the July 1995 reorganization described above, it became evident that
the increasingly rapid evolution of the Internet market was resulting in
confusion among even sophisticated users of TCP/IP and Internet products as to
both the capabilities and the interplay of the various TCP/IP and Internet
products available in the market, including the potential for the combination
of such products to form private intranets. As a result, and in connection
with its determination to effect certain cost-cutting measures, FTP decided to
recombine its business units and reorganize its operations to better position
itself to deal with such confusion and to take advantage of the market
potential for intranet product suites incorporating traditional TCP/IP and
Internet products. Such cost-cutting measures included a reduction of
approximately 10% in the number of FTP's full-time employees, effected May 1,
1996. See "--Liquidity and Capital Resources" below.
Looking forward, FTP intends to continue to make substantial investments in
its business (including through internal and joint third party development
activities, royalty agreements and acquisitions) over the foreseeable future,
through FTP's internal cash resources, the issuance of shares of its common
stock or other securities, or a combination thereof. There can be no
assurance, however, that the capital resources necessary in order to fund such
investments will be available or that, if available, such resources will be on
terms acceptable to FTP.
RESULTS OF OPERATIONS
The following table shows certain financial data of FTP as a percentage of
total revenue for the periods indicated. Such information, and the discussion
of FTP's results of operations set forth below, principally reflect the
results of operations from FTP's former Networking Products Business Unit,
except as otherwise indicated.
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Because the activities associated with what was FTP's New Ventures Business
Unit were immaterial for all periods prior to July 1, 1995, the results of
operations of FTP for 1993, 1994 and the first six months of 1995 are treated
as being the results of operations of the Networking Products Business Unit. As
a result of the 1996 reorganization described above under "--Overview," FTP
does not intend to report separate financial information for these former
business units after the first quarter of 1996.
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
------- ------- -------
Revenue:
Product revenue.............................. 94.7% 92.5% 90.2%
Service revenue.............................. 5.3 7.5 9.8
------- ------- -------
Total revenue.............................. 100.0 100.0 100.0
------- ------- -------
Cost of revenue:
Product cost................................. 6.7 6.1 5.9
Service cost................................. 6.8 7.9 7.2
------- ------- -------
Total cost of revenue...................... 13.5 14.0 13.1
------- ------- -------
Gross margin................................... 86.5 86.0 86.9
------- ------- -------
Operating expenses:
Sales and marketing.......................... 16.2 17.9 29.8
Product development.......................... 16.0 22.0 22.6
General and administrative................... 9.6 10.0 10.4
------- ------- -------
Total operating expenses................... 41.8 49.9 62.8
------- ------- -------
Income from operations......................... 44.7 36.0 24.2
Investment income.............................. 1.2 3.4 4.5
------- ------- -------
Income before income taxes..................... 45.9 39.4 28.7
Provision for income taxes..................... 18.1 14.8 10.6
------- ------- -------
Net income..................................... 27.8% 24.6% 18.1%
======= ======= =======
Total Revenue
Total revenue consists of product revenue and service revenue. Product
revenue includes revenue from product sales and royalties from certain OEM
customers. Service revenue includes revenue from maintenance and training
contracts and is recognized ratably over contract periods.
Total revenue from the Networking Products Business Unit increased from
approximately $58.7 million in 1993 to approximately $93.2 million in 1994 and
approximately $131.9 million in 1995. Product revenue for this unit increased
from approximately $55.6 million in 1993 to approximately $86.2 million in 1994
and approximately $118.7 million in 1995. Service revenue for this unit
increased from approximately $3.1 million in 1993 to approximately $7.0 million
in 1994 and approximately $13.1 million in 1995. As a percentage of total
revenue, product revenue decreased from approximately 95% in 1993 to 92% in
1994 and 90% in 1995 while service revenue increased from approximately 5% in
1993 to 8% in 1994 and 10% in 1995.
For the three months ended March 31, 1995 and 1996, total revenue from the
Networking Products Business Unit decreased from approximately $31.3 million
for the first quarter of 1995 to approximately $26.8 million for the first
quarter of 1996. Product revenue for this unit decreased from approximately
$28.7 million for the first quarter of 1995 to approximately $22.9 million for
the first quarter of 1996. Service revenue for this unit increased from
approximately $2.6 million for the first quarter of 1995 to approximately $3.9
million for the first quarter of 1996. As a percentage of total revenue,
product revenue decreased from approximately 92% for the first quarter of 1995
to approximately 85% for the first quarter of 1996 while service revenue
increased from approximately 8% for the first quarter of 1995 to approximately
15% for the first quarter of 1996.
93
The dollar increase in product revenue from 1993 to 1994 was due to increased
unit sales, which FTP believes was attributable in part to additional sales
personnel hired during the third and fourth quarters of 1993 and in part to
product developments, including the release in the third quarter of 1994 of an
enhanced version of FTP's PC/TCP product and of the first product in its OnNet
line. The dollar increase in product revenue from 1994 to 1995 was primarily
due to increased unit sales, which FTP believes resulted primarily from the
establishment of sales support and marketing offices in France, Germany and the
United Kingdom during the first half of 1995 and from product developments,
including the release in the first quarter of 1995 of enhanced versions of both
FTP's OnNet and PC/TCP products. The 1994 to 1995 increase in product revenue
was mainly the result of strong sales increases in the first three quarters of
the year. Product revenue for the fourth quarter of 1995 increased by only 11%
over the prior year period, principally as a result of the effect of the
federal government budgetary uncertainties, which resulted in a decrease in
sales to federal government customers during such quarter, and unexpected
delays in closing several large orders in the U.S. and Europe. In addition,
during the fourth quarter of 1995, FTP began to experience increases in sales
cycles and increased pricing pressure associated with larger orders and
increased competition in the TCP/ICP market. These factors also resulted in a
decrease in total combined revenue from the third to the fourth quarter of 1995
of approximately 9%. The dollar increases in service revenue for 1994 and 1995
were primarily attributable to increased growth in FTP's installed product base
from which such revenues are obtained and revenues resulting from customer
education and training classes held at a customer training facility established
by FTP at its corporate headquarters in the second half of 1993.
While unit sales for the Networking Products Business Unit increased from the
first quarter of 1995 to the first quarter of 1996, product revenue decreased
over such periods, primarily as a result of an increase in the number of
competitors and products offered in the TCP/IP market and lower average unit
sales prices for FTP's products, which FTP believes was attributable to not
only such increased competition but also to an increase in lower-priced or no
cost products introduced by certain of FTP's competitors in the third and
fourth quarters of 1995. In addition, FTP believes that federal government
budgetary uncertainties that existed during 1995 and the first three months of
1996 resulted in a decrease in sales to federal government customers during the
first quarter of 1996 compared to the first quarter of 1995, which also
contributed to the dollar decrease in product revenue. The $6.1 million
increase in service revenue from 1995 to 1996 was again primarily attributable
to increased growth in FTP's installed product base from which such revenues
are obtained. FTP anticipates that service revenue will continue to increase as
a percentage of total revenue as FTP's installed product base continues to grow
and as FTP markets its services more effectively to customers.
International sales consist of export sales, primarily in Europe, Asia
Pacific and Canada. International sales of approximately $23.4 million, $41.0
million and $62.6 million accounted for approximately 40%, 44% and 46% of total
revenue for the years ended December 31, 1993, 1994 and 1995, respectively.
International sales of approximately $15.0 million and $13.1 million accounted
for approximately 44% and 49% of this unit's total revenue for the three months
ended March 31, 1995 and 1996, respectively. The increase in 1994 was
attributable to increased sales to existing and to new international resellers
resulting primarily from FTP's expanded sales and marketing efforts abroad. The
increase in 1995 was primarily attributable to increased unit sales to existing
international resellers and sales to new international resellers, which sales
FTP believes resulted in part from the establishment in the first half of 1995
of local offices in France, Germany and the United Kingdom. The dollar decrease
from the first quarter of 1995 to the first quarter of 1996 was primarily due
to increased competition and lower average unit sales prices as described in
the preceding paragraph. In addition, unfavorable monetary conditions in
certain Latin American countries resulted in a decrease in sales and/or a
decrease in average unit sales prices to customers in those countries, which
also contributed to the dollar decrease in international sales over such
periods. The percentage increase from the first quarter of 1995 to the first
quarter of 1996 was primarily due to the greater effect of increased
competition in the United States than outside the United States and the federal
government budgetary uncertainties described above, as a result of which the
decrease in sales in the United States exceeded the decrease in international
sales.
Total revenue for the initial two quarters of the New Ventures Business Unit
was approximately $4.5 million, of which 95% consisted of product revenue. Of
such amount, approximately $1.9 million (or 42% of its total revenue) consisted
of international sales, primarily in Europe. Total revenue of the New Ventures
Business Unit for the first quarter of 1996 was approximately $2.2 million, of
which approximately 94% consisted of
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product revenue. Of such amount, approximately $0.9 million (or 41% of its
total revenue) consisted of international sales, primarily in Europe, Asia
Pacific and Canada.
FTP prices, invoices and collects international sales primarily in United
States dollars. Accordingly, currency fluctuations have not had a material
effect on FTP's income from operations. FTP anticipates that as the size of
its international customers and contracts increases, it will transact a
greater number of sales in local currencies. If this occurs, currency
fluctuations may in the future have an increased effect on FTP's results of
operations and financial condition.
As indicated under "Risk Factors--Risks Relating to FTP and Firefox--
Declining Average Selling Prices," FTP is facing increasing pricing pressures
from competitors which, as indicated above, has resulted in a decrease in
average unit sales prices for FTP's products. In response to these pressures,
FTP may further reduce the average unit sales prices for its products. If this
occurs and if FTP is unable to increase unit sales or effect offsetting cost
reductions, there may be a material adverse effect on FTP's results of
operations and financial condition. In addition, slowing PC and semiconductor
sales growth has recently been announced by several manufacturers. The
continuation of this slowed sales growth and its impact on the growth of the
networking software market cannot yet be determined; however, if a slow-down
in the growth of the networking software market occurs, there may be a
material adverse effect on FTP's revenue. Additionally, management of FTP
believes that the rapid expansion of its sales and marketing force since
January 1, 1995, from 220 persons at December 31, 1994 to 329 persons at
December 31, 1995 to 375 persons at May 2, 1996, and the opening and expansion
of several new offices outside of the United States during 1995 and early 1996
has resulted in certain inefficiencies in its sales and marketing
organizations. If such inefficiencies cannot be eliminated, FTP will not be
able to take full advantage of the expansion of its sales and marketing
organizations, which may have a material adverse effect on its results of
operations. Furthermore, FTP believes that the federal government budgetary
uncertainties that existed during 1995 and the first three months of 1996 will
continue to impact revenue through the second quarter of 1996, although the
magnitude of that effect cannot yet be determined, and may continue to have an
impact in future periods. FTP's ability to maintain or increase revenue will
be dependent upon its ability to effectively respond to these factors.
Gross Margin
For the Networking Products Business Unit, product gross margin as a
percentage of product revenue was approximately 93%, 93% and 94% in 1993, 1994
and 1995, respectively, and approximately 93% for the first quarter of both
1995 and 1996. The increase from 1994 to 1995 was primarily due to a decrease
in material costs in 1995 associated with increased efficiencies in product
packaging, which decrease was partially offset both by increased costs
associated with releases of enhanced versions of both FTP's OnNet and PC/TCP
products in mid-1995 and by increased amortization costs related to technology
licenses entered into by FTP in 1995 compared to 1994. The gross margin
percentage for the first quarter of 1996 included a decrease in material costs
in 1996 associated with increased efficiencies in product packaging, which
decrease was offset by increases in other costs, primarily those associated
the amortization of technologies licensed or purchased in 1995 and 1996.
Service costs for the Networking Products Business Unit exceeded service
revenue in 1993 and 1994, reflecting FTP's significant investment in technical
support personnel, systems and infrastructure. Service costs in 1993 also
reflect the cost of establishing a customer training facility at FTP's
corporate headquarters. Service revenue for the Networking Products Business
Unit has exceeded service costs for such unit since the third quarter of 1994,
including for the year ended December 31, 1995, primarily as a result of an
increase in FTP's installed product base. For the three months ended March 31,
1995 and 1996, service gross margin as a percentage of service revenue was
approximately 11% and 39%, respectively. This increase is primarily
attributable to an increase in FTP's installed product base from which such
revenues are obtained.
The Networking Products Business Unit's gross margin decreased from
approximately 87% in 1993 to approximately 86% in 1994, primarily as a result
of the increase in service costs associated with FTP's significant investment
in technical support described above. This unit's gross margin increased to
approximately 88% in 1995, primarily as a result of the reduction in product
packaging costs described above and a decrease from the prior year in
technical support expenses as a percentage of total revenue. Gross margin for
this unit decreased from
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approximately 86% in the first quarter 1995 to approximately 85% in the first
quarter of 1996, primarily as a result of the increase in costs associated with
the amortization of technologies licensed or purchased in 1995 and 1996.
The gross margin of the New Ventures Business Unit for its initial two
quarters of operations and for the first quarter of 1996 was approximately 68%
and 45%, respectively.
The gross margins reported above are not necessarily indicative of gross
margin for future periods, which may vary significantly depending on, among
other things, product mix, price competition, technological change, cost
changes and changes in product distribution channels. As noted above under "--
Total Revenue," FTP believes that average unit sales prices for its products
may continue to decrease as the markets for those products continue to become
more competitive, reducing gross margin on those products.
Sales and Marketing
Sales and marketing expenses for the Networking Products Business Unit
increased from approximately $9.5 million in 1993 to approximately $16.7
million in 1994 and approximately $36.7 million in 1995, and from approximately
$7.1 million in the first quarter of 1995 to approximately $10.1 million in the
first quarter of 1996. Such expenses as a percentage of this unit's total
revenue were approximately 16%, 18% and 28% in 1993, 1994 and 1995,
respectively, and approximately 23% and 38% in the first quarter of 1995 and
1996, respectively. The $7.2 million increase and the percentage increase from
1993 to 1994 was primarily due to increased sales and marketing activities and
the opening of FTP's Santa Clara, California sales office in September 1994.
The $20.0 million increase from 1994 to 1995 and the $3.0 million increase from
the first quarter of 1995 to the first quarter of 1996 were primarily the
result of efforts to increase sales through the opening and expansion of
several international and domestic offices beginning in the first quarter of
1995 (including the opening and expansion of offices in Europe and the opening
of offices in Singapore and Japan), increasing the number of sales and
marketing employees, and increasing the levels of advertising, trade show and
international marketing activities. The percentage increases from 1994 to 1995
were also due to such factors. The percentage increase from the first quarter
of 1995 to the first quarter of 1996 was due to both the dollar increase in
such expenses described above and the dollar decrease in revenue over such
periods described under "--Total Revenue" above. FTP expects to continue to
incur significant expenses during 1996 relating to domestic and international
sales and marketing activities and expansion of certain of FTP's international
offices. If the Merger is consummated, FTP expects to incur both
proportionately and incrementally higher sales and marketing expenses in 1996
related to the integration of Firefox. As a result of these factors, sales and
marketing expenses are expected to continue to increase both in dollars and as
a percentage of revenue in 1996.
Sales and marketing expenses for the New Ventures Business Unit, consisting
primarily of personnel and advertising expenses, amounted to approximately $3.9
million for its initial two quarters of operations and approximately $2.4
million for the first quarter of 1996.
Product Development
Product development expenses for the Networking Products Business Unit
increased from approximately $9.4 million in 1993 to approximately $20.5
million in 1994 (which included a $4.0 million non-recurring charge for certain
acquired in-process technology and a $0.8 million non-recurring charge related
to the consolidation of FTP's San Francisco engineering and development
operations into its main engineering and development operations in North
Andover, Massachusetts), and approximately $22.6 million in 1995 (which
included a $1.1 million non-recurring charge for certain acquired in-process
technology), representing approximately 16%, 22% and 17% of this unit's total
revenue for each period, respectively. Excluding the non-recurring charges of
$4.8 million in 1994 and $1.1 million in 1995, product development expenses as
a percentage of this unit's total revenue increased from approximately 16% for
1993 to approximately 17% for 1994 and decreased to approximately 16% for 1995.
For the three months ended March 31, 1995 and 1996, product development
expenses for the Networking Products Business Unit increased from approximately
$5.6 million for the first quarter of 1995 (which included a $1.1 million non-
recurring charge for certain acquired in-process technology) to approximately
$5.9 million for the first quarter of 1996, representing approximately 18% and
22% of this unit's total revenue for each period, respectively. Excluding the
non-recurring charge of $1.1 million in 1995, product development expenses as a
percentage of this unit's total revenue was approximately 14% for the first
quarter of 1995.
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The increase from 1993 to 1994 of product development expenses of the
Networking Products Business Unit as a percentage of its total revenue
(excluding the $4.8 million charges described above) is primarily attributable
to additional compensation expenses incurred in 1994 in connection with an
increase in personnel. The percentage decrease from 1994 to 1995 (excluding the
$4.8 million charges in 1994 and the $1.1 million charge in 1995 described
above) is primarily attributable to the allocation of a portion of FTP's
internal engineering costs to the New Ventures Business Unit beginning in the
third quarter of 1995, and cost savings resulting from the consolidation of
FTP's San Francisco engineering and development operations into its main
engineering and development operations in North Andover, Massachusetts at the
end of 1994, partially offset by an increase in expenses associated with
increases in outside contractors and personnel hired during 1995. The
percentage increase from the first quarter of 1995 to the first quarter of 1996
is the result of both an increase in such expenses over such periods, which was
primarily attributable to additional compensation expenses incurred in 1996 in
connection with increases in the use of outside contractors and the hiring of
personnel during 1995 and the first quarter of 1996, and the decrease in
revenue over such periods described above under "--Total Revenue."
Product development expenses for the New Ventures Business Unit amounted to
approximately $8.1 million for its initial two quarters of operations. Included
in this amount was a charge of $3.7 million in connection with
the joint development and marketing agreement with Open Market described in
Note I of the notes to FTP's historical consolidated financial statements
included elsewhere herein. The remaining $4.4 million of product development
expenses for such period is primarily attributable to personnel-related costs
and fees paid to outside contractors. Product development expenses for this
unit amounted to approximately $14.9 million for the first quarter of 1996,
which included $11.9 million of non-recurring charges for certain acquired in-
process technologies. The remaining $3.0 million of product development
expenses for such period is primarily attributable to personnel-related costs
and fees paid to outside contractors.
FTP expects product development expenses to continue to increase in the
remainder of 1996 as a result of the growing demand of customers for increased
functionality in networking software products as well as the proposed Merger
and the recent acquisition of Campbell Services described above under "--
Overview."
FTP allocates the purchase price of acquired technologies to completed
technology and in-process technology based upon their respective fair values.
Completed technology that has reached technological feasibility is valued using
a risk adjusted cash flow model under which future cash flows are discounted,
taking into account risks related to existing and future markets and
assessments of the life expectancy of the completed technology. In-process
technology that has not reached technological feasibility and that has no
alternative future use is valued using the same method. Expected future cash
flows associated with in-process technology are discounted considering risks
and uncertainties related to the viability of and to the potential changes in
future target markets and to the completion of the products expected to
ultimately be marketed by FTP. Amounts charged to product development expense
for in-process technology are not fully deductible in the same period for tax
purposes.
General and Administrative
General and administrative expenses for the Networking Products Business Unit
increased from approximately $5.6 million in 1993 to approximately $9.4 million
in 1994 and approximately $12.7 million in 1995, representing 10% of this
unit's total revenue for each year. General and administrative expenses for
this unit increased from approximately $2.8 million for the first quarter of
1995 to approximately $4.0 million for the first quarter of 1996, representing
approximately 9% and 15% of total revenue for the first quarter of 1995 and
1996, respectively. The dollar increases in 1994 and 1995 and from the first
quarter of 1995 to the first quarter of 1996 are primarily attributable to
increased staffing and associated expenses to manage and support FTP's growth.
The percentage increase from the first quarter of 1995 to the first quarter of
1996 is also due to such factors as well as to the decrease in revenue over
such periods described above under "--Total Revenue."
General and administrative expenses for the New Ventures Business Unit
amounted to approximately $1.5 million (representing approximately 33% of its
total revenue) and approximately $1.0 million (representing approximately 44%
of its total revenue) for its initial two quarters of operations and for the
first quarter of 1996, respectively.
97
Income from Operations
Income from operations for the Networking Products Business Unit increased
from approximately $26.3 million in 1993 to approximately $33.6 million in
1994 and approximately $43.4 million in 1995, representing approximately 45%
of total revenue for 1993, 36% of total revenue for 1994 and 33% of total
revenue for 1995. Income from operations for this unit decreased from
approximately $11.5 million in the first quarter of 1995 to approximately $2.8
million in the first quarter of 1996, representing approximately 37% and 11%
of total revenue for the first quarter of 1995 and 1996, respectively.
For its initial two quarters of operations, the New Ventures Business Unit
experienced a loss of approximately $10.4 million, which includes the $3.7
million charge described above under "--Product
Development" and total recurring expenses of approximately $11.2 million
(consisting primarily of sales and marketing and product development expenses)
against approximately $4.5 million in total revenue generated by this unit.
For the first quarter of 1996, this unit experienced a loss of approximately
$17.3 million, which includes the $11.9 million charges described above under
"--Product Development" and total recurring expenses of approximately $7.6
million (consisting primarily of sales and marketing and product development
expenses) against approximately $2.2 million in total revenue generated by
this unit. Excluding such charges, the loss for this unit for the first
quarter of 1996 was approximately $5.4 million.
For 1995, combined income from operations (including the results of the New
Ventures Business Unit for its initial two quarters of operations) totaled
approximately $32.9 million, representing approximately 24% of total revenue.
For the fourth quarter of 1995, combined income from operations decreased by
approximately 70%, to approximately $1.9 million from approximately $6.1
million for the third quarter of 1995. This decrease was primarily due to the
decrease in product revenue for the Networking Products Business Unit
described above under "--Total Revenue." Also contributing to such decrease
were increases in sales and marketing, product development and general and
administrative expenses incurred in such quarter to support the increased
levels of sales over 1994 and the anticipated expansion of FTP's business. For
the first quarter of 1996, combined loss from operations (including the
results of the New Ventures Business Unit) totaled approximately $14.4
million. Excluding the $11.9 million charges described above under "--Product
Development," the combined loss from operations for the first quarter of 1996
totaled approximately $2.5 million.
Investment Income
Investment income increased from approximately $0.7 million in 1993 to
approximately $3.1 million in 1994, and approximately $6.2 million in 1995.
Investment income was approximately $1.0 million for the first quarter of both
1995 and 1996. The increase from 1993 to 1994 was due to the placement of
proceeds from FTP's November 1993 and May 1994 public offerings into high
grade tax-free municipal bonds, U.S. government treasury obligations and high
grade corporate obligations. The increase from 1994 to 1995 was primarily
attributable to the placement of additional net cash provided by operating
activities into similar investments.
Provision for Income Taxes
The provision for income taxes for 1993, 1994 and 1995 was approximately
$10.6 million, $13.8 million and $14.5 million, respectively. FTP's effective
tax rate for 1993, 1994 and 1995 was 39.4%, 37.5% and 37.0%, respectively. The
difference between the statutory rate and the effective rate for each year
resulted primarily from the benefits received from FTP's foreign sales
corporation, which was incorporated in late 1993, and research and
experimentation credits. The decreases in effective tax rate are mainly
attributable to relative increases in benefits received from the foreign sales
corporation, tax exempt interest income and research and experimentation
credits.
The provision for income taxes was approximately $4.7 million in the first
quarter of 1995 compared to a tax benefit of approximately $5.0 million in the
first quarter of 1996. FTP's effective tax rate for the first quarter of 1995
and 1996 was 37.5% and 37.0%, respectively. The difference between the
statutory rate and the effective rate resulted primarily from the effects of
FTP's foreign sales corporation in 1995 and 1996 and the benefits received
from research and experimentation credits in 1995. The decrease in effective
tax rate from 1995 to 1996 is mainly attributable to relative increases in
benefits received from FTP's foreign sales corporation and tax exempt interest
income. Because certain of the expenses incurred or to be incurred by FTP in
connection with
98
the Merger and the acquisition of Campbell Services described above under "--
Overview" will not be deductible for federal income tax purposes, FTP
anticipates that the effective tax rate for subsequent quarters of 1996 will
be adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, FTP had an aggregate of approximately $106.1 million in
cash and cash equivalents, short-term investments and long-term investments.
Of this amount, approximately $31.4 million was invested primarily in highly
liquid investments with original maturities of three months or less,
approximately $17.4 million was invested in short-term investments consisting
of U.S. government obligations and commercial paper with maturities of less
than one year and approximately $57.3 million was invested in investments
consisting of U.S. government obligations, commercial paper and municipal
obligations with maturities of greater than one year and in equity
investments.
FTP generated funds from operations of approximately $19.1 million, $36.2
million and $33.5 million in 1993, 1994 and 1995, respectively, and
approximately $11.3 million and $7.6 million in the first quarter of 1995 and
1996, respectively. FTP made capital expenditures of approximately $5.0
million, $12.4 million and $11.9 million in 1993, 1994 and 1995, respectively,
and approximately $1.5 million and $3.2 million in the three months ended
March 31, 1995 and 1996, respectively. Included in the capital expenditures
for 1994 and 1995 were payments for acquired technologies and related assets
in the amounts of $5.4 million and $3.1 million, respectively. Also
contributing to the increase in 1994 were capital expenditures related to the
opening and expansion of FTP's headquarters offices in Andover, Massachusetts.
The increase in capital expenditures in the first quarter of 1996 is primarily
the result of capital expenditures related to the opening and expansion of FTP
offices in Europe and Asia Pacific.
Accounts receivable, net, totaled approximately $10.2 million at December
31, 1993, approximately $16.6 million at December 31, 1994, approximately
$30.8 million at December 31, 1995 and approximately $22.0 million at March
31, 1996. These increases are primarily attributable to increased unit sales
and, for 1995, a relative increase in the number of units shipped during the
last month of the fourth quarter compared to the fourth quarter of 1994. FTP
believes that it may continue to experience a relative increase in number of
units shipped during the last month of each quarter as it continues to grow,
as is typical in the software industry. In addition, as the size of FTP's
international customers and contracts has grown and competition for contracts
increased, the number of its contracts providing for the longer payment terms,
particularly in the international markets, has increased. As a result of such
factors, FTP's days sales outstanding have increased from 50 at December 31,
1993 to 55 at December 31, 1994 to 65 at December 31, 1995. See "Risk
Factors--Risks Relating to FTP and Firefox--International Sales." The decrease
in accounts receivable from December 31, 1995 to March 31, 1996 is primarily
attributable to a decrease in revenue in the first quarter of 1996 and to the
payment in early 1996 of a substantial portion of the accounts receivable
outstanding at December 31, 1995.
In March 1995, FTP acquired substantially all of the assets of Keyword
Office Technologies Ltd. for a net cash purchase price of approximately $2.4
million. As noted above under "--Overview," in February 1996, FTP acquired the
Mariner product line of Network Computing Devices, Inc. for a net cash
purchase price of approximately $7.4 million, in March 1996, FTP acquired
substantially all of the assets of HyperDesk Corporation for a net cash
purchase price of approximately $6.3 million, and in April 1996, FTP acquired
Campbell Services by merger for a net cash purchase price of approximately $15
million.
In connection with the 1996 reorganization described above under "--
Overview," FTP expects to record a restructuring charge during the second
quarter of 1996, currently estimated to be between $1 million and $2 million,
which includes severance payments and other related expenses expected to be
incurred in connection with such reorganization.
To date, inflation has not had a material impact on FTP's financial results.
Looking forward, FTP believes that its available cash, short-term
investments and expected cash flow from operations will be sufficient to fund
FTP's operations at least through 1996. As noted above under "--Overview," FTP
intends to fund its future acquisitions through its cash from operations, the
issuance of shares of its common stock or other securities, or a combination
thereof. There can be no assurance, however, that the capital resources
necessary to continue to fund its operations or such acquisitions will be
available or that, if available, such resources will be on terms acceptable to
FTP.
99
On March 14, 1996, a class action lawsuit was filed in the United States
District Court for the District of Massachusetts, naming FTP, certain of its
officers and two former officers as defendants. The lawsuit alleges that the
defendants publicly issued false and misleading statements and omitted to
disclose material facts necessary to make such statements not false and
misleading, which the plaintiffs contend caused an artificial inflation in the
price of the FTP Common Stock. Specifically, the complaint alleges that the
defendants knowingly concealed adverse facts and made false or misleading
forward and non-forward looking statements concerning operating results and
financial condition of FTP, the effects of the July 1995 corporate
restructuring and changing competitive factors in FTP's industry. The lawsuit,
which is purportedly brought on behalf of a class of purchasers of the FTP
Common Stock during the period from July 14, 1995 to January 3, 1996, alleges
violations of Section 10(b) and Section 20(a) of the Exchange Act and Rule
10b-5 thereunder and seeks relief in the form of unspecified compensatory
damages, costs and expenses and such other relief as the Court deems proper
and just. FTP has reviewed the allegations in the lawsuit, believes them to be
without merit, and intends to defend itself and its officers vigorously. In
order to support an adequate defense, FTP may be required to expend
substantial sums for legal and expert fees and costs. The cost of defending
the litigation and the outcome of the litigation are uncertain and cannot be
estimated. If the lawsuit were determined adversely to FTP, FTP could be
required to pay a substantial judgment. See "Risk Factors--Risks Relating to
FTP and Firefox--Litigation Against FTP" and "Recent Developments."
Following the Merger, Firefox will operate as a wholly-owned subsidiary of
FTP. For information regarding the Firefox Litigation and the indemnification
to be provided to FTP, Firefox as the surviving corporation and certain other
persons in respect thereof pursuant to the Merger Agreement, see "Risk
Factors--Risks Relating to FTP and Firefox--Litigation Against Firefox" and
"Recent Developments."
INFORMATION REGARDING FIREFOX
GENERAL
Firefox develops, markets and supports server-based internetworking
connectivity and communications software. Firefox's products provide
connectivity for LANs running Novell NetWare and allow work groups to access
local and remote computing resources, including the Internet, across different
internetworking protocols and client operating systems. Firefox's products are
centrally configured on the server and integrated with the NOS, thereby taking
advantage of the management and security features already implemented in the
NOS and enhancing control, administration and security of the LAN.
Forward-looking statements made in this section and elsewhere in this Joint
Proxy Statement/Prospectus are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. All forward-looking
statements involve risks and uncertainties, and actual results could differ
materially from those set forth in the forward-looking statements contained
herein as a result of competition, technological change, risks of integration
of the two companies, increased demands on management as a result of changes
in distributor terms or performance or other risks described under "Risk
Factors."
INDUSTRY BACKGROUND
The fundamental building block of the enterprise is the LAN. A LAN typically
consists of at least one central computer that acts as a server for a
workgroup consisting of multiple client PCs. A NOS running on the server
manages the components of the LAN and provides access security for the LAN.
The LAN allows individual users to share data, applications and computing
resources. An enterprise benefits not only from leveraging its computing
resources among multiple users and enabling users to communicate, but also
from its ability to manage the services provided on the LAN by centralizing
installation, administration, maintenance and security in the NOS.
An enterprise typically connects and integrates a LAN with computing
resources located outside of the LAN. Many enterprises continue to use legacy
minicomputer and mainframe systems as an important part of their enterprise
network and connect these systems with their LANs. Similarly, many enterprises
connect open-system UNIX workstations to their LANs. Increasingly, enterprises
connect LANs with computing resources located outside of the enterprise such
as the Internet.
100
Communications among LANs and other computing resources, or internetworking,
is a significant technical challenge due to the multitude of computing
standards and communications protocols likely to be used within and across
enterprises. Client PCs can run different operating systems, the most popular
of which are Windows, DOS and MacOS, as well as different client-server
applications, such as different electronic mail applications. LANs can run
different NOSs, the most widely used of which is Novell NetWare. LANs,
workstations, minicomputers and mainframes can use different internetworking
communications protocols, the most popular of which is TCP/IP (Transmission
Control Protocol/Internet Protocol). This complexity places a premium on
efficient management of internetworking.
The growing internetworking needs of many enterprises have been addressed
with solutions that provide some or all of the client PCs in a LAN with stand-
alone communications applications that are only nominally, if at all, under
the control of the NOS. While the stand-alone client-based approach to
internetworking can provide the individual user with the desired
communications functionality, it does so at a significant cost to the
enterprise, which loses many of the benefits of server-based services provided
under the control of the NOS. Perhaps most importantly, stand-alone
communications applications offer limited control over access security, as
these applications are only nominally administered by the NOS and yet allow
access into and out of the LAN and, ultimately, the enterprise network. An
enterprise also forgoes the efficiencies of centralized installation,
configuration and maintenance available from services under the control of the
NOS, as installation, configuration and maintenance of stand-alone client-
based communications applications typically must be done on a PC-by-PC basis.
Finally, the server-based approach permits reliability and resiliency
techniques, such as automatic alternate routing between servers and redundant
server capability, thereby helping to protect the enterprise against the
consequences of communications breakdowns.
The growth of Internet communications has highlighted the limitations of
stand-alone client-based communications applications. A stand-alone connection
to the Internet is a relatively unregulated entry point into the LAN and
ultimately the enterprise network. Therefore, network security may be
compromised. In addition, the cost to the enterprise of acquiring and
administering stand-alone applications on a PC-by-PC basis is significant,
particularly as users increasingly access the Internet. The network
administrator cannot control the user's access to the Internet to ensure that
the user is only accessing resources that are relevant to the enterprise
mission.
The growing enterprise demand for internetworking communications and the
shortcomings of client-based communications applications for the enterprise
have created the opportunity for server-based internetworking communications
solutions for the enterprise that are provided as a shared LAN workgroup
service under the centralized management of the NOS.
THE FIREFOX SOLUTION
Firefox provides server-based internetworking communications software to a
LAN workgroup, rather than just to individual users. These solutions allow the
client PC to communicate across a wide range of physical networks, computing
platforms and operating systems without grappling with the complexities of the
underlying standards and protocols, while enhancing the organization's ability
to manage these communications in a consistent, efficient and secure manner
through the NOS.
Firefox products operate on a server running the Novell NetWare NOS and
support either Firefox's software communications protocol stacks or third
party stacks to allow end users running a variety of front-end applications to
access computing resources outside the LAN. Firefox's products utilize the
management and security attributes of NetWare and provide internetworking
communications services to LAN users as a NOS-controlled service.
Firefox's server-based Internetworking communications software is designed
to address the needs of three specific markets. Firefox's connectivity
products enable Novell NetWare LAN work groups to access applications and
services on workstations, minicomputers, mainframes and the Internet.
Firefox's client-server products enable third party client-server applications
running on Novell NetWare LANs to integrate with application servers running
on mainframe and minicomputer host systems. Firefox's current messaging
product is an electronic mail system enabling Novell NetWare LANs to connect
to UNIX mail systems and the Internet.
101
The key attributes of Firefox's server-based internetworking communications
solutions are:
. Designed for NetWare and Major Client PC Operating Systems--To date, all
of Firefox's products are designed to work with Novell NetWare, the most
widely used LAN NOS. Firefox has designed its products to be tightly
integrated with NetWare to take advantage of the management and security
functionality already implemented in NetWare and familiar to the system
administrator. Novell estimates that in 1994, NetWare connected
approximately 40.0 million individual PCs and 2.5 million network
servers. All of Firefox's products to date operate with DOS and Windows,
and its NOV*IX products also operate with MacOS.
. Enhanced Network Administration and Security--Firefox's products are
installed on the server, and the client software is automatically
downloaded to the client PC whenever needed. These products are
centrally configured from the server by a system administrator and take
advantage of the management and security functionality already
implemented in the NOS and familiar to the system administrator. These
products enable the system administrator to control the resources
available to LAN users by allocating network addresses, defining hosts
and services accessible to users, configuring the communication links to
host computers and maintaining proper LAN security by centrally
controlling access to the LAN.
. Preservation and Enhancement of Investment in Client Applications--
Firefox not only offers connectivity solutions that include both client
and server components, but also separately offers server connectivity
software. The server products are aimed at supporting third party
distributed systems and distributed databases as well as certain third
party stand-alone terminal emulation and file transfer applications,
such as, for example, certain applications from NetManage and FTP. This
approach allows an enterprise to preserve its investment in client
solutions while increasing the value of these solutions to the
enterprise by placing them under NOS management.
. Flexible Product Architecture--Firefox's products are designed to
support most major internetworking protocols. Firefox's approach has
been to implement common core functionality in each of its products and
then to add separate protocol-specific software. This design approach
has permitted Firefox to adapt its core technology to address different
protocols, such as TCP/IP, OSI and DEC LAT.
. Multi-Server Enterprise Solutions--Firefox's software is designed to
operate in and take advantage of the multi-server environment that is
characteristic of many enterprise networks. The ability to accommodate
multiple servers allows Firefox's products to utilize reliability and
resiliency techniques such as automatic routing between servers, load
balancing and redundant server capability.
THE FIREFOX STRATEGY
Key elements of Firefox's strategy include the following:
. Focus on Server-Based Communications Solutions--In response to the
growth of internetworking and the enterprise's need to efficiently and
securely manage internetworking, Firefox believes the most important
ongoing element of its strategy is to continue to focus on
communications solutions providing the management and security benefits
of server-based services. Firefox's initial products address the
connectivity market, while recent products address the emerging client-
server market and the messaging market.
. Continue to Offer Products Tightly Integrated with the NOS--Firefox has
designed its products to be tightly integrated with the NOS, so as to
take advantage of the management and security functionality already
implemented in the NOS and familiar to the system administrator. To
date, all of Firefox's products have been designed for NetWare. As other
NOSs gain market acceptance, Firefox intends to develop server-based
products designed for these NOSs. In particular, Firefox is currently
developing products designed to be integrated with Windows NT, but there
can be no assurance that such products will be developed in a timely
manner or that such products will achieve market acceptance.
. Expand to Internet, Messaging and Other Product Offerings--Firefox
introduced products addressing Internet communications in late 1994.
Given the substantial increase in demand for Internet products over the
past year, Firefox believes that the introduction of its Internet
products is an important element
102
of its strategy to expand its product offerings. Firefox plans to
continue to build on its connectivity technology to provide client-
server products and enterprise backbone messaging products. Firefox
believes that these client-server and messaging products may play an
increasingly important role in future periods.
PRODUCTS
Firefox offers three families of server-based internetworking communications
software for the enterprise: connectivity products, client-server products and
messaging products. Firefox's connectivity products enable Novell NetWare LAN
work groups to access applications and services on workstations,
minicomputers, mainframes and the Internet. Firefox's client-server products
enable client-server applications running on NetWare LANs to integrate with
mainframe and minicomputer host system application servers. Firefox's current
messaging product is an electronic mail system enabling NetWare LANs to
connect to UNIX mail systems and the Internet. All of Firefox's products to
date incorporate the same core technology.
Firefox has derived substantially all of its revenues to date from sales of
its connectivity products, and, specifically, sales of Firefox's NOV*IX
products have accounted for a majority of these revenues. Firefox expects that
NOV*IX and other connectivity products will continue to account for
substantially all of Firefox's revenues for the foreseeable future. A decline
in demand for Firefox's connectivity products as a result of competition,
technological change or other circumstances would have a material adverse
effect on Firefox's business and results of operations.
The key features of Firefox's server-based products are:
Centralized Installation, Configuration, Administration and Security--
Firefox's products are installed on the server and the client software is
automatically downloaded to the client PC whenever needed. These products
are centrally configured from the server by a system administrator and take
advantage of the management and security functionality already implemented
in the NOS and familiar to the system administrator. These products enable
the system administrator to control the resources available to LAN users by
allocating network addresses, defining hosts and services accessible to
users, configuring the communication links to host computers and
maintaining proper LAN security by centrally controlling access to the LAN.
No Protocol Stacks in the Client--Firefox products centralize the
communications protocol handling on the NetWare server. Therefore, multiple
protocol stacks are not required on the client PC, reducing the software
overhead on the PC.
Flexible Network Addressing--Firefox products enable all of the users in
a NetWare LAN workgroup to share a single network address. This reduces
address usage, centralizes address management and simplifies system
configuration and maintenance. Alternatively, Firefox products can assign
separate workgroup addresses by NetWare Login Username. This means that a
user can get their specific addressing--or User Profile--at any PC on the
LAN, no matter where they log in.
Multi-Server Capabilities--Firefox products can run on any server in the
network. This multi-server capability allows built-in reliability and
resiliency, including alternate routing from workstation to server on
failure, alternate routing between servers and hosts and a built-in hot
standby capability.
Connectivity Products. Firefox's connectivity products enable Novell NetWare
LAN work groups to access applications and services on workstations,
minicomputers, mainframes and the Internet. Firefox's connectivity products
employ a client-server architecture with the server portion providing
centralized management and security features and the client portion providing
terminal emulation, file transfer and other client services.
103
The following are Firefox's connectivity products:
CLIENT PC
TRANSPORT CLIENT OPERATING END USER
PRODUCT MARKET PROTOCOL APPLICATIONS SYSTEM LICENSE FEE*
------- -------------- --------- -------------- --------- ------------
NOV*IX Elite............ NetWare LANs TCP/IP Terminal Windows, $1,425
to UNIX and emulation and DOS and
UnixWare host file transfer MacOS
system
NOV*IX For WorkGroups... Net Ware LANs TCP/IP Terminal Windows $1,895
to UNIX, IBM emulation, and DOS
and DEC VMS file transfer,
host system printing, UNIX
command
interface and
IP tools
NOV*IX For Internet..... Net Ware LANs TCP/IP Terminal Windows $1,575
to the emulation, and DOS
Internet file transfer,
mail, news,
Mosaic and
gopher
NOV*OS Elite............ Net Ware LANs OSI Mainframe Windows $4,855
to ICL/Fujitsu terminal and DOS
and other OSI emulation and
host systems file transfer
NOV*AX Elite............ Net Ware LANs DEC LAT DEC VAX Windows $3,370
to DEC VAX terminal and DOS
host system emulation
- --------
* Firefox's products are licensed by the number of concurrent users per
server. NOV*IX and NOV*OS products are licensed in increments of 5, 10, 25,
50, 100 and 250 users and the license fees shown are for 5 user licenses.
The NOV*AX product is licensed in increments of 16, 32, 64 and 128 users,
and the license fee shown for this product is for a 16-user license.
Firefox offers discounts from these list license fees based on quantities
ordered and other factors.
In December 1992, Firefox entered into an agreement with Novell pursuant to
which Firefox became an OEM for Novell's LAN WorkPlace client software.
Firefox currently offers the LAN WorkPlace product as part of its NOV*IX for
WorkGroups product.
Client-Server Products. Firefox's client-server products enable client-
server applications running on NetWare LANs to integrate with mainframe and
minicomputer host system application servers. Firefox's client-server products
allow the enterprise to extend the management and security advantages of
Firefox's server-based connectivity technology to third party client software.
These products allow the enterprise not only to preserve its investment in
third party software, but also to increase its value to the enterprise by
placing the software under NOS management.
These products consist of server communications software and a variety of PC
interfaces and drivers and application programming interfaces. Firefox client-
server products work with client applications in any language, allowing
Firefox to enter foreign language markets by bundling Firefox client-server
products with local language front-end software.
104
The following are Firefox's client-server products:
CLIENT PC
TRANSPORT CLIENT OPERATING END USER
PRODUCT MARKET PROTOCOL APPLICATIONS SYSTEM LICENSE FEE*
------- ------------- --------- -------------- ------------ ------------
NOV*IX For Client- Support TCP/IP X/Windows, SQL Windows, DOS $1,225
Server................. client-server systems, and
applications TUXEDO, OLTP Macintosh
for UNIX, IBM communication
and DEC VAX applications
host systems and third
and host party terminal
systems on emulations
the Internet
NOV*OS For Client- Support OSI Distributed Windows and $2,910
Server................. client-server databases and DOS
applications terminal
for emulators
ICL/Fujitsu
and other OSI
host systems
NOV*AX For Client- Support third DEC LAT Communication Windows and $1,625
Server................. party applications DOS
communication with terminal
applications emulators
for DEC VAX
host systems
- --------
* Firefox's products are licensed by the number of concurrent users per
server. NOV*IX and NOV*OS products are licensed in increments of 5, 10, 25,
50, 100 and 250 users and the license fees shown are for 5 user licenses.
The NOV*AX product is licensed in increments of 16, 32, 64 and 128 users,
and the license fee shown for this product is for a 16-user license.
Firefox offers discounts from these list license fees based on quantities
ordered and other factors.
Messaging Products. Firefox began shipping its first messaging product,
NOV*IX Mail, in January 1995 and to date has not realized material revenues
from this product. This product is designed to address the NetWare-to-UNIX and
NetWare-to-Internet electronic mail marketplaces. This product provides a
server-based electronic mail system and therefore offers all of the benefits
of Firefox's connectivity products, including centralized installation and
administration, addressing flexibility and secure addressing allowing both
inbound and outbound security. NOV*IX Mail eliminates the need for an
organization to have a UNIX system to run an Internet mail service.
NOV*IX Mail is available as a complete mail system with both server and
client elements. NOV*IX Mail is also available as a server-only system without
any Firefox mail client software. This allows NOV*IX Mail to support third-
party WINSOCK-compliant client mail applications, including either
commercially available products or mail applications downloaded from the
Internet. Firefox's five-user list license fee for end-users for NOV*IX Mail
is $1,250 for the client-server version and $1,050 for the server-only
version, with specific fee amounts depending on quantities ordered and other
factors.
Firefox is developing OSI compliant messaging and directory systems for the
UnixWare and NetWare platforms. These products are being designed to
complement NOV*IX Mail, which is based on the UNIX and Internet protocol for
electronic mail, SMTP (Simple Mail Transport Protocol), with products that
conform to the OSI messaging and directory standards (X.400 and X.500).
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Firefox's OSI messaging and directory products are being designed to address
the government and corporate markets where electronic messaging backbones are
being implemented to support any messaging based technology, including
electronic mail, electronic data interchange (EDI) and software distribution.
Firefox's OSI products are being designed to offer gateway, mail translation
and directory synchronization capabilities to LAN-based servers running PC LAN
mail systems, such as Microsoft Mail, Lotus cc:Mail and Novell's MHS, and to
connect these systems to both OSI and TCP/IP-based mail backbones and public
services. There can be no assurance that Firefox will be successful in
developing new messaging products on a timely basis, or that such new products
will achieve market acceptance.
END USERS
Users of Firefox products include corporations in a wide variety of
businesses, federal and local governments, and educational institutions.
SALES AND MARKETING
Firefox sells its products both directly to end users and indirectly through
distributors and other sales channels. To date, Firefox has primarily
conducted its direct sales activities in the United Kingdom and the United
States. Firefox often conducts its direct sales activities in coordination
with its sales channels and often fulfills orders resulting from direct sales
activities through the sales channels.
Firefox has relationships with distributors, systems integrators and value-
added resellers in each of its geographic markets. These distributors include
Azlan Technology plc and Sphinx Level V in the United Kingdom and TechData,
GBC/Vitek, IBM, Waytech and Access Graphics in the United States. Firefox's
agreements with these organizations generally are non-exclusive and provide
for Firefox's sale of products to these organizations at a negotiated discount
from suggested list price. Firefox generally allows its distributors to
exchange unsold products for other products and provides inventory price
protection in the event of price reductions by Firefox. While Firefox provides
allowances for projected returns and price protection, there can be no
assurance that allowances will be sufficient to offset product returns and
price protection in the future. Firefox is typically obligated under its
distribution agreements to provide cooperative advertising funds to the
distributor based on the distributor's purchase of Firefox's products. In
1993, ICL accounted for 17% of Firefox's net revenues, and in 1994, GBC/Vitek
accounted for 21% of Firefox's net revenues. Firefox's agreement with
GBC/Vitek contains terms substantially similar to its agreements with its
other distributors.
Sales in the United States accounted for approximately 18%, 41% and 45% of
Firefox's revenues in 1993, 1994 and 1995, respectively; sales in the United
Kingdom accounted for approximately 68%, 40% and 39% of Firefox's revenues in
1993, 1994 and 1995, respectively; and sales in the rest of the world
accounted for 14%, 19% and 16% of Firefox revenues in 1993, 1994 and 1995,
respectively. Firefox expects that sales in the United States and the United
Kingdom will continue to account for a substantial majority of Firefox's
revenues for the foreseeable future. There can be no assurance that Firefox
will be able to achieve significant penetration of the United States, United
Kingdom or other markets.
Firefox's marketing activities are designed to increase awareness among
enterprises of the advantages of server-based internetworking. In addition to
securing key reference accounts, Firefox's marketing activities include
cooperative advertising, sponsorship of educational seminars, participation in
trade shows worldwide, involvement in industry seminars and conferences,
advertising, public relations and publication of technical articles.
Firefox conducts its sales and marketing activities from its offices in the
United Kingdom and the United States. The Solihull, United Kingdom office is
primarily responsible for sales and marketing in Europe including the United
Kingdom, Germany and the Benelux and Scandinavian nations, the Middle East and
Africa (principally South Africa), and it also has offices in Germany and
Sweden to support sales and marketing efforts in those regions. The San Jose,
California office is primarily responsible for sales and marketing in North
and
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South America and the Pacific Rim. Firefox also has offices in Washington,
D.C. and Philadelphia to support Firefox's sales and marketing efforts to the
United States Federal Government and in the eastern United States. As of
December 31, 1995, Firefox's sales and marketing organization consisted of 35
employees in the United Kingdom, Germany and Sweden and 32 employees in the
United States.
CUSTOMER SUPPORT AND SERVICE
Firefox provides both pre-sales and post-sales end-user support. Firefox's
support operations are staffed by experienced engineers who handle most
support calls by telephone. Firefox's support operations also provide end-
user, distributor and reseller training. Firefox has support operations in
Solihull, United Kingdom and San Jose, California.
Firefox provides a 90-day post-sale warranty for its products and sells
annual maintenance contracts. To date, costs associated with warranty claims
have not been material. Customers with maintenance contracts receive full
telephone support service, software updates and bug fixes. Firefox allows its
customers and end users to access support services by telephone, electronic
mail and a bulletin board system, and has a support service on the World Wide
Web.
PRODUCT DEVELOPMENT
Firefox's product development efforts are focused on enhancing its existing
products and developing and introducing new products in a timely fashion to
meet a wide range of customer needs. Firefox's products are designed to
support most major internetworking protocols. Firefox's approach has been to
implement common core functionality in each of its products and then add
separate protocol-specific software. This design approach has allowed Firefox
to adapt its core technology to address different protocols, such as TCP/IP,
OSI and DEC LAT.
Firefox currently plans to introduce new products and product enhancements
over the next year, including additional products offering NetWare to TCP/IP
connectivity and messaging products. In addition, Firefox is currently
developing products designed to be integrated with Windows NT. There can be no
assurance that Firefox's products will be portable to new and different NOSs
and client operating systems, if at all, without significant investments of
resources. The failure to port its products to major NOSs or client operating
systems on a timely basis, together with the expenditure of resources
associated with related development efforts, could materially and adversely
affect Firefox's results of operations. Any failure by Firefox to anticipate
or respond adequately to changes in technology and customer preferences, or
any significant delays in product development or introduction, would have a
material adverse effect on Firefox's business, financial condition and results
of operations.
Firefox's products include both internally developed technology and
technology acquired or licensed from other parties. For instance, Firefox has
licensed Internet tools from Spyglass, FineLine and INEL, mail and messaging
technology from Data Connection and Unipalm and client software (LAN
WorkPlace) from Novell. Firefox is to a certain extent dependent upon such
third parties' ability to enhance their current products, to develop new
products on a timely and cost-effective basis that will meet changing customer
needs and to respond to emerging industry standards and other technological
changes. There can be no assurance that Firefox would be able to replace the
functionality provided by the third party software currently offered in
conjunction with Firefox's products in the event that such software becomes
unavailable to Firefox or obsolete or incompatible with future versions of
Firefox's products, and the absence of that functionality could have a
material adverse effect on Firefox's business, financial condition and results
of operations.
As of December 31, 1995, Firefox had 35 people employed in research,
development and engineering, 34 of whom were located in Firefox's Solihull
offices in the United Kingdom. During 1993, 1994 and 1995, Firefox's research
and development expenses were $948,000, $1,428,000 and $2,534,000,
respectively. Firefox anticipates that it will commit substantial resources to
research and development in the future.
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COMPETITION
The networking software market is intensely competitive and characterized by
rapid changes in technology and evolving standards. In the market for
connectivity products, Firefox competes primarily with vendors of stand-alone,
client-based connectivity solutions such as NetManage and FTP, vendors of LAN
gateways and vendors supporting Novell's IPX/SPX protocols directly on host
systems. In the market for client-server products, Firefox competes primarily
with vendors of stand-alone, client-based solutions and of LAN gateways. With
respect to Firefox's messaging and directory services products under
development, Firefox expects to compete primarily with vendors of proprietary
mail solutions that incorporate SMTP gateways, such as Microsoft, Lotus and
Novell. Firefox expects to encounter competition from new entrants selling
server-based solutions.
In the future, providers of major NOS and client operating system products
may increasingly seek to incorporate in their products functionality similar
to that provided by Firefox's connectivity products. In particular, Microsoft
has incorporated internetworking connectivity and communications software in
its Windows 95 operating system, which may reduce the incremental value of
Firefox's product offerings to enterprises which adopt Windows 95. To the
extent that Microsoft enhances the internetworking capabilities of Windows 95,
this effect may increase. Further, Novell and other providers of NOSs
currently offer protocol stacks within their NOSs, and if they were to add
applications to their network operating systems offering functionality
competitive with that of Firefox's products, sales of Firefox's products could
be adversely affected. There can be no assurance that market uncertainty
relating to Novell's product plans, the introduction of new products by
Novell, or other actions by Novell, will not render Firefox's products
noncompetitive or obsolete or that Novell will continue to cooperate with
Firefox. In addition, in connection with the development and enhancement of
certain of its products, Firefox has in the past and expects in the future to
receive pre-release access to certain of Novell's products. There can be no
assurance, however, that Novell will continue to make such pre-release access
available, and any discontinuance could have an adverse effect on Firefox's
ability to provide timely enhancements to its products that are to some extent
dependent upon Novell's products.
Firefox's server-based solutions have been designed to run certain
applications in third-party client connectivity software, and therefore the
Firefox NOV*IX product is able to run the software of most of Firefox's
competitors offering PC-centric solutions. As a result, Firefox has
established relationships with some of these competitors. For instance, ICL is
an OEM for Firefox's NOV*OS and NOV*IX product lines, which are distributed
worldwide by ICL through its standard price catalog.
PROPRIETARY RIGHTS
Firefox relies primarily on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. Firefox seeks to protect its software,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. Firefox presently has no patents
or patent applications pending. Despite Firefox's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of
Firefox's products or to obtain and use information that Firefox regards as
proprietary. Policing unauthorized use of Firefox's products is difficult,
and, while Firefox is unable to determine the extent to which piracy of its
software exists, software piracy can be expected to be a persistent problem.
The laws of some foreign countries do not protect Firefox's proprietary rights
to as great an extent as do the laws of the United States, and because of
Firefox's significant international presence, there can be no assurance that
Firefox will be able to protect its proprietary rights in the jurisdictions
into which it sells its products. There can be no assurance that Firefox's
means of protecting its proprietary rights will be adequate or that Firefox's
competitors will not independently develop similar technology.
In the future, Firefox may receive communications from third parties
asserting Firefox products infringe, or may infringe, the proprietary rights
of third parties, seeking indemnification against such infringement or
indicating that Firefox may be interested in obtaining a license from such
third parties. Such litigation could result in substantial costs and diversion
of resources and could have a material adverse effect on Firefox's
108
business and results of operations. If any claims or actions are asserted
against Firefox, and Firefox were required to seek a license to a third
party's intellectual property, there can be no assurance that Firefox would be
able to acquire such a license on reasonable terms or at all. Should
litigation with respect to any such claims be commenced, such litigation could
be extremely expensive and time consuming and could materially and adversely
affect Firefox's business and results of operations.
EMPLOYEES
As of December 31, 1995, Firefox and its subsidiaries collectively employed
91 persons outside of the United States, of whom 34 were primarily engaged in
research and development activities, 13 in finance and administration and 44
in sales, marketing, customer support and related activities. As of December
31, 1995, Firefox or its wholly owned subsidiary, Firefox (U.S.) Inc.,
employed 58 persons in the United States, of whom one was primarily engaged in
research and development activities, 14 were engaged in finance and
administration and 43 in sales, marketing customer support and related
activities. None of Firefox's employees is currently represented by a labor
union. Firefox considers its relations with its employees to be good.
FACILITIES
Firefox's principal offices are located in Santa Clara, California under a
lease that will expire July 31, 2002. Firefox's principal research and
development facilities and European sales and marketing offices are located in
Solihull, United Kingdom and are under a lease that will expire in December
1996. In addition, Firefox maintains a research and development facility in
Luton, United Kingdom, and sales offices in the Washington, D.C. area,
Philadelphia, Sweden and Germany.
LITIGATION
On February 23, 1996, a class action lawsuit was filed in the United States
District Court for the Northern District of California, San Francisco
Division, naming Firefox and certain of its officers and directors as
defendants. The lawsuit alleged that the defendants misrepresented or failed
to disclose material facts about Firefox's operations and financial results,
which the plaintiffs contend resulted in an artificial inflation of the price
of the Firefox Common Stock. The suit was purportedly brought on behalf of a
class of purchasers of Firefox's stock during the period from August 3, 1995
to January 2, 1996. The complaint alleged claims for violation of Section
10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder and sought
relief in the form of unspecified compensatory damages, pre- and post-judgment
interest, attorneys' and expert witness fees and such extraordinary, equitable
and/or injunctive relief as permitted by law, equity and the federal statutory
provisions under which the suit was brought. Specifically, the complaint
alleged that each of the defendants knew or had access to allegedly material
adverse non-public information about Firefox's financial results and business
conditions which allegedly was not disclosed, improperly recognized certain
revenues and failed to keep adequate reserves and participated in drafting,
reviewing and/or approving alleged misleading statements, releases, analyst
reports and other public representations, including disclaimers and warnings,
of and about Firefox. On June 5, 1996, the District Court entered an order
dismissing plaintiffs' complaint. Certain of plaintiffs' claims that alleged
Firefox was responsible for false and misleading analyst reports, Firefox
statements and financial statements were dismissed with leave to amend on the
grounds that as to each of these types of statements, the complaint had to
failed plead the false or misleading statements with the specificity required
by Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation
Reform Act, and/or that plaintiffs failed to allege facts giving rise to a
strong inference that defendants acted intentionally or recklessly. In
addition, certain of plaintiffs' claims that warnings and disclosures in
Firefox's Form 10-Qs were false and misleading were dismissed with prejudice.
Because the District Court dismissed the claims in the complaint based on
violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, the
court also dismissed with leave to amend the "controlling person" liability
claim alleged under Section 20(a) of the Exchange Act against John A.
Kimberley, which requires adequate allegations that the "controlled person"
(here, allegedly, Firefox) was liable under Section 10(b) or Rule 10b-5. The
District Court gave plaintiffs until July 5, 1996 to amend the complaint.
Plaintiffs have advised that they will amend the complaint and have requested
that defendants stipulate to an extension to July 22, 1996 for them to file
the amended complaint. Defendants have so stipulated
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in return for an extension to September 4, 1996 to respond to the amended
complaint. Firefox has reviewed the allegations in the lawsuit, believes them
to be without merit, and intends to defend itself and its officers and
directors vigorously if the complaint is amended. In order to support an
adequate defense, Firefox may be required to expend substantial sums for legal
and expert fees and costs. The cost of defending the litigation and the
outcome of the litigation are uncertain and cannot be estimated. If the
lawsuit were determined adversely to Firefox, Firefox could be required to pay
a substantial judgment. See "Risk Factors--Risks Relating to FTP and Firefox--
Litigation Against Firefox" and "Recent Developments."
A former employee filed a complaint against Firefox on March 23, 1995 in the
Superior Court of the State of California, County of Santa Clara, claiming
rights to compensation and punitive damages in connection with the cessation
of his employment with Firefox. Firefox has demurred to the complaint, but no
resolution of this matter has been obtained or is likely to occur in the near
future.
A former U.K. employee filed suit against Firefox in July 1995 in the German
court in Saarlouise. The court has accepted jurisdiction, and a hearing of the
merits of the case has been set for April 12, 1996.
Although litigation is inherently uncertain, Firefox believes that such
employment claims are without merit and that the ultimate resolution of these
matters will not be material to its future financial position or results of
operations, and Firefox intends to defend against these claims vigorously.
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FIREFOX MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Firefox develops, markets and supports server-based internetworking software
for Novell NetWare LANs. Firefox's connectivity products enable NetWare LAN
work groups to access applications and services on workstations,
minicomputers, mainframes and the Internet. Firefox's client-server products
enable client-server applications running on NetWare LANs to integrate with
application servers running on mainframe and minicomputer host systems, and
Firefox's mail product is an electronic mail system enabling NetWare LANs to
connect to UNIX mail systems and the Internet. Firefox began shipping its
connectivity products in late 1990 with the introduction of its NOV*OS
product, which enables NetWare to OSI connectivity. In late 1992, Firefox
introduced the first of its NOV*IX products, which enable NetWare to TCP/IP
connectivity. In late 1993, Firefox introduced the first of its NOV*AX
products, which enable NetWare to DEC LAT connectivity. Firefox introduced its
client-server products in 1993 and its mail products in 1995.
Firefox markets its products through its direct sales force, which is
focused on organizations with large enterprise networks, as well as through
selected distributors, systems integrators and value-added resellers. Firefox
has derived substantially all of its revenues to date from sales of its
connectivity products and, specifically, sales of Firefox's NOV*IX products
have accounted for a majority of these revenues. Firefox expects that its
NOV*IX and other connectivity products will continue to account for the
substantial majority of Firefox's net revenues for the foreseeable future.
Furthermore, because NOV*IX and Firefox's other products have been developed
for LANs running Novell's NetWare LAN operating system, sales of Firefox's
products could be materially adversely affected by market developments adverse
to Novell or NetWare. Firefox may be required to enhance such products to
anticipate or respond adequately to changes in technology and customer
preferences. There can be no assurance that Firefox will be successful at
making such enhancements at all or in a timely fashion.
Firefox's operating results will depend in substantial part upon its ability
to increase unit volume sales of its connectivity products and to begin to
generate significant product revenues from its client-server and mail products
and from messaging products currently under development. Any failure to
increase net revenues from connectivity products or to generate net revenues
from other products, whether due to competition, technological change or
otherwise, would have a material adverse effect on Firefox's business and
results of operations. For example, in each of the fourth quarter of 1995 and
the first quarter of 1996, Firefox's net revenues from connectivity products
declined from third quarter levels and contributed significantly to the net
loss of $1.0 million experienced by Firefox during each of those quarters.
Firefox expanded the size of its operations significantly in 1995, and its
plans call for continued expansion in the number of its employees and the
geographic scope of its sales efforts and operations. The length of time
required to consummate the Merger has resulted in a loss of momentum for
Firefox's business, has resulted in the loss of key sales management personnel
and is likely to result in the loss of additional management and staff in the
near term, all of which has had and is likely to continue to have a material
adverse effect on Firefox's operating results and financial condition at least
in the near term.
Firefox expects to experience significant fluctuations in quarterly
operating results in the future that may be caused by many factors, including,
among others, the size and timing of individual orders; customer order
deferrals in anticipation of new products; timing of introduction or
enhancement of products by Firefox or its competitors; market acceptance of
new products; technological changes in computer networking; competitive
pricing pressures; seasonality of revenues; changes in resellers' inventory
practices; the exercise of stock rotation or inventory price protection rights
by distributors; the accuracy of resellers' forecasts of end user demand;
changes in Firefox's operating expense; personnel changes; foreign currency
exchange rates; mix of products sold; quality control of products sold; and
general economic conditions. Cancellation or deferral of one or a small number
of orders could cause significant fluctuations in quarterly operating results.
As a result, Firefox believes
that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. Fluctuations in operating results may also result in volatility
in the price of the shares of Firefox Common Stock.
111
Because Firefox generally ships software products within a short period
after receipt of an order, Firefox typically does not have a material backlog
of unfilled orders, and revenues in any quarter are substantially dependent on
orders booked in that quarter. Further, Firefox typically generates a large
percentage of its quarterly revenues during the last weeks of the quarter.
Firefox's expense levels are based in part on its expectations as to future
revenues and to a large extent are fixed. Therefore, Firefox may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall of demand in relation to
Firefox's expectations or any material delay of customer orders would have an
almost immediate adverse impact on Firefox's operating results and on
Firefox's ability to maintain profitability. In fact, Firefox believes these
circumstances contributed significantly to its net losses experienced in the
fourth quarter of 1995 and the first quarter of 1996.
Firefox's net revenues increased 162% from 1993 to 1994 and increased by 46%
from 1994 to 1995. However, net revenues for the first quarter of 1996
decreased by 11% to $4.2 million from $4.7 million in the first quarter of
1995. Accordingly, the growth rates experienced in prior years are not
sustainable in the near term and are not necessarily indicative of future
operating results. Further, given Firefox's significantly different levels of
operations during each of these three years, year-to-year comparisons may not
be meaningful, and Firefox's limited operating history makes the prediction of
future annual or quarterly operating results difficult or impossible.
Forward-looking statements in this section and elsewhere in this Joint Proxy
Statement/Prospectus are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
in this section and elsewhere in this Joint Proxy Statement/Prospectus include
terms such as "believes," "may be," "anticipates," "is likely," "in the
future," "expects" or similar phrases. All forward-looking statements involve
risks and uncertainties, and actual results could differ materially from those
projected in the forward-looking statements contained herein as a result of
the size and timing of orders, the mix of products sold, customer deferrals in
anticipation of new products, competition, technological change, changes in
operating expenses, risks of integration of the two companies, changes in
distributor terms or performance or other risks outlined in "Risk Factors."
RESULTS OF OPERATIONS
The following table sets forth the percentage of net revenues represented by
certain items in Firefox's consolidated statements of operations for the
periods indicated:
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------- -----------------
1993 1994 1995 1995 1996
---- ---- ---- ------- -------
Net revenues
Licenses.............................. 97% 92% 89% 93% 85%
Service and other..................... 3 8 11 7 15
--- --- --- ------- -------
Total net revenues.................. 100 100 100 100 100
--- --- --- ------- -------
Cost of revenues
Licenses.............................. 13 12 13 14 16
Service and other..................... 2 6 5 4 8
--- --- --- ------- -------
Total cost of revenues.............. 15 18 18 18 24
--- --- --- ------- -------
Gross margin............................ 85 82 82 82 76
--- --- --- ------- -------
Operating expenses
Research and development.............. 18 11 13 12 22
Sales and marketing................... 50 47 52 45 73
General and administrative............ 21 15 15 14 28
--- --- --- ------- -------
Total operating expenses............ 89 73 80 71 123
--- --- --- ------- -------
Income (loss) from operations........... (4) 9 2 11 (47)
Interest income (expense), net.......... (2) (1) 3 (1) 5
--- --- --- ------- -------
Income (loss) before income taxes....... (6) 8 5 10 (42)
Provision (credit) for income taxes..... (2) 3 2 4 (17)
--- --- --- ------- -------
Net income (loss)....................... (4)% 5% 3% 6% (25)%
=== === === ======= =======
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Net Revenues
Net revenues consist primarily of fees for licenses of Firefox's software
products and revenues from customer support. Firefox recognizes revenue from
software licenses after shipment of the product and fulfillment of acceptance
terms, if any, and when no significant contractual obligations remain
outstanding. When Firefox receives payment prior to shipment or fulfillment of
significant vendor obligations, such payments are recorded as deferred revenue
and customer deposits and are recognized as revenue upon shipment or
fulfillment of significant vendor obligations. Customer support revenue is
deferred and recognized ratably over the term of the support agreement, which
is typically one year.
Net revenues from licenses grew from $5.0 million in 1993 to $12.5 million
in 1994 and to $17.7 million in 1995. The increase in license revenues during
the periods was due primarily to increased shipments of Firefox's connectivity
products, particularly the NOV*IS products introduced in late 1992. Firefox's
revenue decreased from the third to the fourth quarter of 1995 by
approximately $1.6 million and a loss of approximately $1.0 million was
incurred in the fourth quarter. The decrease in revenues was primarily due to
decreased product shipments as a result of, among other factors, poor
performance of Firefox's sales and marketing organization, which led to the
replacement of key personnel in the fourth quarter. The $1.0 million loss was
primarily due to lower net revenue and substantial increases in sales and
marketing expenses throughout the fourth quarter. Net revenues from licenses
for the first quarter of 1996 decreased by 20% to $3.5 million from $4.4
million in the first quarter of 1995. The decrease in the first quarter was
primarily due to decreased shipments of Firefox's connectivity products as a
result of the loss of momentum in Firefox's business due to the length of time
required to consummate the Merger and loss of sales management personnel in
the United States, as well as the timing of receipt of certain orders in the
United Kingdom.
Net revenues from service and other grew from $148,000 in 1993 to $1.1
million in 1994 and to $2.1 million in 1995 and increased by 106% to $645,000
in the first quarter of 1996 from $313,000 in the first quarter of 1995. The
increase in service and other income was primarily attributable to revenue
from service contracts due to the increased number of users of Firefox's
connectivity products.
In 1993, 1994 and 1995, sales in the United States accounted for 18%, 41%
and 45%, respectively, of Firefox's net revenues. Over the same periods, sales
in the United Kingdom accounted for 68%, 40% and 39%, respectively, of
Firefox's net revenues, and sales in the rest of the world accounted for 14%,
19% and 16%, respectively, of Firefox's net revenues. See Note 11 of Notes to
Firefox Consolidated Financial Statements included elsewhere herein. In the
first quarter of 1996, sales in the United States accounted for 50% of the
Company's net revenues compared with 45% in the first quarter of 1995, and
sales in the United Kingdom accounted for 37% of Firefox's net revenues
compared with 42% in the first quarter of 1995. The reduction of revenues
derived from the United Kingdom as a percentage of total revenues resulted
from the timing of receipt of certain UK orders. Sales in the rest of the
world remained constant at 13% of Firefox's net revenues in the first quarter
of both 1996 and 1995. Firefox expects that sales in the United States and the
United Kingdom will continue to account for a substantial portion of Firefox's
revenues for the foreseeable future. There can be no assurance that Firefox
will achieve significant penetration in the United States, United Kingdom or
other markets.
In 1993, one distributor, ICL, accounted for 17% of Firefox's net revenues.
In 1994, another distributor, GBC/Vitek, accounted for 21% of Firefox's net
revenues. See Note 11 of Notes to Firefox Consolidated Financial Statements.
However, there can be no assurance that sales to these distributors will reach
or exceed historical levels in the future.
Firefox expects that net revenues will consist principally of license
revenues and, to a lesser extent, service revenues for the foreseeable future.
However, Firefox may generate additional revenues in the future from time to
time by providing software consulting and development services for third
parties, such as the services provided by Firefox and its agents pursuant to
its agreement with UNIX Systems Laboratories.
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After implementing certain price increases in early 1995, Firefox generally
maintained its average selling prices for its various product ranges; however,
Firefox expects that, over time, average selling prices for its connectivity
products (which in 1995 and the first quarter of 1996 accounted for
substantially all of Firefox's net revenues) may decline as the market for
these products becomes more competitive. Any material reduction in the price
of Firefox's products would require Firefox to increase unit sales in order to
maintain net revenues and could result in a material adverse effect on
Firefox's results of operations.
As is typical in the software industry, Firefox grants to its distributors
stock rotation rights and limited rights to return unsold inventories of
Firefox's products in exchange for new purchases. In addition, Firefox
provides price protection to its distributors, and a decrease in the price of
Firefox's products could have a material adverse effect on Firefox's operating
results. Firefox provides allowances for projected returns and price
protection. However, there can be no assurance that the balances will be
sufficient to offset product returns and price protection in the future.
Gross Margin
Gross margin consists of net revenues less cost of revenues, including
royalties, materials, manufacturing costs, warranty expenses and service
costs. Gross margin as a percentage of net revenues declined from 85% in 1993
to 82% in both 1994 and 1995. Gross margin as a percentage of net revenues
decreased from 82% in the first quarter of 1995 to 77% in the first quarter of
1996. Gross margins from licenses as a percentage of net revenues from
licenses were 87% in both 1993 and 1994 and 85% in 1995, and were 82% in the
first quarter of 1996 compared to 85% in the comparable 1995 quarter. Gross
margins from service and other as a percentage of net revenues from service
and other were 23% in 1993, 28% in 1994 and 55% in 1995, and 50% in the first
quarter of 1996 compared to 39% for the quarter ended March 31, 1995.
The decrease in percentage gross margins from licenses from 1995 to 1996,
and for the first quarter of 1996 compared to the same quarter in 1995, is
primarily due to higher manufacturing costs associated with Firefox's products
and in particular royalty costs relating to the sale of Firefox's Internet
products. Firefox expects that, over time, average selling prices for its
connectivity products may decline as the market for these products becomes
more competitive, reducing the gross margins on these products. The increase
in percentage gross margins from services and other over the same periods is
primarily due to spreading associated costs over higher services revenues. The
improvement in 1995 over 1994 was also attributable to proportionately less
revenues from consulting services, which generally produced a lower gross
margin than other service and support activities.
Research and Development
Research and development expenses consist primarily of employee costs, costs
of materials consumed in developing and designing new products and, to a
lesser extent, outside contract service costs, equipment rentals, depreciation
and occupancy costs. Expenditures for research and development increased from
$948,000 in 1993 to $1.4 million in 1994 to $2.5 million in 1995. Research and
development expenses decreased as a percentage of net revenues from 18% in
1993 to 11% in 1994, but increased as a percentage of net revenues to 13% in
1995. The decrease from 1993 to 1994 primarily was due to Firefox's increased
net revenues over the period. The increase in the percentage from 1994 to 1995
was due to increased research and development expenditures, offset in part by
higher net revenues over 1994. Expenditures for research and development
increased from $558,000 in the first quarter of 1995 to $917,000 in the first
quarter of 1996. Research and development expenses increased as a percentage
of net revenues from 12% in the first quarter of 1995 to 22% in the first
quarter of 1996. The increase in research and development expenses in absolute
dollars resulted primarily from increased development efforts relating to
Firefox's client-server products, mail products and Internet connectivity
tools, including Firefox's efforts to develop NOV*IX products for use in
conjunction with the Microsoft Windows NT network operating system. The
increase in research and development expense as a percentage of net revenues
in the first quarter of 1996 compared to the same quarter of 1995 was
primarily due to increased development efforts and the effect of lower net
revenues for the 1996 period.
114
Firefox believes that continued commitment to research and development will
be required for Firefox to remain competitive. There can be no assurance,
however, that Firefox's research and development efforts, including those
related to Windows NT, will result in products or enhancements to existing
products which will be available on a timely basis or generate any significant
revenues for Firefox. Nonetheless, Firefox intends to continue to allocate
substantial resources to research and development, but research and
development expenses may continue to vary as a percentage of net revenues.
Costs for the development of new software products and substantial
enhancements to existing software products are generally expensed as incurred
until technological feasibility has been established, at which time any
additional costs would be capitalized in accordance with Statement of
Financial Accounting Standards No. 86, "Computer Software to be Sold, Leased,
or Otherwise Marketed." To date, Firefox has essentially completed its
software development concurrently with the establishment of technological
feasibility, and, accordingly, no costs have been capitalized.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries and commissions
of sales and marketing personnel, advertising and promotion expenses and pre-
sales customer service and technical support costs. Sales and marketing
expenses increased from $2.6 million in 1993 to $6.4 million in 1994 to $10.3
million in 1995, and decreased as a percentage of net revenues from 50% in
1993 to 47% in 1994, increasing to 52% in 1995. The increases in sales and
marketing expenses in absolute dollars resulted from an expansion of Firefox's
sales and support organization, particularly in the United States and Europe
during 1995 in anticipation of increased shipments of Firefox's connectivity
products. These increases reflected additions to the sales and marketing
staff, the implementation of a telemarketing program and investment in
promotional activities relating to new products. The decrease from 1993 to
1994 in the percentage of revenues is primarily a function of the increased
revenues in such period, and the increase from 1994 to 1995 is due primarily
to expenses associated with additions of sales and marketing staff in both the
United States and Europe and the establishment of a German subsidiary focused
on sales and support. Sales and marketing expenses increased from $2.1 million
in the first quarter of 1995 to $3.1 million in the comparable 1996 quarter.
As a percentage of net revenues, sales and marketing expenses increased from
46% in the first quarter of 1995 to 73% in the comparable quarter of 1996. The
increase in sales and marketing expenses both in absolute dollars and as a
percentage of net revenues in the first quarter of 1996 compared to the same
quarter of 1995 resulted from the 1995 expansion of the Firefox sales and
support organization and a continuation of the telemarketing program and
promotional activities, with associated costs spread over lower revenues in
the first quarter of 1996.
As is typical in the software industry, Firefox grants to its distributors
limited right to return unsold inventories of Firefox's products in exchange
for new purchases. In addition, Firefox provides price protection to its
distributors, and a decrease in the price of Firefox's products could have a
material adverse effect on Firefox's operating results. Firefox provides
allowances for projected returns and price protection. However, there can be
no assurance that the balances will be sufficient to offset product returns
and price protection in the future.
General and Administrative
General and administrative expenses increased from $1.1 million in 1993 to
$2.1 million in 1994 and to $2.9 million in 1995. General and administrative
expenses decreased as a percentage of net revenues from 21% in 1993 to 15% in
each of 1994 and 1995, primarily due to Firefox's increased net revenues in
such periods. The increases in absolute dollars were due principally to
additions of staff and infrastructure, including information systems, to
support Firefox's expanded operations during these periods.
General and administrative expenses increased from $651,000 in the first
quarter of 1995 to $1.2 million in the comparable quarter of 1996. Firefox
completed its Initial Public Offering of stock on May 11, 1995 and general and
administrative costs for the quarter ended March 31, 1996 include costs
associated with being a
115
publicly-held company. During the quarter ended March 31, 1996, Firefox
incurred approximately $340,000 of non-recurring pre-tax charges relating to
the Merger. As a percentage of net revenues, general and administrative
expenses increased from 14% in the first quarter of 1995 to 28% in the first
quarter of 1996. Firefox anticipates that general and administrative expenses
may continue to vary as a percentage of net revenues.
Interest Income (Expense), Net
Firefox generated net interest income in 1995 of $568,000, compared to net
interest expense of $91,000 and $142,000 incurred by Firefox in 1993 and 1994,
respectively. In the first quarter of 1996, Firefox had $213,000 of net
interest income, compared to $46,000 of net interest expense in the first
quarter of 1995. The change in the respective periods was primarily as a
result of investing certain proceeds of Firefox's initial public offering.
Provision (Credit) for Income Taxes
Firefox's provision for income taxes for 1995 was $446,000, based on an
effective income tax rate of 46.3%. This rate was higher than the 1994
effective tax rate of 41.7%, because the 1995 rate was affected by
proportionately higher non-deductible expenses on a lower net income before
tax.
The provision for income taxes as a percentage of pretax loss was 40.0% for
the first quarter of 1996 which compared to a similar provision for pretax
income in the first quarter of 1995.
Liquidity and Capital Resources
Firefox has financed its operations to date through private and public sales
of its equity securities, short-term bank borrowings and with cash from
operations. On May 11, 1995, Firefox completed its initial public offering of
common stock. Through this offering, Firefox sold an additional 1.5 million
shares of its common stock, which generated approximately $23.1 million of
cash, net of expenses.
Net cash used in operating activities was $3.2 million for 1995, which
resulted primarily from increases in accounts receivable, increases in prepaid
expenses and license fees. This was partially offset by net income and
depreciation and by increases in income taxes payable and deferred revenue and
customer deposits. Cash used in
investing activities results primarily from purchases of short-term
investments and capital assets. Net cash used in operating activities was
$785,000 for the first three months of 1996 which resulted primarily from the
net loss incurred in the period, an increase in prepaid expenses and other
assets, a decrease in income taxes payable and an increase in prepaid income
taxes. This was partially offset by a decrease in accounts receivable and
increases in accounts payable and accrued liabilities. Cash provided by
investing activities during such period totaled $771,000, and was primarily
generated by the net sales of short-term investments.
As of December 31, 1995, accounts receivable totaled $6.7 million compared
to $3.1 million at December 31, 1994. As of March 31, 1996, accounts
receivable totaled $5.7 million compared to $3.1 million at March 31, 1995.
Following its initial public offering, Firefox ended its factoring arrangement
with Lombard NatWest Limited, a factoring company based in the United Kingdom
which had been purchasing a significant percentage of Firefox's receivables
shortly after invoice generation. As a consequence of terminating this
factoring relationship, the increase in Firefox's revenues, and the granting
of extended payment terms to certain customers, Firefox's accounts receivable
have increased substantially. Firefox has taken steps to reduce the accounts
receivable balance, including pursuing outstanding receivables more
aggressively. However, there can be no assurance that Firefox will be able to
reduce its level of accounts receivables in the future.
On February 23, 1996, a class action lawsuit was filed in the United States
District Court for the Northern District of California, San Francisco
Division, naming Firefox and certain of its officers and directors as
defendants. On June 5, 1996, the District Court entered an order dismissing
the complaint in its entirety, with leave to amend. The lawsuit alleged that
the defendants misrepresented or failed to disclose material facts about
Firefox's operations and financial results, which the plaintiffs contend
resulted in an artificial inflation of the price of the Firefox Common Stock.
The suit was purportedly brought on behalf of a class of purchasers of the
116
Firefox Common Stock during the period from August 3, 1995 to January 2, 1996.
The complaint alleged claims for violations of Section 10(b) and 20(a) of the
Exchange Act and Rule 10b-5 thereunder and sought relief in the form of
unspecified compensatory damages, pre- and post-judgment interest, attorneys'
and expert witness fees and such extraordinary, equitable and/or injunctive
relief as permitted by law, equity and the federal statutory provisions under
which the suit was brought. Specifically, the complaint alleged that each of
the defendants knew or had access to allegedly material adverse non-public
information about Firefox's financial results and business conditions which
allegedly was not disclosed, improperly recognized certain revenues and failed
to keep adequate revenues and participated in drafting, reviewing and/or
approving alleged misleading statements, releases, analyst reports and other
public representations, including disclaimers and warnings, of and about
Firefox. Firefox has reviewed the allegations in the lawsuit, believes them to
be without merit, and intends to defend itself and its officers and directors
vigorously if the complaint is amended. In order to support an adequate
defense, Firefox may be required to expend substantial sums for legal and
expert fees and costs. The cost of defending the litigation and the outcome of
the litigation are uncertain and cannot be estimated. If the lawsuit were
determined adversely to Firefox, Firefox could be required to pay a
substantial judgment. See "Risk Factors--Risks Relating to FTP and Firefox--
Litigation Against Firefox" and, for further information concerning the
reasons for the court's dismissal of the complaint, see "Recent Developments."
As of March 31, 1996, Firefox had working capital of $21.2 million and had
cash, cash equivalents and short-term investments of $15.5 million. Firefox
had no bank indebtedness and no long-term commitments other than minimum
capital and operating lease obligations. Firefox believes that the existing
cash, cash equivalents and short-term investments and funds generated from
operations will provide Firefox with sufficient funds to finance its
operations through at least the next 12 months. Thereafter, Firefox may
require additional funds to support its working capital requirements or for
other purposes and may seek to raise such additional funds through public or
private equity financing or from other sources. No assurance can be given that
additional financing will be available or that, if available, such financing
will be obtainable on terms favorable to Firefox or its stockholders.
117
MANAGEMENT OF FTP
EXECUTIVE OFFICERS AND DIRECTORS
The following individuals are expected to serve as the executive officers
and directors of FTP immediately following the Merger:
NAME AGE POSITION
- ---- --- --------
David H. Zirkle......... 60 Chief Executive Officer, Chairman of the Board and Director (Class II)
Glenn C. Hazard......... 45 President and Chief Operating Officer and Director (Class III)
Douglas F. Flood........ 38 Senior Vice President of Business Development and Planning, General
Counsel and Clerk
John H. Keller.......... 44 Senior Vice President of Business Operations and Director (Class II)
John A. Kimberley....... 48 Vice Chairman of FTP, Executive Vice President of Firefox and
Director (Class II)
Peter R. Simkin......... 43 Chief Technical Officer
John J. Warnock, Jr..... 40 Senior Vice President, Chief Financial Officer and Treasurer
Vinton G. Cerf (2)...... 52 Director (Class III)
David D. Clark.......... 53 Director (Class I)
F. David Fowler (1)(2).. 62 Director (Class I)
Louise A. Mathews 51
(1)(2)................. Director (Class III)
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Immediately following the Merger, Firefox will be operated as a wholly-owned
subsidiary of FTP. It is a condition to the Merger that Mr. Kimberley,
currently President, Chief Executive Officer and Chairman of Firefox, be
elected as a member of the FTP Board of Directors effective as of the
Effective Time; and it is anticipated that he will be elected as a Class II
Director. At such time, Mr. Kimberley will also become Vice Chairman of FTP
and Executive Vice President of Firefox. As of the Effective Time, Mr. Simkin,
currently Vice President and Chief Technical Officer of Firefox, will become
Chief Technical Officer of FTP, and Mr. Whitehead, currently Vice President
and Chief Scientist of Firefox, will continue as such. See "The Merger and
Related Transactions--Interests of Certain Persons in the Merger" and "--
Conditions to the Merger."
FTP's Restated Articles of Organization, as amended, and Amended and
Restated Bylaws provide for the classification of FTP's Board of Directors
into three classes, as nearly equal in number as possible, with the terms of
such classes staggered so that only one class is elected each year, in each
case for a three-year term or until a successor to each Director in such Class
is duly elected and qualified. The FTP Board of Directors presently consists
of seven persons. Of such persons, as indicated in the preceding table, two
are serving as Class I Directors for a term expiring at the FTP 1997 Annual
Meeting of Stockholders, two are serving as Class II Directors for a term
expiring at the FTP 1998 Annual Meeting of Stockholders, and two are serving
as Class III Directors for a term expiring at the FTP 1996 Annual Meeting of
Stockholders.
David H. Zirkle has served as Chief Executive Officer, Chairman and a
Director of FTP since January 1993 and served as President of FTP from January
1993 to April 1996. Mr. Zirkle served as a consultant to FTP from February
1992 through December 1992. From October 1982 to November 1991, Mr. Zirkle
served as an executive in the U.S. operations of Racal Electronics, PLC, a
data communications company. From 1986 through November 1991, he served as
President and Chief Executive Officer of The Racal Corporation, a wholly-owned
subsidiary of Racal Electronics, PLC.
Glenn C. Hazard joined FTP as President and Chief Operating Officer, and was
appointed to FTP's Board of Directors, in April 1996. Prior to joining FTP,
from March 1995 to December 1995, Mr. Hazard served as Senior Vice President
of Business Transformation of Legent Corporation, a systems management
software company acquired by Computer Associates in August 1995. Prior
thereto, Mr. Hazard held various management
118
positions with AT&T Corp. and its subsidiaries from 1983 to 1995, including
Senior Vice President of Business Transformation of AT&T Corp. from June 1994
to March 1995, Vice President of Business Process Reengineering of AT&T Global
Information Systems from September 1993 to June 1994, Vice President of
Process Reengineering of AT&T Global Business Communications Systems from
August 1992 to September 1993 and Director of Process Reengineering of AT&T
Global Business Communications Systems from 1990 to August 1992.
Douglas F. Flood joined FTP as General Counsel in June 1993. In June 1994,
he was elected Clerk of FTP, in January 1995 he became Vice President, in
August 1995 he was promoted to Senior Vice President of Administration and in
February 1996 he became Senior Vice President of Business Development and
Planning. From 1991 to June 1993, he practiced law at Fish & Richardson,
concentrating in the areas of licensing and copyright. From 1987 to 1991, Mr.
Flood was Associate General Counsel at Interactive Data, a Dun & Bradstreet
corporation, and from 1983 to 1987 he served as an attorney for Raytheon
Company.
John H. Keller joined FTP in November 1993 as Vice President of Technical
Services. He became Vice President of Engineering in May 1994 and was promoted
to Senior Vice President of Business Operations in August 1995. Mr. Keller was
appointed to the Board of Directors of FTP in February 1995. Prior to joining
FTP, Mr. Keller was employed by Fibronics International, Inc., a networking
company, from 1992 to November 1993 as Vice President of Operations, from 1991
to 1992 as Director of Operations, from 1989 to 1991 as Director of Customer
Service and from 1986 to 1989 as Customer Service Manager.
John A. Kimberley has served as Chairman of the Board of Directors,
President and Chief Executive Officer of Firefox since January 1990. Prior to
that time, beginning in 1986, Mr. Kimberley served as Managing Director of the
UNIX distribution subsidiary of TIS Limited, a UNIX hardware and software
distributor. Prior to jointing TIS, he served as Sales Director for Star plc,
a UNIX hardware and software distributor, where he was responsible for the
distribution of Convergent Technologies UNIX systems to the United Kingdom and
Europe.
Peter R. Simkin was the founder of Firefox and has served as Vice President
and Chief Technical Officer of Firefox since January 1994. He previously
served as a Director of Firefox from November 1989 to February 1995 and as
Vice President of Marketing and Product Strategy from November 1989 until
January 1994. Prior to that time, he was Sales and Marketing Director of
Network Designers International Limited, a supplier of network solutions. In
July 1985, Mr. Simkin joined Lion Systems Ltd, a networking solutions company,
as Marketing Manager responsible for developing the company's PC based
communications system. Lion Systems Ltd was part of the Atlantic Group and
subsequently became Atlantic Network Systems in 1986. Mr. Simkin also served
as Marketing Director of its PC communications subsidiary. Prior to joining
Lion Systems, Mr. Simkin held a number of sales and marketing positions with
International Computers plc over a 13-year period.
John J. Warnock, Jr. joined FTP on January 24, 1996 as Senior Vice President
and Chief Financial Officer, and was elected Treasurer on February 14, 1996.
Prior to joining FTP, Mr. Warnock served as Managing Director of Mergers and
Acquisitions at Bell Atlantic Corporation from 1990 to November 1995, as Vice
President of Corporate Finance of W.H. Newbold's Son & Company, Inc., an
investment banking firm, from 1985 to 1990, and as audit manager at Arthur
Andersen & Co. from 1977 to 1985.
Vinton G. Cerf has served as a Director of FTP since January 1994. Dr. Cerf
has been the Senior Vice President of Data Architecture of the Engineering
Division of MCI Telecommunications, Inc. since February 1994. From 1992 to
1995, Dr. Cerf served as President of the Internet Society. From June 1986
through February 1994, Dr. Cerf served as Vice President of the Corporation
for National Research Initiatives.
David D. Clark has served as a Director of FTP since July 1995. Since 1973,
Dr. Clark has been employed as a Senior Research Scientist at the
Massachusetts Institute of Technology Laboratory for Computer Science. Since
the mid-1970's, Dr. Clark has been involved in the development of the Internet
protocol suite, and from 1981 to 1989 served as Chairman of the Internet
Activities Board. Dr. Clark is also a director of Proteon, Inc.
119
F. David Fowler has served as a Director of FTP since November 1994. Mr.
Fowler has been the Dean of the School of Business and Public Management at
The George Washington University since July 1992. Prior to that time, Mr.
Fowler was a partner in the firm of KPMG Peat Marwick from 1969 until 1992,
during which time he served as a member of the Board of Directors of KPMG Peat
Marwick from 1987 until 1992 and as managing partner of the Washington Office
of KPMG Peat Marwick from 1987 until 1991.
Louise A. Mathews has served as a Director of FTP since July 1995. Ms.
Mathews is a partner at Shaw, Pittman, Potts & Trowbridge in Washington, D.C.,
where she has practiced law since 1984, concentrating in the areas of business
and commercial real estate. She was associated with Steptoe & Johnson from
1974 to 1984 and held various other legal positions following her graduation
from Duke Law School in 1969. Ms. Mathews also serves as General Counsel of
the Federal City Council in Washington, D.C.
FTP EXECUTIVE COMPENSATION
The following table and footnotes contain summary information regarding
compensation paid or accrued by FTP on behalf of the chief executive officer
of FTP, the other four most highly compensated executive officers of FTP for
the year ended December 31, 1995 and one other individual who would have been
included among the most highly compensated executive officers for 1995 but for
the fact he was not an executive officer of FTP at the end of 1995
(collectively, the "FTP Named Executive Officers") for FTP's fiscal years
ended December 31, 1995, December 31, 1994 and December 31, 1993.
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
---------------------------------- ------------------
AWARDS PAYOUTS
---------- -------
OTHER SECURITIES
ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS PAYOUTS COMPENSATION(1)
PRINCIPAL POSITIONS YEAR ($) ($) ($) ($) ($) ($)
------------------- ---- -------- ------- ------------ ---------- ------- ---------------
David H. Zirkle......... 1995 $300,000 $ -- $31,160(2) 500,000 -- $4,620
Chief Executive 1994 240,192 103,282 17,319(2) -- -- 4,620
Officer 1993 215,827 107,500 -- 560,000 -- 4,031
Dean L. Carmeris........ 1995 142,500 25,000 1,012(2) 160,000 -- --
Vice President of Cus-
tomer Services
Douglas F. Flood........ 1995 179,673 -- 11,542(2) 50,000 -- 4,620
Senior Vice President
of 1994 131,312 18,135 8,888(2) 77,000 -- 3,383
Business Development
and 1993 64,209 4,000 1,041(2) 56,000 -- --
Planning and General
Counsel
Robert W. Goodnow,
Jr. ................... 1995 135,173 -- 13,050(2) -- -- 4,620
Former Vice President
of 1994 165,000 70,950 1,983(2) -- -- 4,620
Finance and Treasur-
er(3) 1993 165,106 82,500 1,825 160,000 -- 4,497
John H. Keller.......... 1995 201,776 -- 5,844(2) 100,000 -- 4,620
Senior Vice President
of 1994 150,154 64,567 -- 100,000 -- 4,620
Business Operations 1993 18,462 -- -- 160,000 -- --
Penny C. Leavy(4)....... 1995 140,000 -- 77,840(5) -- -- 4,620
Vice President of Sales 1994 110,000 -- 81,778(5) 52,000 -- 4,620
and Marketing 1993 99,731 -- 101,456(5) 8,000 -- 4,497
- --------
(1) Amounts shown represent contributions made by FTP to its 401(k) savings
plan for the accounts of the FTP Named Executive Officers.
(2) Amounts shown represent vacation payouts accrued for such years.
(3) Mr. Goodnow resigned as a Director and officer of FTP in October 1995.
(4) Ms. Leavy now serves as Vice President of Marketing.
(5) Primarily represents commissions paid under FTP's sales incentive programs
and includes $11,240, $10,278 and $6,956 in 1995, 1994 and 1993,
respectively, for vacation payouts accrued for such years.
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STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the FTP's Stock Option Plan to the FTP Named Executive Officers
during the year ended December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
REALIZABLE VALUE AT
ASSUMES ANNUAL
RATES OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
--------------------------------------------- ----------------------
NUMBER
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE
GRANTED EMPLOYEES IN PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ------------ -------- ---------- ---------- -----------
David H. Zirkle......... 500,000(1) 28.58% $31.75 3/31/05 $9,983,702 $25,300,662
Dean L. Carmeris........ 160,000(1) 9.15% 31.75 3/31/05 3,194,785 8,096,212
Douglas F. Flood........ 50,000(2) 2.86% 24.75 8/18/05 778,257 1,972,356
Robert W. Goodnow,
Jr.(3)................. -- -- -- -- -- --
John H. Keller.......... 100,000(2) 5.72% 24.75 8/18/05 1,556,514 3,944,513
Penny C. Leavy.......... -- -- -- -- -- --
- --------
(1) Options become exercisable in four equal annual installments beginning one
year after March 31, 1995, the date of grant.
(2) Options become exercisable in four equal annual installments beginning one
year after August 18, 1995, the date of grant.
(3) Mr. Goodnow resigned as a Director and officer of FTP in October 1995.
OPTION EXERCISES AND YEAR-END INTERESTS
The following table provides information with respect to the FTP Named
Executive Officers concerning the exercise of options during the fiscal year
ended December 31, 1995 and unexercised options held as of the end of such
year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION VALUES
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FISCAL YEAR-END (#) FISCAL YEAR-END($)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ----------- ---------------------- ---------------------
David H. Zirkle......... 160,000 $3,139,940 240,000/620,000 $5,460,000/$2,730,000
Dean L. Carmeris........ -- -- -- --
Douglas F. Flood........ 11,600 195,750 19,250/140,550 875/871,326
Robert W. Goodnow,
Jr.(1)................. 353,175 8,683,981 324,325/ -- 9,026,954/ --
John H. Keller.......... -- -- 104,210/255,790 200,000/625,000
Penny C. Leavy.......... 29,200 746,400 45,136/89,664 896,575/1,342,200
- --------
(1) Mr. Goodnow resigned as a Director and officer of FTP in October 1995.
121
COMPENSATION OF DIRECTORS
Directors who are not full-time employees of FTP ("Non-employee Directors")
receive an annual fee of $10,000 for their services, plus $1,000 for each Board
of Directors meeting attended and $500 for each Board of Directors committee
meeting attended.
Additionally, Non-employee Directors receive automatic, non-discretionary
grants of options to purchase shares of FTP Common Stock under FTP's 1993 Non-
employee Directors' Stock Option Plan. Such Plan provides generally for an
automatic grant to a Non-employee Director on the date such Director is
elected, or re-elected, as a Director, of options to purchase 30,000 shares of
FTP Common Stock at the fair market value at the time of the grant. One-third
of such options become exercisable at the end of each year of such Director's
three-year term. Non-employee Directors who are elected for less than a full
three-year term receive a proportionately smaller initial grant. Dr. Clark, who
was elected as a Director in June 1995 for a term expiring at the 1997 Annual
Meeting, was automatically granted, on such date, options to purchase 18,768
shares of FTP Common Stock at an exercise price of $30.875 per share pursuant
to this Plan. Ms. Mathews, who was elected as a Director in July 1995 for a
term expiring at the 1996 Annual Meeting, was automatically granted, on such
date, options to purchase 8,768 shares of FTP Common Stock at an exercise price
of $30.875 per share pursuant to this Plan.
EMPLOYMENT AGREEMENTS
David H. Zirkle and FTP are parties to an employment agreement which provides
that Mr. Zirkle will serve as FTP's President and Chief Executive Officer for a
period of two years commencing on March 1, 1993. Mr. Zirkle's employment
agreement has twice been amended to extend his term of office, which currently
will end on March 1, 1997. Mr. Zirkle's base annual salary is currently
$300,000, subject to increase by the Board of Directors. Mr. Zirkle is entitled
to other benefits to the same extent as all other executive officers.
Such employment agreement also provides that in the event any person, firm,
entity or group (as defined in the Exchange Act) acquires more than 50% of the
issued and outstanding shares of FTP Common Stock in a transaction that does
not receive the prior approval of the Board of Directors, (i) the term of Mr.
Zirkle's employment agreement will be automatically extended for a period of
two years from the date of such acquisition and (ii) all stock options
previously issued to Mr. Zirkle that are not yet exercisable will become
exercisable and all stock options previously issued to Mr. Zirkle will remain
exercisable for the remainder of the term of the options without regard to the
continuation of his employment with FTP. At the time the employment agreement
was entered into, Mr. Zirkle was granted options to purchase 320,000 shares of
FTP Common Stock at an exercise price of $6.25 per share, which options became
exercisable on November 16, 1993 (the effective date of FTP's registration
statement in connection with the initial public offering of FTP Common Stock).
In the event of the breach by FTP of any material term of Mr. Zirkle's
employment agreement or if Mr. Zirkle is removed as President, Chief Executive
Officer or a Director of FTP prior to the end of the term of such agreement,
FTP would be required to pay Mr. Zirkle an amount equal to the greater of (i)
all amounts which would otherwise be due and payable under such agreement and
(ii) 25% of Mr. Zirkle's base salary as such base salary may have been
increased pursuant to such agreement.
Mr. Zirkle resigned as President of the Company in connection with the
election of Glenn C. Hazard as President and Chief Operating Officer of the
Company in April 1996. Mr. Zirkle continues to serve as Chief Executive Officer
of the Company. His resignation as President has had no effect on his
employment agreement.
For a discussion of the Employment Agreements to be entered into with Messrs.
Kimberley, Simkin and Whitehead, see "The Merger and Related Transactions--
Interests of Certain Persons in the Merger--Employment Agreements with Certain
Firefox Officers."
122
CERTAIN TRANSACTIONS
During the fourth quarter of 1995, FTP and David D. Clark, a Director of FTP,
entered into an oral consulting agreement pursuant to which FTP has retained
Dr. Clark as a consultant in the areas of technology, strategy, product
development and technology diligence related to corporate transactions, among
other things, at a fee of $3,000 per day. No services were performed by Dr.
Clark under this agreement during 1995.
In connection with the relocation of John J. Warnock, Jr., FTP's new Senior
Vice President, Chief Financial Officer and Treasurer, from Pennsylvania to
FTP's executive offices in Massachusetts, FTP has provided to Mr. Warnock a
non-interest bearing bridge loan in the principal amount of $95,000 for the
purchase of Mr. Warnock's new residence in Massachusetts and has agreed to pay
certain related closing costs and to reimburse Mr. Warnock for all mortgage
payments payable under the mortgage on Mr. Warnock's former Pennsylvania
residence for the period commencing upon the purchase of Mr. Warnock's
Massachusetts residence and continuing until the sale of Mr. Warnock's
Pennsylvania residence or October 31, 1996, whichever is earlier. The bridge
loan is repayable in full on the 15th day following the sale of Mr. Warnock's
Pennsylvania residence or, if Mr. Warnock should cease to be an employee of FTP
before that date, on the date he ceases to be an employee, and is secured by a
second mortgage on Mr. Warnock's Pennsylvania residence.
122--1
FTP STOCK OWNERSHIP
The following table and footnotes set forth certain information regarding
the beneficial ownership of the FTP Common Stock as of June 11, 1996, before
giving effect to the Merger, by (i) each of the FTP Named Executive Officers,
(ii) each of the Directors of FTP and (iii) all Directors, FTP Named Executive
Officers and other executive officers of FTP as a group. FTP does not know of
any person (including any "group" as that term is used in Section 13(d)(3) of
the Exchange Act) that is a beneficial owner of more than 5% of the
outstanding shares of the FTP Common Stock, the only outstanding class of
voting securities of FTP.
SHARES OF FTP COMMON
STOCK BENEFICIALLY OWNED
------------------------
NUMBER OF PERCENT
DIRECTORS AND NAMED EXECUTIVE OFFICERS SHARES OF CLASS
-------------------------------------- ---------- --------
David H. Zirkle............................. 425,564(2) 1.55%
Dean L. Carmeris............................ 40,000(3) *
Douglas F. Flood............................ 22,563(4) *
Robert W. Goodnow, Jr.+..................... 782,577 2.90%
John H. Keller.............................. 104,210(5) *
Penny C. Leavy.............................. 72,474(6) *
Vinton G. Cerf.............................. 25,000(7) *
David D. Clark.............................. -- *
F. David Fowler............................. 5,167(8) *
Louise A. Mathews........................... -- *
All Directors, Named Executive Officers and
other executive officers as a group (12
persons)................................... 1,477,555(9) 5.34%
- --------
* Less than 1%.
+ Mr. Goodnow resigned as a Director and officer of FTP in October 1995.
(1) The address of all Named Executive Officers and Directors is care of FTP,
100 Brickstone Square, Fifth Floor, Andover, Massachusetts 01810. Only the
Named Executive Officers are listed individually.
(2) Includes 423,426 shares issuable pursuant to outstanding options
exercisable within 60 days.
(3) Includes 40,000 shares issuable pursuant to outstanding options
exercisable within 60 days.
(4) Includes 21,750 shares issuable pursuant to outstanding options
exercisable within 60 days.
(5) Includes 104,210 shares issuable pursuant to outstanding options
exercisable within 60 days.
(6) Includes 62,036 shares issuable pursuant to outstanding options
exercisable within 60 days.
(7) Includes 25,000 shares issuable pursuant to outstanding options
exercisable within 60 days.
(8) Includes 4,167 shares issuable pursuant to outstanding options exercisable
within 60 days.
(9) Includes 680,589 shares issuable pursuant to outstanding options
exercisable within 60 days.
123
FIREFOX STOCK OWNERSHIP
The following table and footnotes set forth certain information regarding
the beneficial ownership of the Firefox Common Stock as of June 11, 1996,
before giving effect to the Merger, by (i) persons known by Firefox to be
beneficial owners of more than 5% of the outstanding Firefox Common Stock,
(ii) the Chief Executive Officer and the other three most highly compensated
executive officers of Firefox whose salary and bonus exceeded $100,000 for the
fiscal year ended December 31, 1995 (collectively, the "Firefox Named
Executive Officers"), (iii) each of the directors of Firefox and (iv) all
executive officers and directors of Firefox as a group:
SHARES OF FIREFOX COMMON
STOCK BENEFICIALLY OWNED
-----------------------------
DIRECTORS, EXECUTIVE OFFICERS
AND 5% BENEFICIAL OWNERS (1) SHARES PERCENT(2)
----------------------------- -------------- --------------
John A. Kimberley.............................. 1,474,298 21.9%
Richard J. Whitehead........................... 1,338,000 19.9%
Kopp Investment Advisers, Inc.(3).............. 1,098,915 16.3%
6600 France Avenue South, Suite 672
Edina, MN 55435
Peter R. Simkin................................ 465,000 6.9%
GeoCapital Corporation(4)...................... 362,200 5.4%
767 Fifth Avenue
New York, NY 10153
Frank M. Richardson............................ 250,080 3.7%
Mark A. Rowlinson.............................. 106,212 1.6%
Archibald A. Thomas............................ 21,702 *
James L. Clark................................. -- *
All directors and executive officers as a group
(8 persons)................................... 3,656,792 54.3%
- --------
* Represents less than 1%.
(1) Except as set forth herein, the address of the persons set forth in this
table is the address of Firefox set forth elsewhere in this Joint Proxy
Statement/Prospectus. The persons named in this table have sole voting and
investment power with respect to all Firefox Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable.
(2) Percentage of ownership is based on 6,735,484 shares of Firefox Common
Stock outstanding as of June 11, 1996.
(3) The number of shares held is based on information supplied by the
identified holder. According to such holder, although Kopp Investment
Advisers, Inc. ("KIA") exercises investment discretion over such shares,
neither KIA nor LeRoy C. Kopp (100% owner of KIA) vote the shares, and
neither is the record owner of such shares.
(4) The number of shares held is based on information supplied by the
identified holder.
124
DESCRIPTION OF FTP CAPITAL STOCK
The following description of the capital stock of FTP and certain provisions
of FTP's Restated Articles of Organization, as amended (the "FTP Articles"),
and Amended and Restated Bylaws (the "FTP Bylaws") is a summary which sets
forth all material provisions of, and (without limiting the foregoing) is
qualified in its entirety by reference to the provisions of, the FTP Articles
and FTP Bylaws, copies of which have been filed as exhibits to the
Registration Statement of which this Joint Proxy Statement/Prospectus is a
part and are available as described under "Available Information."
FTP's authorized capital stock consists of 50,000,000 shares of FTP Common
Stock, $0.01 par value per share, and 5,000,000 shares of preferred stock,
$0.01 par value per share ("Preferred Stock"), of which FTP's Board of
Directors has designated 500,000 shares as junior preferred stock, $0.01 par
value per share ("Junior Preferred Stock"). As of the FTP Record Date, there
were approximately 315 record holders of FTP Common Stock. As of such date,
there were no shares of Preferred Stock or Junior Preferred Stock outstanding.
COMMON STOCK
Holders of FTP Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and have no preemptive,
conversion or other rights to subscribe for additional shares or other
securities of FTP. There are no cumulative voting rights, with the result
that, subject to the rights of the holders of outstanding shares of any series
of Preferred Stock issued in the future, holders of an aggregate of more than
50% of the outstanding shares of FTP Common Stock are able to elect FTP's
directors whose term expires at the next annual meeting. See "--Junior
Preferred Stock" below for a description of the voting rights of such stock.
Holders of FTP Common Stock are entitled to such dividends as may be declared
by the FTP Board of Directors out of funds legally available therefor. On
liquidation, dissolution or winding up of FTP, the holders of FTP Common Stock
are entitled to receive pro rata the net assets of FTP remaining after the
payment of all creditors and all liquidation preferences, if any, of holders
of Preferred Stock. See "--Junior Preferred Stock" below for a description of
certain preferential dividend and liquidation rights of such stock. All of the
outstanding shares of FTP Common Stock are, and the shares to be issued by FTP
pursuant to the Merger, upon their issuance and sale in accordance with the
Merger Agreement, will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors of FTP is authorized, subject to any limitations
prescribed by law, from time to time to issue up to an aggregate of 5,000,000
shares of Preferred Stock with such powers, designations, preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be determined by
the Board of Directors in a resolution or resolutions providing for the issue
of such Preferred Stock. Thus, any series may, if so determined by the Board
of Directors, have full voting rights with the FTP Common Stock or superior or
limited voting rights, be convertible into FTP Common Stock or another
security of FTP, and have such other preferences, relative rights, and
limitations as FTP's Board of Directors shall determine. As a result, any
series of Preferred Stock could have rights which would adversely affect the
voting power of the FTP Common Stock. See "--Junior Preferred Stock" below for
a description of the voting rights of such stock. The shares of any class or
series of Preferred Stock need not be identical. The issuance of Preferred
Stock could have the effect of delaying or preventing a change in control of
FTP without any further action by shareholders. See "--Junior Preferred Stock"
and "--Rights" below. FTP has no present plans, understandings, agreements or
arrangements to issue any shares of Preferred Stock other than shares of
Junior Preferred Stock issuable upon exercise of the Rights described under
"--Rights" below.
JUNIOR PREFERRED STOCK
The FTP Board of Directors has designated 500,000 shares of the Preferred
Stock as Junior Preferred Stock, which may be purchased by the holders of the
Rights described under "--Rights" below. The rights of the holders of Junior
Preferred Stock are set forth in a Certificate of Designation, Preferences and
Rights of Junior
125
Preferred Stock filed with the Secretary of The Commonwealth of Massachusetts
on December 11, 1995. The number of shares of Junior Preferred Stock may be
increased or decreased by the FTP Board of Directors, but may not be decreased
below the number of shares of Junior Preferred Stock then outstanding plus the
number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon conversion of any outstanding securities
convertible into Junior Preferred Stock.
Subject to the prior and superior rights of the holders of any shares of any
series of Preferred Stock ranking prior and superior to the shares of Junior
Preferred Stock with respect to dividends, the holders of shares of Junior
Preferred Stock shall be entitled to receive, when, as and if declared by the
FTP Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the last day of March, June, September
and December in each year (each, a "Quarterly Dividend Payment Date"), in an
amount equal to the greater of (i) $1.00 or (ii) subject to adjustment in
certain events, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions (other than a dividend payable
in shares of FTP Common Stock or a subdivision of the outstanding shares of
FTP Common Stock), declared on the FTP Common Stock since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Junior Preferred Stock. The rights of the holders of
Junior Preferred Stock to receive dividends are cumulative.
The terms of the Junior Preferred Stock provide that FTP shall declare a
dividend or distribution on the Junior Preferred Stock immediately after it
declares a dividend or distribution on the FTP Common Stock (other than a
dividend payable in shares of, or a subdivision with respect to, the FTP
Common Stock). However, if no dividend or distribution shall have been
declared on the FTP Common Stock during the period between any Quarterly
Dividend Payment Date, a dividend of $1.00 per share on the Junior Preferred
Stock shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
Holders of shares of Junior Preferred Stock are entitled to one hundred
votes, subject to adjustment in certain events, for each share of Junior
Preferred Stock held, on all matters submitted to a vote of FTP's
stockholders. On liquidation, dissolution or winding up of FTP, the holders of
shares of Junior Preferred Stock are entitled to receive $100.00 per share
plus an amount equal to all accrued and unpaid dividends and distributions
thereon, prior to any distribution to the holders of shares of FTP Common
Stock or any other stock of FTP ranking junior to the Junior Preferred Stock.
If FTP shall enter into any consolidation, merger, combination or other
transaction in which the outstanding shares of FTP Common Stock are exchanged
for or changed into other stock or securities, cash and/or any other property,
then the outstanding shares of Junior Preferred Stock shall be similarly
exchanged or changed in an amount per share (subject to adjustment in certain
events) equal to 100 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of FTP Common Stock is changed or exchanged. Shares of
Junior Preferred Stock may be purchased by FTP at such times and on such terms
as may be agreed to between FTP and the holder of such shares, subject to any
limitation which may be imposed by law or by the FTP Articles. The terms of
the Junior Preferred Stock further provide that the FTP Articles shall not be
amended in any manner which would materially alter or change the powers,
preferences or special rights of the Junior Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of at least two-
thirds of the outstanding shares of Junior Preferred Stock, voting together as
a single class.
RIGHTS
On December 1, 1995, the FTP Board of Directors declared a dividend of one
purchase right (a "Right") for every outstanding share of FTP Common Stock.
The Rights were distributed to holders of record of the FTP Common Stock as of
the close of business on December 8, 1995 (the "Dividend Record Date"). The
terms of the Rights are set forth in a Rights Agreement dated as of December
1, 1995 (the "Rights Agreement") between FTP and State Street Bank and Trust
Company (the "Rights Agent"). The Rights Agreement provides for the issuance
of one Right for every share of FTP Common Stock issued and outstanding on the
Dividend Record
126
Date and for each share of FTP Common Stock which is issued or sold after that
date and prior to the "Distribution Date" (as defined below).
Each Right entitles the holder to purchase from FTP one one-hundredth of a
share of Junior Preferred Stock at an exercise price of $150, subject to
adjustment in certain events. The Rights will expire on December 1, 2005 (the
"Expiration Date"), or upon the earlier redemption of the Rights, and are not
exercisable until the Distribution Date.
No separate Rights certificates have been issued as of the date of this
Joint Proxy Statement/Prospectus. Until the Distribution Date (or earlier
redemption or expiration of the Rights), (i) the Rights will be evidenced by
the FTP Common Stock certificates and will be transferred with and only with
the FTP Common Stock certificates, (ii) new FTP Common Stock certificates
issued after the Dividend Record Date upon transfer or new issuance of shares
of FTP Common Stock will contain a notation incorporating the Rights Agreement
by reference and (iii) the surrender for transfer of any FTP Common Stock
certificate will also constitute the transfer of the Rights associated with
the shares of FTP Common Stock represented by such certificate.
The Rights will separate from the FTP Common Stock on the Distribution Date.
Unless otherwise determined by a majority of the FTP Board of Directors then
in office, the Distribution Date (the "Distribution Date") will occur on the
earlier of (i) the 10th business day following the later of (A) the date of a
public announcement that a person, together with its affiliates and
associates, except as described below, has acquired or obtained the right to
acquire beneficial ownership of 15% or more of the outstanding shares of FTP
Common Stock (collectively, an "Acquiring Person") or (B) the date on which an
executive officer of FTP has actual knowledge that an Acquiring Person has
become such (the "Stock Acquisition Date"), or (ii) the 10th business day
following commencement of a tender offer or exchange offer that would result
in any person, together with its affiliates and associates, owning 15% or more
of the outstanding FTP Common Stock. After the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of the FTP Common Stock as of the close of business on the
Distribution Date and thereafter such separate Rights Certificates alone will
evidence the Rights. The Board may delay the distribution of the Rights
Certificates.
If, at any time after December 1, 1995, any person or group of affiliated or
associated persons (other than FTP and its affiliates) shall become an
Acquiring Person, each holder of a Right will have the right to receive, upon
payment of the then-current exercise price of the Right, shares of FTP Common
Stock (or, in certain circumstances, cash, property or other securities of
FTP) having a market value of two times the then-current exercise price of the
Right. Following the occurrence of any of such event, any Rights that are, or
(under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person shall immediately become null and
void.
The FTP Board of Directors may, at its option, at any time after any person
becomes an Acquiring Person, exchange all or part of the then outstanding and
exercisable Rights for shares of FTP Common Stock at an exchange ratio of one
share of FTP Common Stock per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after December 1,
1995 (as the same may be adjusted, the "Rights Exchange Ratio"). The FTP
Board, however, may not effect any exchange at any time after any person
(other than (i) FTP, (ii) any subsidiary of FTP, (iii) any employee benefit
plan of FTP or of any subsidiary of FTP or (iv) any entity holding FTP Common
Stock for or pursuant to the terms of any such plan), together with all
affiliates of such person, becomes the beneficial owner of 50% or more of the
FTP Common Stock then outstanding. Immediately upon the action of the FTP
Board ordering the exchange of any Rights and without any further action and
without any notice, the right to exercise such Rights will terminate and the
only right thereafter of a holder of such Rights will be to receive that
number of shares of FTP Common Stock equal to the number of such Rights held
by the holder multiplied by the Rights Exchange Ratio.
The exercise price of the Rights, and the number of one one-hundredths of a
share of Junior Preferred Stock or other securities or property issuable upon
exercise of the Rights, are subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of,
127
the Junior Preferred Stock, (ii) upon the grant to holders of the Junior
Preferred Stock of certain rights or warrants to subscribe for shares of the
Junior Preferred Stock or certain convertible securities at less than the
current market price of the Junior Preferred Stock, or (iii) upon the
distribution to holders of the Junior Preferred Stock of evidences of
indebtedness or assets (excluding cash dividends paid out of the earnings or
retained earnings of FTP and certain other distributions) or of subscription
rights or warrants (other than those referred to above).
At any time prior to the close of business on the Expiration Date, FTP, by a
majority vote of the FTP Board of Directors, may redeem the Rights at a
redemption price of $.01 per Right, subject to adjustment in certain events
(as the same may be adjusted, the "Redemption Price"). Immediately upon the
action of the FTP Board electing to redeem the Rights, the right to exercise
the Rights will terminate, and the only right of the holders of Rights will be
to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of FTP, including, without limitation, the right to vote or
to receive dividends.
The separation of the Rights on the Distribution Date will not be a taxable
event for FTP or its stockholders. Holders of Rights may, depending upon the
circumstances, recognize taxable income upon the occurrence of certain Rights
triggering events including a tender offer for 15% or more of the outstanding
FTP Common Stock or a person or group attaining beneficial ownership of 15% or
more of the outstanding FTP Common Stock (collectively, "Common Stock
Events"). In addition, holders of Rights may have taxable income as a result
of (i) an exchange by FTP of shares of FTP Common Stock for Rights as
described above or (ii) certain anti-dilution adjustments made to the terms of
the Rights after the Distribution Date. A redemption of the Rights would be a
taxable event to holders.
The Rights Agreement may be amended by the FTP Board at any time prior to
the Distribution Date without the approval of the holders of the Rights. From
and after the Distribution Date, the Rights Agreement may be amended by the
FTP Board without the approval of the holders of the Rights in order to cure
any ambiguity, to correct any defective or inconsistent provisions, to change
any time period for redemption or any other time period under the Rights
Agreement or to make any other changes that do not adversely affect the
interests of the holders of the Rights (other than any Acquiring Person or its
affiliates and associates or their transferees).
CERTAIN CHARTER AND BYLAW PROVISIONS
The FTP Articles and the FTP Bylaws contain certain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of FTP's Board of Directors and in the policies formulated by the
Board and to delay or prevent a change in control of FTP if the Board
determines that such a change in control is not in the best interests of FTP
and its stockholders. The Board, in determining whether a change of control is
in the best interests of the FTP and its stockholders, may consider a variety
of factors, depending on the circumstances, including, without limitation, the
long-term and short-term interests of FTP and its stockholders, whether the
proposed transaction might violate federal or state laws, the consideration
being offered in a proposed transaction in relation to current and historical
market prices, economic, market and other factors bearing on securities
prices, FTP's financial condition and future prospects, the interests of FTP's
employees, suppliers, creditors and customers, the economy and community and
societal considerations. These provisions could have the effect of
discouraging attempts to acquire control of FTP even if some or a majority of
FTP's stockholders deem such an attempt to be in its best interest. FTP is not
able to predict at this time the nature of any attempts to acquire control of
FTP and therefore cannot determine whether any particular attempt would be
discouraged by these provisions.
Pursuant to the FTP Articles and FTP Bylaws, the Board of Directors of FTP
has been divided into three classes serving staggered three-year terms. See
"Management of FTP--Executive Officers and Directors." Directors can be
removed from office only for cause and only by the affirmative vote of the
holders of two-thirds
128
of the voting power of the then outstanding shares of capital stock of FTP
entitled to vote generally in the election of directors, voting together as a
single class.
The FTP Bylaws provide that stockholders may not take action by written
consent.
The FTP Articles authorize, and the FTP Bylaws establish, procedures,
including advance notice procedures, with regard to the nomination, other than
by or at the direction of the FTP Board of Directors, of candidates for
election as directors and with regard to certain matters to be brought before
meetings of stockholders of FTP. In general, notice must be received by FTP
not less than 60 days nor more than 90 days prior to the stockholder meeting
and must contain certain specified information concerning the persons to be
nominated or the matters to be brought before the meeting and concerning the
stockholder submitting the proposal. In addition, the FTP Bylaws require that
any such nomination of a candidate for election as a director be accompanied
by a petition signed by at least 100 record holders of the capital stock
entitled to vote in the election of directors, representing in the aggregate
at least 1% of the outstanding capital stock entitled to vote thereon. Such
procedures also authorize regulation of the order of business and conduct of
stockholder meetings, the authority of the presiding officer and attendance at
such meetings.
The FTP Board of Directors is permitted pursuant to the FTP Articles to
consider special factors, such as employee welfare and the future prospects of
FTP, in determining what the FTP Board reasonably believes to be in the best
interests of FTP when evaluating proposed tender or exchange offers or
business combinations.
The affirmative vote of 80% of the total number of votes of the then
outstanding shares of capital Stock entitled to vote generally in the election
of directors, voting together as a single class, is required to amend certain
provisions of the FTP Articles, including the provisions referred to above
relating to the classification of the FTP Board, interested transaction
provisions, director exculpation provisions, evaluation of certain
transactions and regulation of nominations of directors and of business to be
conducted at meetings of stockholders. The requirement of a supermajority vote
to approve certain amendments to the FTP Articles could enable a minority of
FTP's stockholders to exercise veto powers over such transactions and
amendments. The persons who are expected to serve as FTP's executive officers
and directors immediately following the Merger (including Messrs. Kimberley,
Simkin and Whitehead) will beneficially own approximately 15% of the FTP
Common Stock outstanding after giving effect to the Merger. See "Management of
FTP--Executive Officers and Directors" and "FTP Stock Ownership."
The FTP Articles provide that no director of FTP shall be liable to FTP or
its stockholders for monetary damages for any breach of fiduciary duty, except
to the extent such exculpation from liability is not permitted under the
Massachusetts Business Corporation Law (the "MBCL"). This provision does not
prevent stockholders from obtaining injunctive or other equitable relief
against directors nor does it shield directors from liability under federal or
state securities laws.
MASSACHUSETTS "ANTI-TAKEOVER" LAWS
FTP is covered by the provisions of Chapter 110F of the MBCL, known as the
Business Combination Statute. Under Chapter 110F, a Massachusetts corporation
with more than 200 stockholders may not engage in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person becomes an interested stockholder, unless
(i) the interested stockholder obtains the approval of the board of directors
prior to becoming an interested stockholder, (ii) the interested stockholder
acquires 90% of the outstanding voting stock of the corporation (excluding
shares held by certain affiliates of the corporation) at the time it becomes
an interested stockholder or (iii) the business combination is approved by
both the board of directors and the holders of two-thirds of the outstanding
voting stock of the corporation (excluding shares held by the interested
stockholder). An "interested stockholder" is a person who, together with its
affiliates and associates, owns (or at any time within the prior three years
did own) 5% or more of the outstanding voting stock of the corporation. A
"business combination" includes a merger, a stock or asset sale, and other
transactions resulting in a financial benefit to the interested stockholder.
129
The FTP Bylaws provide that the provisions of Chapter 110D of the MBCL,
known as the Control Share Statute, shall not apply to FTP. However, FTP may
in the future become subject to the statute if its Board of Directors votes to
amend the FTP Bylaws so as to make the statute applicable to FTP. In general,
if the Control Share Statute were applicable, it would provide that any person
or entity that acquired 20% or more of FTP's outstanding voting stock could
not vote such stock unless the other stockholders of FTP were to so authorize.
FTP is not subject to the provisions of Chapter 156B, Section 50A of the
MBCL providing for an automatic classified board of directors for any
corporation which has a class of voting stock registered under the Exchange
Act. However, the FTP Articles and the FTP Bylaws provide for a classified
board of directors as described above under "--Certain Charter and Bylaw
Provisions." See "Management of FTP--Executive Officers and Directors."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the FTP Common Stock is State Street
Bank and Trust Company.
COMPARISON OF RIGHTS OF STOCKHOLDERS OF FTP AND FIREFOX
The following is a summary of certain of the material differences between
the rights of holders of FTP Common Stock and the rights of holders of Firefox
Common Stock.
Until the Merger, the rights of Firefox's stockholders will continue to be
governed by the Restated and Amended Certificate of Incorporation of Firefox
(the "Firefox Certificate") and the Bylaws of Firefox (the "Firefox Bylaws")
and also by the laws of the State of Delaware, including the Delaware General
Corporation Law (the "DGCL"). If the Merger is consummated, holders of Firefox
Common Stock will become holders of FTP Common Stock. Upon consummation of the
Merger, the rights of former Firefox stockholders will be governed by the laws
of The Commonwealth of Massachusetts, including the MBCL and will also be
governed by the FTP Articles and the FTP Bylaws. The following is a summary
comparison of certain differences between the rights of holders of FTP Common
Stock under the FTP Articles and FTP Bylaws and the MBCL and the rights of
holders of Firefox Common Stock under the Firefox Certificate and Firefox
Bylaws and the DGCL. This summary does not purport to be complete and is
qualified in its entirety by reference to the corporate statutes of
Massachusetts and Delaware, and the corporate charters and bylaws of FTP and
Firefox.
SPECIAL MEETING OF STOCKHOLDERS
The DGCL provides that special meetings of stockholders may be called only
by the directors or by any other person or persons as may be authorized by the
corporation's certificate of incorporation or bylaws. The Firefox Bylaws
provide that special meetings may be called, at any time, by the Firefox Board
of Directors or the holders of not less than 10% of all shares entitled to
vote on the subject matter for which the special meeting is called, voting
together as a single class.
The FTP Bylaws provide that special meetings of stockholders may be called
by the President or by the Board of Directors of FTP, and shall be called by
the Clerk (or, in certain circumstances, any other officer) upon written
application of stockholders who hold at least 40% in interest of the capital
stock of FTP entitled to be voted at the proposed meeting. Under the MBCL,
special meetings of stockholders of a corporation with a class of voting stock
registered under the Exchange Act, unless otherwise provided in the articles
of organization or bylaws, must be called by the clerk (or, in certain
circumstances, any other officer) upon written application by stockholders who
hold at least 40% in interest of the capital stock entitled to vote thereat.
INSPECTION RIGHTS
Under the DGCL, every stockholder has a right to examine, in person or by
agent or attorney, during the usual hours for business, and for any proper
purpose, the corporation's stock ledger, a list of its stockholders and
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its other books and records, and to make copies or extracts therefrom. In
order to exercise the foregoing right, a stockholder must submit a written
demand to the corporation, under oath, stating the purpose of the inspection.
Upon refusal of the corporation (or its agent or an officer of the
corporation) to permit an inspection demanded by a stockholder, or of a
failure to reply to a stockholder's demand within five business days after
such demand has been made, a stockholder may apply to the Delaware Court of
Chancery to compel the inspection. Where a stockholder seeks to have the
Chancery Court compel an inspection of the corporation's books and records,
other than its stock ledger or list of stockholders, the stockholder must
first establish that it has complied with the formal requirements of making a
demand for inspection and that the inspection is for a proper purpose. For
purposes of this provision of the DGCL, a "proper purpose" is one that is
reasonably related to such person's interest as a stockholder. The Firefox
Bylaws provide that Firefox shall prepare a complete list of stockholders
entitled to vote at a given meeting, at least 10 days before such meeting.
Such list shall be open for examination by any stockholder for any purpose
germane to the relevant meeting, during regular business hours, for a period
of at least 10 days prior to such meeting.
The MBCL requires that every domestic corporation maintain in Massachusetts,
and make available for inspection by its stockholders, the original, or
attested copies of, the corporation's articles of organization, bylaws,
records of all meetings of incorporators and stockholders, and the stock and
transfer records listing the names of all stockholders and their record
addresses and the amount of stock held by each. The MBCL further provides that
if any officer or agent of a corporation having charge of such corporate
records (or copies thereof) refuses or neglects to exhibit them in legible
form or to produce for examination a list of stockholder names, record
addresses and amount of stock held by each, such officer or agent or the
corporation will be liable to any stockholder for actual damages sustained by
reason of such refusal or neglect. In an action for damages or a proceeding in
equity under the foregoing provision, however, it is a defense to such action
that the actual purpose and reason for the inspection being sought is to
secure a list of stockholders or other information for the purpose of selling
the list or other information or of using them for purposes other than in the
interest of the person seeking them, as a stockholder, relative to the affairs
of the corporation. The foregoing rights relating to inspection are deemed to
include the right to copy materials and to be represented by agent or counsel
in exercising these rights. In addition to the rights of inspection provided
by the MBCL, a stockholder of a Massachusetts corporation has a common law
right to inspect additional documents which, if such request is refused by the
corporation, may be obtained by petitioning a court for the appropriate order.
In petitioning a court for such an order, the granting of which is
discretionary, the stockholder has the burden of demonstrating (i) that such
holder is acting in good faith and for the purposes of advancing the interests
of the corporation and protecting such holder's own interest as a stockholder
and (ii) that the requested documents are relevant to those purposes.
The FTP Articles provide that no stockholder shall have any right to examine
any property or any books, accounts or writings of FTP upon a vote of the FTP
Board of Directors refusing such permission and stating that in the opinion of
the Board of Directors such examination would be adverse to the interests of
FTP. Such vote shall be prima facie evidence that such examination would be
adverse to the interests of FTP. Every such examination shall also be subject
to such reasonable regulations as the FTP Board of Directors may establish
without a meeting.
ACTION BY CONSENT OF STOCKHOLDERS
Under the DGCL, unless the certificate of incorporation provides otherwise,
any action required or permitted to be taken by stockholders at a meeting may
be taken without a meeting, without prior notice and without a vote, if the
stockholders having the number of votes that would be necessary to take such
action at a meeting at which all stockholders were present and voted, consent
to the action in writing and the written consents are filed with the records
of the meetings of stockholders. The Firefox Certificate, however, prohibits
an action to be taken by stockholders by a consent in writing.
Under the MBCL, any action required or permitted to be taken by stockholders
at a meeting may be taken without a meeting if all stockholders entitled to
vote on the matter consent to the action in writing and the written
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consents are filed with the records of the meetings of stockholders. The FTP
Bylaws prohibit taking action by written consent.
CUMULATIVE VOTING
Under the DGCL, a corporation may provide in its certificate of
incorporation for cumulative voting by stockholders in the election of
directors. The Firefox Certificate does not provide for cumulative voting. The
MBCL has no cumulative voting provision, and the FTP Articles do not provide
for it.
DIVIDENDS AND STOCK REPURCHASES
Under the DGCL, a corporation generally is permitted to declare and pay
dividends out of surplus or out of net profits for the current and/or
preceding fiscal year, provided that the capital of the corporation is not
less than the aggregate amount of capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets. In addition, under the DGCL a corporation may generally redeem or
repurchase shares of its stock if the capital of the corporation is not
impaired and if such redemption or repurchase will not impair the capital of
the corporation. Under the DGCL, the directors of a corporation are jointly
and severally liable for negligently or willfully making improper dividend
payments, stock repurchases or redemptions. Directors held to be liable
pursuant to this provision of the DGCL are entitled to be subrogated to the
rights of the corporation against stockholders receiving dividends on, or
assets for the sale or redemption of, their stock with knowledge that such
dividend, repurchase or redemption was unlawful.
Under the MBCL, the directors of a corporation will be jointly and severally
liable if a payment of dividends or a repurchase of a corporation's stock is
(i) made when the corporation is insolvent, (ii) renders the corporation
insolvent or (iii) violates the corporation's articles of organization.
Stockholders to whom a corporation makes any distribution (except a
distribution of stock of the corporation) if the corporation is, or is thereby
rendered, insolvent, are liable to the corporation for the amount of such
distribution made, or for the amount of such distribution which exceeds that
which could have been made without rendering the corporation insolvent, but in
either event only to the extent of the amount paid or distributed to them,
respectively. In such event, a stockholder who pays more than such holder's
proportionate share of such distribution or excess shall have a claim for
contribution against the other stockholders.
The Firefox Certificate provides that holders of Firefox Series A Preferred
Stock are entitled to receive, when and as declared by the Firefox Board of
Directors, out of any assets of Firefox legally available therefor, and pari
passu with the holders of Firefox Common Stock, such dividends as may be
declared by the Firefox Board of Directors. No shares of such Series A
Preferred Stock are currently outstanding.
The FTP Articles provide that the FTP Board of Directors may determine what
amounts, if any, of the earnings of FTP deemed to be surplus shall be declared
as dividends. See "Description of FTP Capital Stock--Junior Preferred Stock"
for a description of the preferential dividend rights of such stock. Since
1992, FTP has not paid or declared any cash dividends on its stock and does
not anticipate doing so in the foreseeable future.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The DGCL permits (but does not require) classification of a corporation's
board of directors into one, two or three classes. Under the DGCL, the number
of directors shall be fixed or determined in the manner the bylaws provide,
unless the corporation's certificate of incorporation fixes the number of
directors, in which case the number of directors may only be changed by
amending the certificate of incorporation. The Firefox Certificate and the
Firefox Bylaws provide for the classification of the Firefox Board of
Directors into three classes, with the terms of the classes staggered so that
only one class is elected each year, in each case for a three-year term or
until a successor to each director in each such class is duly elected and
qualified. The Firefox Certificate and the Firefox Bylaws provide that the
number of directors shall initially be six and thereafter shall be fixed by
resolution of the Board of Directors.
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The MBCL requires classification of a public corporation's board of
directors into three classes (each having a three-year term) and imposes
certain other obligations, unless the directors of such public corporation
elect by vote to be exempt from such requirement or the stockholders of such
public corporation, at a meeting duly called for such purpose, elect to be
exempt from such requirement by a vote of two-thirds of each class of stock
outstanding. The FTP Articles and FTP Bylaws provide for the classification of
the FTP Board of Directors into three classes, as nearly equal in number as
possible, with the terms of the classes staggered so that only one class is
elected each year, in each case for a three-year term or until a successor to
each director in each such class is duly elected and qualified. The FTP Bylaws
provide that the number of directors of FTP shall be at least three and not
more than 15. The number of directors may be increased or decreased either by
the stockholders or by the directors by vote of a majority of the directors
then in office. See "Management--Executive Officers and Directors" and
"Description of FTP Capital Stock."
REMOVAL OF DIRECTORS
Under the DGCL, stockholders may generally remove directors with or without
cause by majority vote; however, stockholders may remove members of a
classified board only for cause, unless the certificate of incorporation
provides otherwise. The Firefox Bylaws provide that any one or all of the
directors may be removed at any time for cause, by the holders of a majority
of the shares then entitled to vote at an election of directors, voting
together as a single class. Delaware law does not permit directors to remove
other directors.
Under the MBCL, in the case of a public company such as FTP, which has not
elected to be exempt from the provision of the MBCL that requires a classified
board, directors may be removed by the stockholders only for cause by the
affirmative vote of a majority of the shares entitled to vote in the election
of directors. The FTP Bylaws provide that any director or directors may be
removed from office at any time, but only for cause and only by either the
vote of not less than two-thirds of the holders of the shares then entitled to
vote or by the vote of two-thirds of the directors then in office.
VACANCIES ON THE BOARD OF DIRECTORS
Under the DGCL, unless otherwise provided in the certificate of
incorporation or bylaws, vacancies on the board of directors and newly created
directorships resulting from any increase in the authorized number of
directors may be filled by the vote of a majority of directors then in office,
even though less than a quorum. The DGCL also provides that where directors
are elected by classes or series of stock, vacancies are to be filled by the
remaining directors elected by the class or series in whose directorships the
vacancy occurs. The Firefox Bylaws provide that subject to the rights of the
holders of any series of preferred stock then outstanding, newly created
directorships resulting from any increase in the authorized number of
directors or any vacancies in the Firefox Board of Directors for any other
reason may be filled only by a majority vote of the directors then in office,
though not less than a quorum, and directors so chosen shall hold office for a
term expiring at the next annual meeting of stockholders at which the term of
office of the class to which they have been elected expires.
The MBCL provides that in the case of a classified board (such as FTP's),
any vacancy in the board of directors, including a vacancy resulting from the
enlargement of the board of directors, shall be filled solely by the
affirmative vote of a majority of the directors then in office, even though
less than a quorum. The FTP Bylaws also provide that a sole remaining director
may fill a vacancy in the FTP Board of Directors. Newly created directorships
resulting from any increase in the number of directors shall be filled by the
FTP Board of Directors, or if not so filled, by the stockholders at the next
annual meeting thereof or at a special meeting called for that purpose.
EXCULPATION OF DIRECTORS
The DGCL permits a corporation to provide in its certificate of
incorporation that a director shall not be personally liable for monetary
damages stemming from breaches of fiduciary duties. Under the DGCL, a charter
provision limiting directorial liability cannot relieve a director of personal
liability for (i) any breach of the
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director's duty of loyalty to the corporation or its stockholders, (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) unlawful payment of dividends or unlawful
repurchases or redemptions of stock or (iv) any transactions from which the
director derived an improper personal benefit.
In Massachusetts, a corporation's articles of organization may limit the
personal liability of its directors for breaches of their fiduciary duties.
Under the MBCL, this limitation is generally unavailable for acts or omission
by a director which (i) were in violation of such director's duty of loyalty,
(ii) were in bad faith or which involved intentional misconduct or a knowing
violation of law or (iii) involved a financial profit or other advantage to
which the director was not legally entitled. The MBCL also prohibits the
elimination or limitation of director liability for unauthorized loans to
insiders or distributions that occur when a corporation is, or which renders a
corporation, insolvent.
The Firefox Certificate and the FTP Articles provide for limitations on
directors' liability as permitted by the DGCL and the MBCL, respectively.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Both the DGCL and the MBCL generally permit indemnification of directors,
officers, employees and certain others for expenses incurred by them by reason
of their position with the corporation, if such person has acted in good faith
and with the reasonable belief that his or her conduct was in the best
interest of the corporation. However, unlike the MBCL, the DGCL does not
permit a corporation to indemnify persons against judgments in actions brought
by or in the right of the corporation (although it does permit indemnification
in such situations if approved by the Delaware Court of Chancery and for
expenses related to such actions). In Delaware, any indemnification shall be
made by a corporation only as authorized in a specific case upon a
determination that the indemnified person has met the required standard of
conduct by (i) a majority vote of the directors not party to the relevant
action, even though less than a quorum, or if there are no such directors, or
if the directors so direct, by independent legal counsel in a written opinion,
or (ii) by the stockholders. Under the MBCL, indemnification may be provided
for in a corporation's articles of organization, bylaws adopted by
stockholders or by a vote of stockholders entitled to vote in the election of
directors.
The Firefox Bylaws provide that Firefox shall indemnify any director,
officer or trustee to the fullest extent permitted by Section 145 of the DGCL.
Firefox has entered into indemnity agreements with its directors and certain
of its officers pursuant to which Firefox has agreed to provide
indemnification to such persons for applicable amounts not covered by
directors' and officers' insurance.
The FTP Bylaws provide that FTP shall, to the extent legally permissible,
indemnify each of its directors and officers (including persons who were
acting at its request as directors, officers or trustees of another
organization or in any capacity with respect to any employee benefit plan)
against all liabilities and expenses, including amounts paid in satisfaction
of judgments, in compromise or as fines and penalties, and counsel fees,
reasonably incurred by such person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or
criminal, in which such person may be involved or with which such person may
be threatened; provided, however, that as to any matter disposed of by a
compromise payment by such director or officer, pursuant to a consent decree
or otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless such compromise shall be approved as in the
best interests of the corporation, after notice that it involves such
indemnification: (i) by a disinterested majority of the directors then in
office; or (ii) by a majority of the disinterested directors then in office,
provided that there has been obtained an opinion in writing of independent
legal counsel to the effect that such director or officer appears to have
acted in good faith in the reasonable belief that his or her action was in the
best interests of the corporation; or (iii) by the holders of a majority of
the outstanding stock at the time entitled to vote for directors, voting as a
single class, exclusive of any stock owned by any interested director or
officer. See "The Merger and Related Transactions--Interests of Certain
Persons in the Merger--Continuation of Rights to Indemnification; Limitation
of Liability; Directors' and Officers' Liability Insurance."
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INTERESTED DIRECTOR TRANSACTIONS
The DGCL provides that no transaction between a corporation and one or more
of its directors or officers, or an entity in which one or more of its
directors or officers are directors or officers or have a financial or other
interest, shall be void or voidable solely for that reason, nor will such a
transaction be void or voidable solely because the director or officer is
present at or votes at the meeting of the board of directors or committee
which authorizes the transaction or solely because his or her votes are
counted for such purpose, provided that (i) the material facts as to the
relationship or interest and as to the transaction are disclosed or are known
to the board of directors or a committee thereof and the board or committee
authorizes the transaction by the affirmative vote of a majority of the
disinterested directors even though the disinterested directors number less
than a quorum, (ii) the material facts as to the interested director's or
officer's relationship or interest and as to the transaction are disclosed or
are known to the stockholders entitled to vote thereon and the transaction is
specifically approved in good faith by vote of those stockholders or (iii) the
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified by the board of directors or committee or the
stockholders. The DGCL permits common or interested directors to be counted in
determining the presence of a quorum at a meeting of the board or of a
committee that authorizes an interested director or officer transaction.
The MBCL contains no provision comparable to that of the DGCL. The FTP
Articles provide that, in the absence of fraud, any director, officer or
stockholder individually (or any individual having any interest in any concern
which is a stockholder of FTP, or any concern in which any of such directors,
officers, stockholders or individuals has any interest) may be a party to, or
may be pecuniarily or otherwise interested in, any contract, transaction or
other act of FTP and (i) such contract, transaction or act shall not be in any
way invalidated or otherwise affected by that fact, (ii) no such director,
officer, stockholder or individual shall be liable to account to FTP for any
profit or benefit realized through any such contract, transaction or act and
(iii) any such director of FTP may be counted in determining the existence of
a quorum at any meeting of the directors or of any committee thereof which
shall authorize any such contract, transaction or act, and may vote to
authorize the same; provided, however, that any contract, transaction or act
in which any director or officer of FTP is so interested individually or as a
director, officer, trustee or member of any concern which is not a subsidiary
or affiliate of, or in which any directors or officers are so interested as
holders, collectively, of a majority of shares of capital stock or other
beneficial interest at the time outstanding in any concern which is not a
subsidiary or affiliate of FTP, shall be duly authorized or ratified by a
majority of the directors who are not so interested, to whom the nature of
such interest has been disclosed and who have made any findings required by
law.
The FTP Articles further provide that, to the extent permitted by law, the
authorizing or ratifying vote of the holders of a majority of the shares of
each class of the capital stock of FTP outstanding and entitled to vote for
directors at any meeting duly called for that purpose shall validate any
contract, transaction or act of FTP, or of the FTP Board of Directors or any
committee thereof, with regard to all stockholders of FTP, whether or not of
record at the time of such vote, and with regard to all creditors and other
claimants under FTP; provided, however, that: (i) the nature of such
contracts, transactions or acts and the interests of any director, officer or
stockholder therein shall be summarized in the notice of any such meeting, or
in a statement or letter accompanying such notice, and shall be fully
disclosed at any such meeting; (ii) the stockholders so voting shall have made
any findings required by law; (iii) the stockholders so interested may vote at
any such meeting except to the extent otherwise provided by law; and (iv) any
failure of stockholders to authorize or ratify such contract, transaction or
act shall not be deemed in any way to invalidate the same or to deprive FTP or
its directors, officers or employees of its or their right to proceed with
such contract, transaction or act.
FUNDAMENTAL TRANSACTIONS
The DGCL generally requires that mergers and consolidations, and sales,
leases or exchanges of all or substantially all of a corporation's property
and assets, be approved both by the directors and by a vote of the holders of
a majority of the outstanding stock entitled to vote, though a corporation's
certificate of incorporation may require a greater-than-majority vote. Under
the DGCL, a corporation that is the surviving corporation in a merger need not
have stockholder approval for the merger if (i) each share of the surviving
corporation's stock
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outstanding prior to the merger remains outstanding in identical form after
the merger, (ii) there is no amendment to its certificate of incorporation and
(iii) the consideration going to stockholders of the non-surviving corporation
is not common stock (or securities convertible into common stock) of the
surviving corporation or, if it is such stock or securities convertible into
such stock, the aggregate number of shares of common stock actually issued or
delivered, or initially issuable upon conversion does not exceed 20% of the
shares of the surviving corporation's common stock outstanding immediately
prior to the effective date of the merger. The Firefox Certificate does not
provide anything different from the DGCL requirements.
The MBCL generally requires approval of mergers and consolidations and
sales, mortgages, leases or exchanges of all or substantially all of a
corporation's property by a vote of two-thirds of the shares of each class of
stock outstanding and entitled to vote thereon, except that (i) the articles
of organization may provide (which the FTP Articles do) for a vote of a lesser
proportion but not less than a majority of each such class and (ii) unless
required by the corporation's articles of incorporation (which the FTP
Articles do not), an agreement providing for a merger need not be submitted to
the stockholders of a corporation surviving a merger but may be approved by
vote of its directors if (a) the agreement of merger does not change the name,
the amount of shares authorized of any class of stock or other provisions of
the articles of organization of such corporation, (b) the authorized unissued
shares or shares held in the treasury of such corporation of any class of
stock of such corporation to be issued or delivered pursuant to the agreement
of merger do not exceed 15% of the shares of such corporation of the same
class outstanding immediately prior to the effective date of the merger, and
(c) the issue by vote of the directors of any unissued stock to be issued
pursuant to the agreement of merger has been authorized in accordance with the
provision of the MBCL governing the issue of authorized but unissued capital
stock.
CHARTER AMENDMENTS
Under the DGCL, charter amendments require the approval of the board of
directors and both a general vote of a majority of all outstanding shares
entitled to vote thereon, and a class vote of a majority of outstanding shares
of each class entitled to vote as a class. In addition, the DGCL requires a
class vote when, among other things, an amendment will adversely affect the
powers, preferences or special rights of a particular class of stock. The
Firefox Certificate provides that the affirmative vote of the holders of 66
2/3% of the voting power of all of the then outstanding shares of capital
stock of Firefox entitled to vote generally in the election of directors,
voting together as a single class, is required in order to amend or repeal the
provisions of the Firefox Certificate that relate to: (i) the management of
the board of directors and the conduct of the affairs of the company; (ii) the
number of directors and other provisions relating to the directors; (iii) the
power of the board of directors to adopt, amend or repeal the Bylaws; (iv)
indemnification of directors; or (v) amending or repealing those provisions in
the Firefox Certificate described in (i) through (iv).
Under the MBCL, a majority vote of each class of stock outstanding and
entitled to vote thereon is required to authorize an amendment of the articles
of organization effecting one or more of the following: (i) an increase or
reduction of the capital stock of any authorized class; (ii) a change in the
par value of authorized shares with par value, or any class thereof; (iii) a
change of authorized shares (or any class thereof) from shares with par value
to shares without par value, or from shares without par value to shares with
par value; (iv) certain changes in the number of authorized shares (or any
class thereof); or (v) a corporate name change. Subject to certain conditions,
a two-thirds vote of each class of stock outstanding and entitled to vote
thereon is required to authorize any other amendment of the articles of
organization, or, if the articles of organization so provide, for a vote of a
lesser proportion but not less than a majority of each class of stock
outstanding and entitled to vote thereon. If any amendment requiring a two-
thirds vote would adversely affect the rights of any class or series of stock,
a two-thirds vote of such class voting separately, or a two-thirds vote of
such series, voting together with any other series of the same class adversely
affected in the same manner, is also necessary to authorize such amendment.
The FTP Articles require the vote of the holders of 80% of the then
outstanding shares of capital stock of FTP entitled to vote generally in the
election of directors in order to amend certain provisions of the FTP
Articles. See "Description of FTP Capital Stock--Certain Charter and Bylaw
Provisions."
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AMENDMENTS TO BYLAWS
Both the DGCL and the MBCL provide that stockholders may amend a
corporation's bylaws and, if so provided in its charter, the board of
directors may also have this power. Under the DGCL, the power to adopt, amend
or repeal bylaws lies in the stockholders entitled to vote; provided, however,
that any corporation may, in its certificate of incorporation, confer the
power to adopt, amend or repeal bylaws upon the directors. Under the MBCL, the
power to make, amend or repeal bylaws also lies in the stockholders entitled
to vote; provided, that if authorized by the articles of organization, the
bylaws may provide that the directors may also make, amend or repeal the
bylaws, except with respect to any provision which by law, the articles of
organization or the bylaws requires action by the stockholders.
The Firefox Certificate and the Firefox Bylaws provide that the Firefox
Board of Directors may adopt, amend or repeal bylaws by a majority vote of the
directors present at any meeting at which a quorum is present. The Firefox
Bylaws also expressly recognize the right of the stockholders to adopt, amend
or repeal bylaws, upon a vote of the holders of 66 2/3% of the issued and
outstanding stock entitled to vote at a meeting of the stockholders, voting
together as a single class.
The FTP Articles and FTP Bylaws provide that the FTP Board of Directors and
the stockholders, respectively, may amend or repeal the FTP Bylaws to the
extent permitted by law. The FTP Bylaws provide that any alteration, amendment
or repeal of a bylaw by the Board may be amended or repealed by the
stockholders. The FTP Articles provide that certain Bylaws, if enacted by the
FTP Board of Directors, may only be amended or repealed upon the affirmative
vote of two-thirds of the total number of votes then outstanding represented
by shares of FTP capital stock entitled to vote generally in the election of
directors, voting together as a single class. The FTP Bylaws further provide
that the FTP Board of Directors may not take any action which provides for the
indemnification of directors or which would alter the FTP Bylaw provisions
relating to amendments to the FTP Bylaws. See "Description of FTP Capital
Stock."
APPRAISAL RIGHTS
Under the DGCL, appraisal rights are available to dissenting stockholders in
connection with a statutory merger or consolidation in certain specified
situations. Appraisal rights are not available under the DGCL when a
corporation is to be the surviving corporation and no vote of its stockholders
is required in order to approve the merger. In addition, unless otherwise
provided in a corporation's charter, no appraisal rights are available under
the DGCL to holders of shares of any class of stock which is either (i) listed
on a national securities exchange or designated as a national market system
security on an inter-dealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than 2,000
stockholders, unless such stockholders (in (i) or (ii)) are required by the
terms of the merger to accept in exchange for their shares anything other
than: (a) shares of stock of the surviving corporation; (b) shares of stock of
another corporation which are or will be listed on a national securities
exchange or designated as a national market system security on an inter-dealer
quotation system by the National Association of Securities Dealers, Inc. or
held of record by more than 2,000 stockholders; (c) cash in lieu of fractional
shares of such stock; or (d) any combination thereof. Appraisal rights are not
available under the DGCL in the event of the sale, lease or exchange of all or
substantially all of a corporation's assets or the adoption of an amendment to
its certificate of incorporation, unless such rights are granted in the
certificate of incorporation. The Firefox Certificate does not grant such
rights.
Under the MBCL, a properly dissenting stockholder is entitled to receive the
appraised value of his shares when the corporation votes (i) to sell, lease or
exchange all or substantially all of its property and assets, (ii) to adopt an
amendment to its articles of organization which adversely affects the rights
of the stockholder, or (iii) to merge or consolidate with another corporation,
unless a vote of the stockholders was not required to approve such merger or
consolidation.
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"ANTI-TAKEOVER" STATUTES
Business Combination Statutes. Delaware's "business combination" statute is
substantially similar to its Massachusetts counterpart. However, whereas the
DGCL provides that, if a person acquires 15% or more of the stock of a
Delaware corporation without the approval of the board of directors of that
corporation, such person may not engage in certain transactions with the
corporation for a period of three years, in Massachusetts, the threshold is
only 5%, with certain persons being excluded. Both the Delaware and
Massachusetts statutes include certain exceptions to this prohibition. If, for
example, the board of directors approves the stock acquisition or the
transaction prior to the time that the person becomes an interested
stockholder, or if the interested stockholder acquires 85% (under the Delaware
statute) or 90% (under the Massachusetts statute) of the voting stock of the
corporation (excluding voting stock owned by directors who are also officers
and certain employee stock plans) in one transaction, or if the transaction is
approved by the board of directors and by the affirmative vote of two-thirds
of the outstanding voting stock which is not owned by the interested
stockholder, then the prohibition on business combinations is not applicable.
See "Description of FTP Capital Stock--Massachusetts "Anti-Takeover' Laws."
Control Share Acquisition Statute. Under the Massachusetts Control Share
Acquisition statute for Massachusetts corporations, a person who acquires
beneficial ownership of shares of stock of a corporation in a threshold amount
equal to or greater than one-fifth, one-third, or a majority of the voting
stock of the corporation (a "control share acquisition") must obtain the
approval of a majority of shares entitled to vote generally in the election of
directors (excluding (i) any shares owned by such person acquiring or
proposing to acquire beneficial ownership of shares in a control share
acquisition, (ii) any shares owned by any officer of the corporation and (iii)
any shares owned by any employee of the corporation who is also a director of
the corporation) in order to vote the shares that such person acquires in
crossing the foregoing thresholds. The statute does not require that such
person consummate the purchase before the stockholder vote is taken.
The Massachusetts Control Share Acquisition statute permits, to the extent
authorized by a corporation's articles of organization or bylaws, redemption
of all shares acquired by an acquiring person in a control share acquisition
for fair value (which is to be determined in accordance with procedures
adopted by the corporation) if (i) no control acquisition statement is
delivered by the acquiring person or (ii) a control share acquisition
statement has been delivered and voting rights were not authorized for such
shares by the stockholders in accordance with applicable law.
The Massachusetts Control Share Acquisition statute permits a Massachusetts
corporation to elect not to be governed by the statute's provisions, by
including a provision in the corporation's articles of organization or bylaws
pursuant to which the corporation opts out of the statute. As is permitted by
Massachusetts law, FTP (through an appropriate bylaw provision) has elected
not to be governed by the Massachusetts control share acquisition provisions.
See "Description of FTP Capital Stock--Massachusetts "Anti-Takeover' Laws."
The foregoing summary does not purport to be a complete statement of the
rights of holders of FTP Common Stock and Firefox Common Stock under, and is
qualified in its entirety by reference to, the MBCL, DGCL and the respective
charters and bylaws of FTP and Firefox.
EXPERTS
The consolidated balance sheets of FTP as of December 31, 1994 and 1995 and
the consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995 included in this
Joint Proxy Statement/Prospectus have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The consolidated financial statements of Firefox as of December 31, 1995 and
for the year ended December 31, 1995 included elsewhere in this Joint Proxy
Statement/Prospectus have been audited by Deloitte & Touche
138
LLP (San Jose, California), independent auditors, as stated in their report
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Firefox as of December 31, 1994 and
for each of the two years ended December 31, 1994 included elsewhere in this
Joint Proxy Statement/Prospectus, have been audited by Deloitte & Touche
(Birmingham, England), independent auditors, as stated in their report
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at
the FTP Meeting, and representatives of Deloitte & Touche LLP are expected to
be present at the Firefox Meeting. In each case, such representatives will
have the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
LEGAL MATTERS
The validity of the shares of FTP Common Stock offered hereby and certain
federal income tax relating to the Merger will be passed upon for FTP by Ropes
& Gray, Boston, Massachusetts. Certain federal income tax relating to the
Merger will be passed upon for Firefox by Gray Cary Ware & Freidenrich, A
Professional Corporation, Palo Alto, California.
139
INDEX TO FINANCIAL STATEMENTS
PAGE NO.
--------
FINANCIAL STATEMENTS OF FTP
Report of Coopers & Lybrand L.L.P.--Independent Accountants.......... F-2
Consolidated Balance Sheets--December 31, 1994 and 1995.............. F-3
Consolidated Statements of Income--For the Years Ended December 31,
1993, 1994 and 1995................................................. F-4
Consolidated Statements of Stockholders' Equity--For the Years Ended
December 31, 1993, 1994 and 1995.................................... F-5
Consolidated Statements of Cash Flows--For the Years Ended December
31, 1993, 1994 and 1995............................................. F-6
Notes to Consolidated Financial Statements........................... F-7
Consolidated Balance Sheets--December 31, 1995 and March 31, 1996
(unaudited)......................................................... F-20
Consolidated Statements of Operations--Three Months Ended March 31,
1995 and 1996 (unaudited)........................................... F-21
Consolidated Statements of Cash Flows--Three Months Ended March 31,
1995 and 1996 (unaudited)........................................... F-22
Notes to Interim Consolidated Financial Statements (unaudited)....... F-23
FINANCIAL STATEMENTS OF FIREFOX
Report of Deloitte & Touche LLP--Independent Auditors................ F-25
Report of Deloitte & Touche--Independent Auditors.................... F-26
Consolidated Balance Sheets--December 31, 1994 and 1995.............. F-27
Consolidated Statements of Operations--For the Years Ended December
31, 1993, 1994 and 1995............................................. F-28
Consolidated Statements of Stockholders' Equity--For the Years Ended
December 31, 1993, 1994 and 1995.................................... F-29
Consolidated Statements of Cash Flows--For the Years Ended December
31, 1993, 1994 and 1995............................................. F-30
Notes to Consolidated Financial Statements........................... F-31
Condensed Consolidated Balance Sheets--December 31, 1995 and March
31, 1996 (unaudited)................................................ F-40
Condensed Consolidated Statements of Operations--Three Months Ended
March 31, 1995
and 1996 (unaudited)................................................ F-41
Condensed Consolidated Statements of Cash Flows--Three Months Ended
March 31, 1995 and 1996 (unaudited)................................. F-42
Notes to Interim Condensed Consolidated Financial Statements
(unaudited)......................................................... F-43
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of FTP Software, Inc.:
We have audited the accompanying consolidated balance sheets of FTP
Software, Inc. as of December 31, 1994 and 1995 and the related consolidated
statements of income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of FTP Software,
Inc. as of December 31, 1994 and 1995 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 31, 1996, except
Note L for which the dates are
March 27, 1996 and, for the
fifth paragraph, May 21, 1996
F-2
FTP SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-----------------
1994 1995
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 10,896 $ 30,417
Short-term investments.................................... 37,690 36,211
Accounts receivable, net of allowance for doubtful ac-
counts of
$1,000 for 1994 and $1,600 for 1995...................... 16,646 30,787
Inventories............................................... 388 1,063
Prepaid expenses and other current assets................. 1,796 11,398
Deferred income taxes..................................... 1,295 2,194
-------- --------
Total current assets.................................... 68,711 112,070
Property and equipment, net................................. 11,712 18,703
Purchased software, net..................................... 4,449 4,359
Investments................................................. 42,759 52,751
Deferred income taxes....................................... 1,152 1,717
Other assets................................................ 359 368
-------- --------
Total assets............................................ $129,142 $189,968
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... 4,706 9,904
Income taxes payable...................................... 892 --
Accrued employee compensation and benefits................ 3,832 4,533
Current portion of long-term obligations.................. 545 811
Deferred revenue.......................................... 5,254 9,091
-------- --------
Total current liabilities............................... 15,229 24,339
Long-term obligations....................................... 1,229 821
-------- --------
Total liabilities....................................... 16,458 25,160
-------- --------
Commitments (Note I)
Stockholders' equity:
Preferred stock, $0.01 par value; authorized 5,000,000
shares;
none issued and outstanding.............................. -- --
Common stock, $0.01 par value; authorized 50,000,000
shares;
issued and outstanding 23,344,122 and 26,506,729 shares
in 1994 and 1995, respectively........................... 233 265
Additional paid-in capital................................ 64,955 92,607
Retained earnings......................................... 47,496 72,130
Equity adjustments........................................ -- (194)
-------- --------
Total stockholders' equity.............................. 112,684 164,808
-------- --------
Total liabilities and stockholders' equity............ $129,142 $189,968
======== ========
The accompanying notes are an integral part of these financial statements.
F-3
FTP SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
------------------------
1993 1994 1995
------- ------- --------
REVENUE:
Product revenue...................................... $55,629 $86,207 $123,024
Service revenue...................................... 3,097 7,038 13,352
------- ------- --------
Total revenue....................................... 58,726 93,245 136,376
------- ------- --------
COST OF REVENUE:
Product cost......................................... 3,949 5,702 8,091
Service cost......................................... 3,979 7,389 9,753
------- ------- --------
Total cost of revenue............................... 7,928 13,091 17,844
------- ------- --------
GROSS MARGIN........................................... 50,798 80,154 118,532
------- ------- --------
OPERATING EXPENSES:
Sales and marketing.................................. 9,510 16,668 40,605
Product development.................................. 9,389 20,515 30,768
General and administrative........................... 5,649 9,362 14,213
------- ------- --------
Total operating expenses............................ 24,548 46,545 85,586
------- ------- --------
Income from operations................................. 26,250 33,609 32,946
Investment income...................................... 685 3,132 6,156
------- ------- --------
Income before income taxes............................. 26,935 36,741 39,102
Provision for income taxes............................. 10,611 13,766 14,468
------- ------- --------
Net income............................................. $16,324 $22,975 $ 24,634
======= ======= ========
Net income per share................................... $ .65 $ .80 $ .87
======= ======= ========
Net income per share (fully diluted)................... $ .60 $ .79 $ .87
======= ======= ========
Weighted average common and common equivalent shares
outstanding (primary)................................. 25,129 28,553 28,215
======= ======= ========
Weighted average common and common equivalent shares
outstanding (fully diluted)........................... 27,361 29,070 28,263
======= ======= ========
The accompanying notes are an integral part of these financial statements.
F-4
FTP SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------------ PAID-IN RETAINED EQUITY ------------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS SHARES AMOUNT EQUITY
---------- ------ ---------- -------- ----------- ---------- ------- -------------
Balance at January 1,
1993................... 17,472,240 $175 $ 5,224 $ 8,197 -- 320,000 $ (560) $ 13,036
Issuance of common
stock.................. 5,637,540 56 45,037 -- -- -- -- 45,093
Purchase of treasury
stock.................. -- -- -- -- -- 1,096,000 (2,650) (2,650)
Retirement of treasury
stock.................. (1,416,000) (14) (3,196) -- -- (1,416,000) 3,210 --
Tax benefit of stock
option activity........ -- -- 4,275 -- -- -- -- 4,275
Net income.............. -- -- -- 16,324 -- -- -- 16,324
---------- ---- ------- ------- ----- ---------- ------- --------
Balance at December 31,
1993................... 21,693,780 217 51,340 24,521 -- -- -- 76,078
Issuance of common
stock.................. 1,650,342 16 5,148 -- -- -- -- 5,164
Tax benefit of stock
option activity........ -- -- 8,467 -- -- -- -- 8,467
Net income.............. -- -- -- 22,975 -- -- -- 22,975
---------- ---- ------- ------- ----- ---------- ------- --------
Balance at December 31,
1994................... 23,344,122 233 64,955 47,496 -- -- -- 112,684
Issuance of common
stock.................. 3,162,607 32 8,852 -- -- -- -- 8,884
Tax benefit of stock
option activity........ -- -- 18,800 -- -- -- -- 18,800
Net income.............. -- -- -- 24,634 -- -- -- 24,634
Foreign exchange
translation
adjustments............ -- -- -- -- $ 14 -- -- 14
Net unrealized
investment losses...... -- -- -- -- (208) -- -- (208)
---------- ---- ------- ------- ----- ---------- ------- --------
Balance at December 31,
1995................... 26,506,729 $265 $92,607 $72,130 $(194) -- $ -- $164,808
========== ==== ======= ======= ===== ========== ======= ========
The accompanying notes are an integral part of these financial statements.
F-5
FTP SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
Cash flows from operating activities:
Net income..................................... $ 16,324 $ 22,975 $ 24,634
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 1,369 3,433 7,229
Loss on disposition of property and
equipment................................... -- -- 255
Provision for doubtful accounts and notes.... 497 400 600
Write-off of acquired in-process technology.. -- -- 1,129
Amortization of discounts and premiums on
investments................................. -- -- (1,407)
Deferred income taxes........................ (454) (1,828) (1,324)
Reserve for decline in investments........... 48 -- --
Tax benefit of stock option activity......... 4,275 8,467 18,800
Financed in-process technology............... -- 1,774 --
Changes in operating assets and liabilities,
net of effects from acquisition of business:
Accounts receivable.......................... (4,754) (6,889) (14,741)
Inventories.................................. (332) 319 (675)
Prepaid expenses and other current assets.... (1,090) 200 (9,563)
Other assets................................. 9 (211) --
Accounts payable............................. 701 2,485 4,978
Income taxes payable......................... -- 892 (892)
Accrued employee compensation and benefits... 1,128 1,653 617
Deferred revenue............................. 1,381 2,566 3,837
-------- -------- --------
Net cash provided by operating activities.. 19,102 36,236 33,477
-------- -------- --------
Cash flows from investing activities:
Capital expenditures........................... (5,005) (12,361) (11,905)
Purchase of investments........................ (47,291) (30,903) (7,454)
Acquisition of business........................ -- -- (2,365)
Other investing activities..................... 33 -- 15
-------- -------- --------
Net cash used for investing activities..... (52,263) (43,264) (21,709)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock......... 45,093 5,164 8,884
Principal payments on long-term obligations.... -- -- (1,142)
Purchase of treasury stock..................... (2,650) -- --
Dividends paid................................. (1,500) -- --
-------- -------- --------
Net cash provided by financing activities.. 40,943 5,164 7,742
-------- -------- --------
Effect of exchange rate changes on cash.......... -- -- 11
-------- -------- --------
Net increase (decrease) in cash and cash equiva-
lents........................................... 7,782 (1,864) 19,521
Cash and cash equivalents, beginning of year..... 4,978 12,760 10,896
-------- -------- --------
Cash and cash equivalents, end of year........... $ 12,760 $ 10,896 $ 30,417
======== ======== ========
Supplemental disclosure of cash flow information:
Income taxes paid.............................. $ 7,508 $ 5,843 $ 1,952
======== ======== ========
Non-cash financing activities:
Financed purchased software.................... $ -- $ -- $ 1,000
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-6
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A.DESCRIPTION OF BUSINESS:
FTP Software, Inc. (the "Company") designs, develops, markets and supports
software products that enable personal computer users to find, access and
use heterogeneous hardware, information and applications resources across
local area, enterprise-wide and global networks, including the Internet and
its World Wide Web. The Company's principal networking products, OnNet and
PC/TCP, which are based upon the industry standard TCP/IP data
communications protocol suite, enable remote access, file and resource
sharing and other applications across a variety of operating systems,
computing platforms and network environments. Other products allow users to
search, organize and share information, view and convert documents in a
large number of different formats, including legacy formats, and
collaborate with other users. The Company's products emphasize performance,
reliability, functionality, robustness and compatibility, which the Company
believes are the key purchasing criteria, along with technical support and
special engineering capability, for organizations establishing and
expanding enterprise-wide networks.
B.SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
Revenue Recognition
Revenue is generally recognized from the license of software upon shipment
when collection of the resulting receivable is deemed probable. At the time
the Company recognizes revenue from licensed software products, no
significant vendor or post-contract support obligations remain. Service
revenue includes revenue from support, training and consulting. Payments
received in advance for support contracts are initially recorded as
deferred revenue and are recognized ratably over the term of the contract,
typically one year. Revenue from training and consulting is recognized as
the services are performed.
Cash Equivalents
Cash equivalents consist of money market funds, commercial paper and
government obligations with original maturities of three months or less and
are carried at amortized cost, which approximates market value. The Company
places its temporary cash investments in money market investments with high
credit quality financial institutions.
Investments
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," at the
beginning of 1994. At December 31, 1994, the Company had investments
primarily in debt securities and had the requisite intent and ability to
hold them until maturity. Accordingly, investments were classified as held-
to-maturity and reported at amortized cost.
On December 31, 1995, the Company changed the classification of its
investments, consisting primarily of debt securities, to available-for-sale
to better enable the Company to react quickly to investment opportunities.
Accordingly, investments are reported at market value with unrealized
holding gains and losses reflected net as a separate component of
stockholders' equity until realized.
F-7
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's investment portfolio is widely diversified, generally
consisting of both short-term and long-term investment grade securities.
The cost of short-term investments and investments is determined on the
specific identification method and the market value is based on quoted
market prices.
Inventories
Inventories, consisting of finished goods and raw materials, are stated at
the lower of cost, determined on a first-in, first-out basis, or market.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives, ranging from three
to seven years. Leasehold improvements are amortized over the shorter of
their estimated useful lives or the remaining term of the lease.
Expenditures for maintenance and repairs are expensed as incurred.
Upon retirement or other disposition of assets, the cost and related
accumulated depreciation are eliminated from the accounts and the resulting
gain or loss is included in net income.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the local
currency, accordingly, assets and liabilities of these operations are
translated at exchange rates in effect at year-end. Income and expense
items are translated at average rates of exchange for the period. Resulting
translation adjustments are accumulated in a separate component of
stockholders' equity. Gains and losses from foreign currency transactions,
which are immaterial, are included in net income.
Product Development Costs
Costs related to research, design and development of computer software are
charged to product development expense as incurred, as the capitalizable
costs of internally developed software to date have not been material.
Purchased software of approximately $5.4 million and $3.1 million was
acquired in 1994 and 1995, respectively. These assets are being amortized
over a one- to four-year period based on the expected useful life of the
product. Related amortization charges, reflected in cost of revenue, were
approximately $1.0 million and $3.2 million in 1994 and 1995, respectively.
Income Taxes
Deferred income tax assets and liabilities arise from temporary differences
between the tax basis of assets and liabilities and their reported amounts
in the financial statements that will result in taxable or deductible
amounts in future years.
Net Income Per Common Share
Net income per common share is computed using the weighted average number
of shares of common stock outstanding and dilutive common stock equivalents
from stock options using the treasury stock method.
F-8
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common and common equivalent shares issued during the 12-month
period preceding the date of the initial filing of the Company's public
offering have been included in the calculation using the treasury stock
method, as if they were outstanding for all periods prior to such public
offering.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The Company sells its products outside the United States primarily through
a network of resellers in North and South America, Europe and Asia Pacific.
In the United States, the Company distributes its products through multiple
channels, including direct sales, value-added resellers, systems
integrators, OEMs and a limited number of distributors. The Company
performs ongoing credit evaluations of its customers and maintains reserves
for potential credit risk as determined by management. The Company
generally requires no collateral. Accounts receivable are from customers
who are geographically and industry dispersed. No one customer accounted
for more than 10% of consolidated revenue for any period presented.
Accounting for Stock Options
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." This Statement, which is effective for fiscal years
beginning after December 15, 1995, defines a fair value based method of
accounting for stock-based employee compensation. The Company plans to
continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and disclose pro forma net
income and earnings per share as if the fair value based method of
accounting had been applied. As such, adoption of this statement will have
no effect on the Company's reported results of operations.
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
C.INVESTMENTS:
Investments consist of the following at December 31, 1994:
AMORTIZED MARKET
COST VALUE
--------- -------
(IN THOUSANDS)
U.S. government obligations............................... $25,683 $24,974
Corporate obligations..................................... 24,329 23,095
Municipal obligations..................................... 30,437 29,279
------- -------
$80,449 $77,348
======= =======
At December 31, 1994, gross unrealized gains and losses amounted to
approximately $176,000 and $3,310,000, respectively.
F-9
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investments consist of the following at December 31, 1995:
AMORTIZED MARKET
COST VALUE
--------- -------
(IN THOUSANDS)
U.S. government obligations............................... $54,500 $54,469
Corporate obligations..................................... 14,397 14,075
Municipal obligations..................................... 20,412 20,418
------- -------
$89,309 $88,962
======= =======
At December 31, 1995, gross unrealized gains and losses amounted to
approximately $518,000 and $865,000, respectively.
The Company's investments at December 31, 1994, valued at amortized cost,
and at December 31, 1995, valued at market value, mature as follows:
DECEMBER 31,
---------------
YEARS TO MATURITY 1994 1995
----------------- ------- -------
(IN THOUSANDS)
0-1.......................................................... $37,690 $36,211
1-5.......................................................... 31,789 46,478
5-10......................................................... 372 268
Over 10...................................................... 10,598 6,005
------- -------
$80,449 $88,962
======= =======
D.PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31,
----------------
1994 1995
------- -------
(IN THOUSANDS)
Development equipment...................................... $ 4,092 $ 5,737
Equipment.................................................. 8,939 15,020
Furniture and leasehold improvements....................... 4,260 7,230
------- -------
17,291 27,987
Less accumulated depreciation and amortization............. (5,579) (9,284)
------- -------
$11,712 $18,703
======= =======
E.PURCHASED TECHNOLOGY AND ACQUISITIONS:
In August 1994, the Company licensed certain technology for $4.9 million, a
portion of which is payable in equal installments of $500,000 per year
through 1998, to enable the Company to bring commercial versions of Mosaic,
a navigational tool for the Internet, into current and future product lines
and bring advanced messaging applications for Internet users into the
Company's current and future product lines. The Company allocated
approximately $900,000 to completed technology, which is included in
purchased software and is being amortized over its estimated useful life of
two years. The remaining $4.0 million was allocated to in-process
technology and charged to product development expense.
In March 1995, the Company acquired substantially all of the assets of
Keyword Office Technologies Ltd., a privately-held, Calgary, Alberta,
developer of protocol-independent document interchange and viewing
F-10
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
technology software, for approximately $2.4 million. The transaction was
accounted for as a purchase. The Company allocated approximately $1.3
million primarily to completed technology, which is included in purchased
software and is being amortized over its estimated useful life of two
years, and approximately $1.1 million to in-process technology, which has
been charged to product development expense. This acquisition was deemed to
be immaterial for purposes of presenting pro forma information.
The Company allocates the purchase price of acquired technologies to
completed technology and in-process technology based upon their respective
fair values. Completed technology that had reached technological
feasibility was valued using a risk adjusted cash flow model under which
future cash flows were discounted, taking into account risks related to
existing and future markets and assessments of the life expectancy of the
completed technology. In-process technology that had not reached
technological feasibility and that had no alternative future use was valued
using the same method. Expected future cash flows associated with in-
process technology were discounted considering risks and uncertainties
related to the viability of and to the potential changes in future target
markets and to the completion of the products expected to ultimately be
marketed by the Company. Amounts charged to product development expense for
in-process technology are not fully deductible in the same period for tax
purposes.
F.PROFIT SHARING RETIREMENT PLAN:
The Company sponsors a profit sharing retirement plan for eligible
employees established under the provisions of Section 401(k) of the
Internal Revenue Code (the "Plan"), under which participants may defer a
portion of their annual compensation on a pre-tax basis. Contributions by
the Company to the Plan are at the discretion of the Board of Directors and
amounted to approximately $303,000, $645,000 and $965,000 for the years
ended December 31, 1993, 1994 and 1995, respectively.
While the Company expects to continue the Plan indefinitely, it has
reserved the right to modify, amend or terminate the Plan. In the event of
termination, the entire amount contributed under the Plan, at the time of
termination, must be applied to the payment of benefits to the participants
or their beneficiaries.
The Company does not currently offer post-retirement or post-employment
benefits.
G.INCOME TAXES:
The provision for income taxes consists of the following:
YEARS ENDED DECEMBER
31,
-------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
Current provision:
Federal......................................... $ 8,871 $12,845 $12,538
State........................................... 2,194 2,749 2,859
Foreign......................................... -- -- 395
------- ------- -------
11,065 15,594 15,792
------- ------- -------
Deferred benefit:
Federal......................................... (347) (1,410) (1,024)
State........................................... (107) (418) (300)
------- ------- -------
(454) (1,828) (1,324)
------- ------- -------
$10,611 $13,766 $14,468
======= ======= =======
F-11
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before income taxes as
follows:
YEARS ENDED
DECEMBER 31,
-----------------
1993 1994 1995
----- ---- ----
Tax at statutory rate..................................... 35.0% 35.0% 35.0%
State income taxes net of federal tax benefit............. 5.5 4.2 4.3
Benefit from foreign sales corporation.................... (0.6) (1.5) (2.3)
Tax-exempt interest income................................ -- (0.9) (1.1)
Research and experimentation credit....................... (0.5) (0.5) (0.2)
Foreign tax credits....................................... (0.3) (0.1) --
Other..................................................... 0.3 1.3 1.3
----- ---- ----
39.4% 37.5% 37.0%
===== ==== ====
The current federal and state provisions for income taxes do not reflect
the tax savings resulting from deductions associated with the Company's
various stock plans. These savings were approximately $4.3 million, $8.5
million and $18.8 million in 1993, 1994 and 1995, respectively, and were
credited to stockholders' equity.
The components of the deferred tax asset are as follows:
DECEMBER 31,
--------------
1994 1995
------ ------
(IN
THOUSANDS)
In-process technology charges................................ $1,704 $2,656
Employee compensation and benefits accruals.................. 486 848
Accounts receivable reserve.................................. 412 642
Deferred revenue............................................. 329 380
Other reserves and liabilities............................... 21 224
Capitalized inventory costs.................................. 47 170
Depreciation and amortization expense........................ (552) (1,009)
------ ------
$2,447 $3,911
====== ======
Included in prepaid expenses and other current assets at December 31, 1995
is approximately $7.8 million of refundable income taxes.
H.STOCKHOLDERS' EQUITY:
Stock Split
The Company effected an 8-for-1 split of the Common Stock during 1993. All
share and per share amounts have been restated to reflect this split.
Preferred Stock
The Board of Directors is authorized, subject to any limitations prescribed
by law, to issue up to an aggregate of 5,000,000 shares of Preferred Stock,
$0.01 par value per share, with such powers, designations, preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be determined
by the Board of Directors in a resolution or resolutions providing for the
issuance of such Preferred Stock.
F-12
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On December 1, 1995, the Board of Directors designated 500,000 shares of
its Preferred Stock as Junior Preferred Stock, $0.01 par value per share.
Dividends accrue on the Junior Preferred Stock at a quarterly rate equal to
the greater of $1.00 or, subject to adjustment, 100 times the aggregate per
share amount of all dividends paid during the quarter on the Company's
Common Stock. The Junior Preferred Stock carries a liquidation preference
of $100 per share, is redeemable, and entitles the holder to 100 votes per
share on all matters submitted to a vote of the Company's stockholders.
Shareholder Rights Plan
On December 1, 1995, the Company adopted a shareholder rights plan (the
"Rights Plan") whereby each share of Common Stock issued after December 8,
1995 will have an attached right which, when exercisable, will entitle the
holder to purchase 1/100th of a share of Junior Preferred Stock at a price
of $150 (the "Rights"). Additionally, the Board of Directors declared a
dividend of one Right for each share of Common Stock outstanding on
December 8, 1995.
The Rights become exercisable if a person acquires or announces a tender or
exchange offer for 15% or more of the outstanding Common Stock. The Rights
Plan also provides that if a person (an "Acquiring Person") acquires or
obtains the right to acquire 15% or more of the outstanding Common Stock
(other than pursuant to certain approved offers), each Right (other than
Rights held by the Acquiring Person) will entitle the holder to purchase
shares of Common Stock having a market value of twice the exercise price of
the Right. In addition, if the Company is involved in a merger or other
business combination with another person in which it is not the surviving
corporation or in connection with which the Common Stock is changed or
converted into securities of any other person or other property, or if the
Company sells or transfers 25% or more of its assets or earning power to
another person, each Right that has not previously been exercised will
entitle its holder to purchase shares of the common stock of such other
person having a market value of twice the exercise price of the Right.
The Board of Directors may redeem the Rights at any time prior to their
expiration on December 1, 2005 at a redemption price of $0.01 per Right.
The Company has reserved 500,000 shares of Junior Preferred Stock for
issuance upon exercise of the Rights.
Stock Option Plan
In January 1987, the Company adopted the FTP Software, Inc. Stock Option
Plan (the "Option Plan"). Under the Option Plan, as amended, the Company
may grant to certain employees either incentive or nonqualified stock
options to purchase up to 26,400,000 shares of Common Stock which generally
vest over four to six years. The exercise price for the stock options may
not be less than the fair market value of the Common Stock on the date of
grant, as determined by the Board of Directors, and the term of the stock
options may not exceed 10 years.
F-13
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity under this plan is summarized as follows:
NUMBER OF OPTION PRICE
SHARES PER SHARE
---------- --------------
Outstanding, January 1, 1993..................... 10,244,160 $0.069-$ 1.75
Granted........................................ 2,251,000 6.25- 26.50
Exercised...................................... (3,180,456) 0.069- 1.74
Canceled....................................... (1,102,000) .354- 6.25
---------- --------------
Outstanding, December 31, 1993................... 8,212,704 .121- 26.50
Granted........................................ 913,750 27.25- 31.625
Exercised...................................... (1,520,342) .121- 19.00
Canceled....................................... (270,750) 1.42- 27.25
---------- --------------
Outstanding, December 31, 1994................... 7,335,362 .121- 31.625
Granted........................................ 1,722,000 24.75- 31.75
Exercised...................................... (3,097,635) .121- 27.25
Canceled....................................... (1,775,361) 1.396- 31.75
---------- --------------
Outstanding, December, 31, 1995.................. 4,184,366 $ .121-$31.75
---------- --------------
At December 31, 1995, the number of shares of Common Stock for which stock
options were exercisable were totaled 1,140,437 and the number of shares of
Common Stock available for future stock option grants amounted to
4,094,561.
Non-Employee Directors' Stock Option Plan
In September 1993, the Company adopted the 1993 Non-Employee Directors'
Stock Option Plan which provides for the automatic grant of stock options
to purchase up to 500,000 shares of Common Stock to non-employee directors
which vest over three years. The exercise price for the stock options may
not be less than the fair market value of the Common Stock on the date of
the grant, as determined by the Board of Directors, and the term of the
stock options may not exceed 10 years.
Stock option activity under this plan is summarized as follows:
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- --------------
Outstanding, September 17, 1993 (inception of
plan) -- --
Granted........................................ 60,000 $19.00
Exercised...................................... -- --
Canceled....................................... -- --
------- --------------
Outstanding, December 31, 1993................... 60,000 19.00
Granted........................................ 109,167 $17.25- 26.50
Exercised...................................... (30,000) 19.00
Canceled....................................... (30,000) 17.25
------- --------------
Outstanding, December 31, 1994................... 109,167 17.25- 26.50
Granted........................................ 27,536 30.875
Exercised...................................... (40,000) 17.25- 19.00
Canceled....................................... (20,000) 17.25
------- --------------
Outstanding, December 31, 1995................... 76,703 $25.75-$30.875
======= ==============
F-14
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, the number of shares of Common Stock for which stock
options were exercisable totaled 19,167 and the number of shares of Common
Stock available for future stock option grants amounted to 353,297.
Employee Stock Purchase Plans
The Company adopted the FTP Software, Inc. Employee Stock Purchase Plan
effective January 1, 1994. This plan provides a maximum of 1,000,000 shares
of Common Stock for purchase by eligible employees at 85% of the fair
market value of the Common Stock on the first or last trading day of each
six-month purchase period under this plan, whichever is lower. During 1994
and 1995, 4,034 and 20,938 shares of Common Stock, respectively, were
issued under this plan.
In October 1995, in order to preserve the qualification of its existing
employee stock purchase plan under the Internal Revenue Code, the Company
adopted the FTP Software, Inc. Non-Qualified Stock Purchase Plan for
Employees of Certain Subsidiaries. This plan is for the benefit of non-U.S.
employees employed outside of the United States by subsidiaries of the
Company approved for participation in the plan by the Compensation
Committee of the Board of Directors and provides a maximum of 100,000
shares of Common Stock for purchase by eligible employees. The price at
which the Common Stock will be purchased by eligible employees is 85% of
the fair market value of the Common Stock on the first or last trading day
of each six-month purchase period under this plan, whichever is lower. The
first purchase period under this plan commenced on January 1, 1996.
Accordingly, no shares of Common Stock were issued under this plan during
1995.
Public Offerings
On November 23, 1993, the Company consummated an initial public offering of
5,750,000 shares of Common Stock, of which 2,500,000 shares of Common Stock
were sold for the account of the Company. The Company's aggregate net
proceeds from the initial public offering were approximately $43.3 million.
On May 11, 1994, the Company consummated an offering of 1,724,130 shares of
Common Stock, of which 100,000 shares of Common Stock were sold for the
account of the Company. The Company's aggregate net proceeds from this
offering were approximately $1.5 million.
Dividends
From January 1, 1990 through June 30, 1992, the Company operated as an S
Corporation under subchapter S of the Internal Revenue Code of 1986, as
amended, and comparable provisions of certain state tax laws. Dividends
declared by the Company in 1992 and paid in 1993 represent reimbursements
to the stockholders for income taxes paid relating to their respective
share of the Company's S Corporation taxable income and a return on
investment. Effective June 30, 1992, the Company terminated its status as
an S Corporation.
I.COMMITMENTS:
Lease Commitments
The Company leases its corporate and administrative office facilities under
long-term non-cancelable operating lease agreements expiring at various
dates through August 2002. The agreements generally require the payment of
utilities, real estate taxes, insurance and repairs. Total rent expense for
the years ended
F-15
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1993, 1994 and 1995 amounted to approximately $1.2 million,
$2.1 million and $3.1 million, respectively.
At December 31, 1995, future minimum annual rental payments required under
the operating lease agreements are as follows:
(IN THOUSANDS)
--------------
1996.................................................... $ 4,476
1997.................................................... 4,254
1998.................................................... 4,325
1999.................................................... 4,425
2000.................................................... 4,381
Thereafter.............................................. 5,750
-------
$27,611
=======
Joint Marketing and Development Agreement
In August 1995, the Company entered into a multi-year joint marketing and
development agreement with Open Market, Inc. under which the Company has
the right to sell certain server products and to develop the server
technology onto future platforms. The Company has allocated $3.7 million
paid under this agreement to in-process technology and charged it to
product development expense. Under this agreement the Company has future
minimum royalty obligations for 1997, 1998 and 1999.
In January, 1996, the Company acquired shares of preferred stock of Open
Market, Inc. for a cash purchase price of $5 million.
J.BUSINESS UNIT INFORMATION:
The Company is active in only one business segment: designing, developing,
marketing and supporting networking and other software products and related
services. This segment currently operates and reports results as two
business units: the Networking Products Business Unit and the New Ventures
Business Unit. The Networking Products Business Unit, which is the
Company's core operating unit, includes the Company's OnNet and PC/TCP
product lines and is responsible for developing and acquiring server and
other products to provide services for enterprise networks. The New
Ventures Business Unit was formed in July 1995 and currently consists of
four operating units: the Internet Solutions Unit, the HyperDesk Unit, the
Keyword Unit and the Intelligent Agents Unit. The New Ventures Business
Unit is responsible for developing, acquiring and commercializing new
technologies.
F-16
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Activities associated with the New Ventures Business Unit were not material
for all periods prior to July 1, 1995. Financial data by business unit for
the year ended December 31, 1995 follows:
(IN THOUSANDS)
Revenue:
Networking Products Business Unit....................... $131,865
New Ventures Business Unit.............................. 4,511
--------
Total revenue......................................... $136,376
========
Income (loss) from operations:
Networking Products Business Unit....................... $ 43,361
New Ventures Business Unit.............................. (10,415)
--------
Total income from operations.......................... $ 32,946
========
Assets:
Networking Products Business Unit....................... $187,675
New Ventures Business Unit.............................. 2,293
--------
Total assets........................................... $189,968
========
Sales from the Company's foreign operations are not material. The Company's
international export sales can be grouped into the following geographic
areas:
YEARS ENDED DECEMBER
31,
-----------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
Geographic area:
North and South America (other than U.S.).......... $ 3,616 $ 7,114 $10,364
Asia Pacific....................................... 2,587 5,732 10,165
Europe............................................. 15,410 27,457 40,310
Other.............................................. 1,829 592 1,792
------- ------- -------
Total............................................. $23,442 $40,895 $62,631
======= ======= =======
K.QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
1995
Total revenue............................... $31,314 $34,083 $37,116 $33,863
Gross margin................................ 27,003 29,916 32,422 29,182
Income from operations...................... 11,516 13,473 6,106 1,851
Net income.................................. 7,850 9,314 4,759 2,711
Net income per share (fully diluted)........ $ .27 $ .33 $ .17 $ .10
1994
Total revenue............................... $19,075 $20,879 $24,013 $29,278
Gross margin................................ 16,358 17,716 20,395 25,685
Income from operations...................... 7,545 8,249 5,707 12,108
Net income.................................. 4,938 5,542 4,122 8,373
Net income per share (fully diluted)........ $ .17 $ .20 $ .14 $ .29
F-17
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
L.SUBSEQUENT EVENTS
Subsequent to year-end, the Company acquired certain technologies and other
assets from unrelated companies. The transactions will be recorded under
the purchase method of accounting. The costs associated with these
acquisitions are expected to total approximately $15 million.
On January 17, 1996, the Company entered into a merger agreement (the
"Merger Agreement") with Firefox Communications Inc. ("Firefox") whereby a
subsidiary of the Company will be merged into Firefox, which will survive
the merger as a wholly-owned subsidiary of the Company, and each
outstanding share of Firefox common stock would be converted into one share
of the Company's Common Stock (approximately 6,735,000 shares at December
31, 1995), subject to adjustment. Outstanding Firefox stock options will be
converted into options to purchase (or will otherwise become exercisable
for) shares of the Company's Common Stock at the same conversion rate of
one for one, subject to adjustment, with appropriate changes to the
exercise price. This merger, which is intended to be accounted for as a
pooling of interests, is conditioned on, among other things, approval of
the merger by Firefox's stockholders and approval by the Company's
stockholders of the issuance of the shares of the Company's Common Stock to
be issued in the merger. Firefox reported revenues and earnings of
approximately $20 million and $0.5 million, respectively, for the year
ended December 31, 1995.
On February 23, 1996, a class action lawsuit was filed in the United States
District Court for the Northern District of California, San Francisco
Division, naming Firefox and certain of its officers and directors as
defendants. The lawsuit alleges that the defendants misrepresented or
failed to disclose material facts about Firefox's operations and financial
results, which the plaintiffs contend resulted in an artificial inflation
of the price of Firefox's common stock. The suit is purportedly brought on
behalf of a class of purchasers of Firefox's common stock during the period
from August 3, 1995 to January 2, 1996. The complaint alleges claims for
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of
1934. Firefox has reviewed the allegations in the lawsuit, believes them to
be without merit, and intends to defend itself vigorously. In order to
support an adequate defense, Firefox may be required to expend substantial
sums for legal and expert fees and costs. The cost of defending the
litigation and the outcome of the litigation are uncertain and cannot be
estimated. If the lawsuit were determined adversely to Firefox, Firefox
could be required to pay a substantial judgment.
In March 1996, the Merger Agreement was amended to provide that shares of
the Company's Common Stock having a value of $15 million, which would
otherwise be issued to persons holding Firefox common stock at the
effective time of the merger, will instead be delivered to and held in an
escrow as security for an indemnity in favor of the Company and certain
related persons under the Merger Agreement relating to the securities
litigation described above and certain related litigation, to the extent
that the amount of all such claims arising from such litigation exceeds the
sum of all payments recovered under Firefox's $10 million director's and
officer's liability insurance policy plus $5 million. Any escrow shares
remaining after satisfaction of such indemnity will be allocated among the
former Firefox stockholders on a pro rata basis in accordance with the
number of shares of Firefox common stock held by each former Firefox
stockholder immediately prior to the merger will be delivered to the former
Firefox stockholders following final resolution of such litigation or the
third anniversary of the merger, whichever is earlier.
On May 21, 1996, the Merger Agreement was amended to provide that all of
the outstanding Firefox common stock will be converted into the right to
receive $10,000,000 in cash plus shares of approximately $50,000,000 of the
Company's Common Stock (based upon the average closing price of the
Company's Common Stock, as defined, subject to adjustment). In addition,
options to acquire Firefox common stock will be deemed to be
F-18
FTP SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
converted into options to acquire the Company's Common Stock based upon an
exchange ratio as defined. In the event that the Company's average share
price is less than $8 per share or greater than $12 per share, the average
share price will be deemed to be $8 or $12, respectively, and the number of
Company shares exchanged would be 6,250,000 or 4,166,666 shares,
respectively. If the mean of the high and low sales prices of one share of
the Company's Common Stock at the effective time of the merger (the
"Effective Time Closing Price") is less than $7 per share, each outstanding
share of Firefox common stock will be entitled to receive that additional
number of shares of the Company's Common Stock equal to (a) the amount
obtained by dividing the difference between $7 and the Effective Time
Closing Price by $7, multiplied by (b) $10,000,000 divided by the number of
outstanding shares of Firefox common stock, divided by (c) the Effective
Time Closing Price (such number of additional shares of the Company's
Common Stock being referred to as the "Share Adjustment Factor"), and the
cash payment applicable to each outstanding share of Firefox common stock
shall be reduced by an amount equal to the product of the Share Adjustment
Factor multiplied by the Effective Time Closing Price. In connection with
the amended Merger Agreement, the Company agreed to eliminate the escrow
provisions. As a result of the amendments, the proposed merger will be
accounted for as a purchase. The consummation of the proposed merger is
subject to obtaining shareholder approval and certain other conditions.
Accordingly, there can be no assurance that the merger will be completed.
On March 14, 1996, a class action lawsuit was filed in the United States
District Court for the District of Massachusetts naming the Company,
certain of its officers and two former officers as defendants. The lawsuit
alleges that the defendants publicly issued false and misleading statements
and omitted to disclose material facts necessary to make such statements
not false and misleading, which the plaintiffs contend caused an artificial
inflation in the price of the Company's Common Stock. The lawsuit, which is
purportedly brought on behalf of a class of purchasers of the Company's
Common Stock during the period from July 14, 1995 to January 3, 1996,
alleges violations of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934. The Company has reviewed the allegations in the lawsuit,
believes them to be without merit, and intends to defend itself and its
officers vigorously. In order to support an adequate defense, the Company
may be required to expend substantial sums for legal and expert fees and
costs. The cost of defending the litigation and the outcome of the
litigation are uncertain and cannot be estimated. If the lawsuit were
determined adversely to the Company, the Company could be required to pay a
substantial judgment.
On March 27, 1996, the Company entered into a merger agreement with
Campbell Services, Inc., the Southfield, Michigan-based developer of
OnTime, a client/server solution for group scheduling. The merger agreement
provides for the acquisition by the Company of Campbell for approximately
$15 million in cash, through a merger of a wholly-owned subsidiary of the
Company into Campbell. This acquisition is expected to be consummated in
early April 1996.
F-19
FTP SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
DECEMBER 31, MARCH
1995 31, 1996
------------ --------
ASSETS
Current assets:
Cash and cash equivalents............................. $ 30,417 $ 31,446
Short-term investments................................ 36,211 17,357
Accounts receivable, net of allowance for doubtful ac-
counts of $1,600 for
1995 and 1996........................................ 30,787 22,024
Inventories........................................... 1,063 894
Prepaid expenses and other current assets............. 3,623 6,932
Income taxes.......................................... 9,969 15,969
-------- --------
Total current assets................................ 112,070 94,622
Property and equipment, net........................... 18,703 19,651
Purchased software, net............................... 4,359 6,192
Investments........................................... 52,751 57,303
Deferred income taxes................................. 1,717 1,396
Other assets.......................................... 368 3,927
-------- --------
Total assets........................................ $189,968 $183,091
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... 9,904 12,794
Accrued employee compensation and benefits............ 4,533 3,546
Current portion of long-term obligations.............. 811 576
Deferred revenue...................................... 9,091 8,406
-------- --------
Total current liabilities........................... 24,339 25,322
Long-term obligations.................................. 821 821
-------- --------
Total liabilities................................... 25,160 26,143
-------- --------
Stockholders' equity:
Preferred stock, $0.01 par value, authorized 5,000,000
shares; none issued and
outstanding.......................................... -- --
Common stock, $0.01 par value, authorized 50,000,000
shares; issued and
outstanding 26,506,729 and 26,966,222 in 1995 and
1996, respectively................................... 265 270
Additional paid-in capital............................ 92,607 93,358
Retained earnings..................................... 72,130 63,688
Equity adjustments.................................... (194) (368)
-------- --------
Total stockholders' equity.......................... 164,808 156,948
-------- --------
Total liabilities and stockholders equity......... $189,968 $183,091
======== ========
The accompanying notes are an integral part of these financial statements.
F-20
FTP SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
---------------
1995 1996
------- -------
Revenue:
Product revenue........................................ $28,661 $24,974
Service revenue........................................ 2,653 4,030
------- -------
Total revenue........................................ 31,314 29,004
------- -------
Cost of Revenue:
Product cost........................................... 1,948 2,576
Service cost........................................... 2,363 2,650
------- -------
Total cost of revenue................................ 4,311 5,226
------- -------
Gross Margin 27,003 23,778
------- -------
Operating Expenses:
Sales and marketing ................................... 7,083 12,494
Product development.................................... 5,560 20,773
General and administrative............................. 2,844 4,940
------- -------
Total operating expenses............................. 15,487 38,207
------- -------
Income (loss) from operations............................ 11,516 (14,429)
Investment income........................................ 1,043 1,029
------- -------
Income (loss) before income taxes ....................... 12,559 (13,400)
Provision (benefit) for income taxes..................... 4,709 (4,958)
------- -------
Net income (loss)........................................ $ 7,850 $(8,442)
------- -------
Net income (loss) per share (fully diluted).............. $ 0.27 $ (0.31)
Weighted average common and common equivalent shares out-
standing (fully diluted)................................ 28,721 26,939
------- -------
The accompanying notes are an integral part of these financial statements.
F-21
FTP SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
-----------------
1995 1996
------- --------
Cash flows from operating activities:
Net income (loss).......................................... $ 7,850 $ (8,442)
Adjustments to reconcile net income (loss) to net cash pro-
vided by operating activities:
Depreciation and amortization............................. 1,556 2,289
Write-off of acquired in-process technology............... 1,129 11,912
Amortization of discounts and premiums on investments..... -- 70
Deferred income taxes .................................... (465) 321
Tax benefit of stock option activity...................... 5,960 --
Changes in operating assets and liabilities net of effects
from acquisition of business and product line:
Accounts receivable..................................... (1,608) 8,763
Inventories............................................. (236) 169
Prepaid expenses and other current assets............... (3,504) (2,358)
Income taxes ........................................... (892) (6,000)
Other assets............................................ (87) (354)
Accounts payable........................................ 1,735 2,890
Accrued employee compensation and benefits.............. (1,021) (987)
Deferred revenue...................................... 932 (685)
------- --------
Net cash provided by operating activities............... 11,349 7,588
------- --------
Cash flows from investing activities:
Capital expenditures....................................... (1,547) (3,226)
Maturities of investments.................................. 5,669 14,056
Acquisition of business and product line................... (2,365) (13,681)
Increase in notes receivable............................... -- (4,171)
Other investing activities................................. -- (35)
------- --------
Net cash (used for) provided by investing activities.. 1,757 (7,057)
------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock..................... 2,247 756
Principal payments on long-term obligations................ -- (235)
------- --------
Net cash provided by financing activities............... 2,247 521
------- --------
Effect of exchange rate changes on cash..................... -- (23)
------- --------
Net increase in cash and cash equivalents................... 15,353 1,029
Cash and cash equivalents, beginning of period.............. 10,896 30,417
------- --------
Cash and cash equivalents, end of period.................... $26,249 $ 31,446
======= ========
The accompanying notes are an integral part of these financial statements.
F-22
FTP SOFTWARE, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL DATA
The accompanying unaudited consolidated financial statements have been
prepared by FTP Software, Inc. (the "Company") in accordance with generally
accepted accounting principles. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments,
consisting only of those of a normal recurring nature, necessary for a fair
presentation of the Company's financial position, results of operations and
cash flows at the dates and for the periods indicated. While the Company
believes that the disclosures presented are adequate to make the information
not misleading, these financial statements should be read in conjunction with
the audited consolidated financial statements and notes related thereto
included elsewhere herein.
The results of the three-month period ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full fiscal year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilites and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. ACQUISITIONS
In February 1996, the Company acquired the Mariner product line of Network
Computing Devices, Inc. for a net cash purchase price of approximately $7.4
milion. In March 1996, the Company acquired substantially all of the assets of
HyperDesk Corporation, including its GroupWorks product, for a net cash
purchase price of approximately $6.3 million. These transactions were
accounted for as purchases and accordingly the Company has allocated $1.8
million primarily to completed technology, which is included in purchased
software and will be amortized over their estimated useful lives of three
years. The remaining $11.9 million was allocated to in-process technology and
charged to product development expense in the three-month period ended March
31, 1996. Results from operations include activity from the Mariner product
line and the assets of HyperDesk Corporation since the date of the respective
acquisitions in February and March 1996. Pro forma presentation for prior
periods is not reflected as the impact would be immaterial.
The Company allocates the purchase price of acquired technologies to
completed technology and in-process technology based upon their respective
fair values. Completed technology that had reached technological feasiblity
was valued using a risk adjusted cash flow model under which future cash flows
were discounted, taking into account risks related to existing and future
markets and assessments for the life expectancy of the completed technology.
In-process technology that had not reached technological feasiblity and that
had no alternative future use was valued using the same method. Expected
future cash flows associated with in-process technology were discounted
considering risks and uncertainties related to the viability of and to
potential changes in the future target markets and to the completion of the
products expected to ultimately be marketed by the Company. Amounts charged to
product development expense for in-process technology were not fully
deductible in the same period for tax purposes.
In April 1996, the Company acquired Campbell Services, Inc., the Southfield,
Michigan-based developer of OnTime, by merger for a net cash purchase price of
approximately $15 million.
3. STOCK OPTION ACTIVITY
During the first quarter of 1996, the Company granted options to purchase
1,885,500 shares of its common stock at prices ranging from $11.625 to $13.625
per share.
F-23
FTP SOFTWARE, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. RECLASSIFICATION
Certain components of the statement of cash flows for the three-month period
ended March 31, 1995 have been reclassified to appropriately reflect the
acquisition of substantially all of the assets of Keyword Office Technologies
Ltd. in March 1995. These reclassifications had no impact on the net increase
in cash and cash equivalents during that period.
F-24
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Firefox Communications Inc.:
We have audited the accompanying consolidated balance sheet of Firefox
Communications Inc. and its subsidiaries (the Company) as of December 31,
1995, and the related consolidated statements of operations, stockholders'
equity (deficiency) and cash flows for the year ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of Firefox
Communications Inc. and subsidiaries at December 31, 1995, and the results of
their operations and their cash flows for the year ended December 31, 1995 in
conformity with generally accepted accounting principles.
Deloitte & Touche llp
February 5, 1996 (May 21, 1996 as to Note 12)
San Jose, California
F-25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Firefox Communications Inc.:
We have audited the accompanying consolidated balance sheet of Firefox
Communications Inc. and its subsidiaries (the Company) as of December 31,
1994, and the related consolidated statements of operations, stockholders'
equity (deficiency) and cash flows for each of the two years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of Firefox
Communications Inc. and subsidiaries at December 31, 1994, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1994 in conformity with accounting principles generally
accepted in the United States.
Deloitte & Touche
Chartered Accountants Birmingham, England
February 8, 1995 (May 3, 1995 as to
the first paragraph of Note 7)
F-26
FIREFOX COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31,
----------------
1994 1995
------ --------
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 191 $ 6,547
Short-term investments..................................... -- 9,774
Accounts receivable, net of allowances of $20 in 1994 and
$56 in 1995............................................... 3,113 6,695
Prepaid license fees....................................... 2,247 3,079
Prepaid expenses and other assets.......................... 209 1,241
Deferred income taxes...................................... 155 314
------ --------
Total current assets..................................... 5,915 27,650
Property and equipment--net.................................. 1,071 1,887
------ --------
Total assets............................................. $6,986 $ 29,537
====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $1,130 $ 1,069
Short-term borrowings...................................... 442 --
Income taxes payable....................................... 285 649
Accrued liabilities........................................ 1,518 1,497
Deferred revenue and customer deposits..................... 1,059 2,132
Current portion of capital lease obligations............... 249 151
Amounts payable to related company......................... 290 --
------ --------
Total current liabilities................................ 4,973 5,498
Capital lease obligations, less current portion.............. 293 104
Redemption obligation for preference shares.................. 1,385 --
------ --------
Total liabilities........................................ 6,651 5,602
------ --------
Commitments and contingencies (Note 9)
Stockholders' equity:
Convertible preferred stock: $.001 par value; 3,000 shares
authorized, shares outstanding: 916 in 1994 and none in
1995...................................................... 243 --
Common stock: $.001 par value; 27,000 shares authorized,
shares outstanding: 4,319 in 1994 and 6,735 in 1995....... 332 23,673
Deferred stock compensation................................ (76) (25)
Net unrealized gain on investments available for sale...... -- 3
Accumulated translation adjustment......................... 109 (3)
Retained earnings (deficit)................................ (273) 287
------ --------
Total stockholders' equity............................... 335 23,935
------ --------
Total liabilities and stockholders' equity............... $6,986 $ 29,537
====== ========
See Notes to Consolidated Financial Statements
F-27
FIREFOX COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
Net revenues:
Licenses...................................... $5,024 $12,482 $17,665
Service and other............................. 148 1,054 2,103
-------- -------- --------
Total net revenues.......................... 5,172 13,536 19,768
-------- -------- --------
Cost of revenues:
Cost of licenses.............................. 678 1,659 2,695
Cost of service and other..................... 114 760 940
-------- -------- --------
Total cost of revenues...................... 792 2,419 3,635
-------- -------- --------
Gross margin.................................... 4,380 11,117 16,133
-------- -------- --------
Operating expenses:
Research and development...................... 948 1,428 2,534
Sales and marketing........................... 2,579 6,397 10,270
General and administrative.................... 1,094 2,093 2,933
-------- -------- --------
Total operating expenses.................... 4,621 9,918 15,737
-------- -------- --------
Income (loss) from operations................... (241) 1,199 396
Interest income................................. -- 6 656
Interest expense................................ (91) (148) (88)
-------- -------- --------
Income (loss) before income taxes............... (332) 1,057 964
Provision (credit) for income taxes............. (123) 441 446
-------- -------- --------
Net income (loss)............................... (209) 616 518
Accretion for preference shares................. (16) (197) (64)
-------- -------- --------
Income (loss) attributable to common stock
(Note 1)....................................... $ (225) $ 419 $ 454
======== ======== ========
Net income (loss) per share (Note 1)............ $ (0.05) $ 0.08 $ 0.07
======== ======== ========
Shares used in per share computation............ 4,569 5,486 6,398
======== ======== ========
See Notes to Consolidated Financial Statements
F-28
FIREFOX COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS)
SERIES A
PREFERRED STOCK COMMON STOCK
------------------ --------------
NET
UNREALIZED
GAIN ON TOTAL
DEFERRED INVESTMENTS ACCUMULATED RETAINED STOCKHOLDERS'
STOCK AVAILABLE TRANSLATION EARNINGS EQUITY
SHARES AMOUNT SHARES AMOUNT COMPENSATION FOR SALE ADJUSTMENT (DEFICIT) (DEFICIENCY)
------- -------- ------ ------- ------------ ----------- ----------- --------- -------------
Balances, January 1,
1993................... -- $ -- 4,000 $ 39 $ -- $ -- $ 79 $(467) $ (349)
Issuance of preferred
stock (net of
issuance costs of
$127).................. 916 243 -- -- -- -- -- -- 243
Accretion of redemption
and dividend
amount for redeemable
preference shares...... -- -- -- -- -- -- -- (16) (16)
Stock compensation
charges................ -- -- -- 4 -- -- -- -- 4
Accumulated translation
adjustment............. -- -- -- -- -- -- 62 -- 62
Net loss................ -- -- -- -- -- -- -- (209) (209)
------- -------- ----- ------- ----- ----- ---- ----- -------
Balances, December 31,
1993................... 916 243 4,000 43 -- -- 141 (692) (265)
Issuance of ordinary
shares (including
stock compensation
expense of $195)....... -- -- 319 197 -- -- -- -- 197
Deferred stock
compensation from
option grants.......... -- -- -- 92 (92) -- -- -- --
Amortization of deferred
stock
compensation........... -- -- -- -- 16 -- -- -- 16
Accretion of redemption
and dividend
amount for redeemable
preference shares...... (197) (197)
Accumulated translation
adjustment............. -- -- -- -- -- -- (32) -- (32)
Net income.............. -- -- -- -- -- -- -- 616 616
------- -------- ----- ------- ----- ----- ---- ----- -------
Balances, December 31,
1994................... 916 243 4,319 332 (76) -- 109 (273) 335
Initial public offering,
net of
issuance costs of
$1,986................. -- -- 1,500 23,124 -- -- -- -- 23,124
Conversion of Series A
preferred stock........ (916) (243) 916 243 -- -- -- -- --
Cancellation of stock
options................ -- -- -- (26) 19 -- -- -- (7)
Amortization of deferred
stock
compensation........... -- -- -- -- 32 -- -- -- 32
Accretion of redemption
and dividend
amount for redeemable
preference shares...... -- -- -- -- -- -- -- (64) (64)
Excess accretion on
redeemable
preference shares at
time of redemption..... -- -- -- -- -- -- -- 106 106
Net unrealized gain on
investments available
for sale............... -- -- -- -- -- 3 -- -- 3
Accumulated translation
adjustment............. -- -- -- -- -- -- (112) -- (112)
Net income.............. -- -- -- -- -- -- -- 518 518
------- -------- ----- ------- ----- ----- ---- ----- -------
Balances, December 31,
1995................... -- $ -- 6,735 $23,673 $ (25) $ 3 $ (3) $ 287 $23,935
======= ======== ===== ======= ===== ===== ==== ===== =======
See Notes to Consolidated Financial Statements
F-29
FIREFOX COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- ---------
Cash flows from operating activities:
Net income (loss)............................... $ (209) $ 616 $ 518
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................... 181 319 495
Deferred income taxes........................... (125) 79 (159)
Stock compensation expense...................... 4 211 25
License revenue in exchange for prepaid license
fees........................................... -- (150) --
Changes in assets and liabilities:
Accounts receivable............................. (601) (1,962) (3,582)
Prepaid license fees............................ (516) (1,552) (832)
Prepaid expenses and other assets............... (119) 15 (1,032)
Accounts payable................................ 338 523 (61)
Income taxes payable............................ 3 282 364
Accrued liabilities............................. 596 427 (21)
Deferred revenue and customer deposits.......... 276 710 1,073
------- -------- ---------
Net cash used in operating activities......... (172) (482) (3,212)
------- -------- ---------
Cash flows from investing activities:
Purchases of property and equipment............. (205) (461) (1,505)
Proceeds from sale of property and equipment.... -- 24 231
Purchases of investments........................ -- -- (14,063)
Proceeds from maturities of investments......... -- -- 2,845
Proceeds from sale of investments............... -- -- 1,447
------- -------- ---------
Net cash used in investing activities......... (205) (437) (11,045)
------- -------- ---------
Cash flows from financing activities:
Bank borrowings, net............................ (41) 302 (442)
Proceeds from capital leases of existing
equipment...................................... -- 123 --
Payments of capital lease obligations........... (77) (231) (303)
Receipts from related party loans............... 89 -- --
Repayment of related party loans................ (41) (69) (290)
Proceeds from sale of preference shares......... 1,110 -- --
Redemption of preference shares................. -- -- (1,343)
Proceeds from sale of common and preferred
stock, net..................................... 243 2 23,124
------- -------- ---------
Net cash provided by financing activities..... 1,283 127 20,746
------- -------- ---------
Effect of exchange rate changes on cash.......... 54 23 (133)
------- -------- ---------
Net increase (decrease) in cash and cash
equivalents..................................... 960 (769) 6,356
Cash and cash equivalents at beginning of
period.......................................... -- 960 191
------- -------- ---------
Cash and cash equivalents at end of period....... $ 960 $ 191 $ 6,547
======= ======== =========
Noncash investing and financing activities:
Property and equipment acquired under capital
leases......................................... $ 256 $ 364 $ 37
Net unrealized gain on investments available for
sale........................................... $ -- $ -- $ (3)
Supplemental disclosure of cash flow
information--
Cash paid during the period:
Interest........................................ $ 73 $ 148 $ 88
Income taxes.................................... $ -- $ 90 $ 287
See Notes to Consolidated Financial Statements
F-30
FIREFOX COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
1.ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization--Firefox Communications Inc. (the Company) was incorporated in
Delaware in February 1995 (see Note 7). The Company develops, markets and
supports server-based internetworking software. The Company markets its
products through its direct sales force, which is focused on organizations
with large enterprise networks, as well as through selected distributors,
systems integrators and value-added resellers, located in the United
States, Europe and the Far East.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Currency--The functional currency for the Company's foreign operations is
the local currency. The translation from the functional currency to the
U.S. dollar is performed for balance sheet accounts using current exchange
rates in effect at the balance sheet date and for revenue and expense
accounts using a weighted average exchange rate during the period. The
gains and losses resulting from such translation are included as a separate
component in stockholders' equity.
Gains and losses resulting from foreign currency transactions are included
in income and have not been significant to date.
Cash and Cash Equivalents--All highly liquid debt investments with a
remaining maturity of three months or less at the time of purchase are
classified as cash equivalents.
Short-Term Investments--The Company has classified its investments as
"securities available-for-sale." The investments are measured at market
value with a corresponding recognition of the net unrealized holding gains
and losses, net of taxes, as a separate component of stockholders' equity
until realized.
Any gains and losses on sales of investments are computed on a specific
identification basis.
Prepaid License Fees--The Company licenses software from certain vendors
and relicenses such software to customers in conjunction with licenses of
the Company's own products. Payments for licenses which have not been
relicensed are included in prepaid license fees and are amortized on a
specific identification basis.
Property and Equipment--Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided using the straight-line
method over the estimated useful lives of the related assets, which are
generally three to five years. Assets acquired under capital leases are
amortized over their useful life or the lease term, as appropriate.
Revenue Recognition--Revenue consists primarily of fees for licenses of the
Company's software products, maintenance and customer support and
consulting contracts.
License Revenue--Revenue from software licenses is generally recognized
upon product shipment. For those agreements which provide the customer
the right to multiple copies in exchange for a non-refundable fixed fee,
revenue is recognized at delivery of the product master or first copy. In
either case, revenue is recognized only when no significant vendor or
post-contract support obligations remain and when collection of the
resulting receivable is deemed probable. Revenue is deferred for
estimated future returns, including stock balancing arrangements. Costs
related to insignificant vendor or post-contract support obligations are
not material and are accrued upon recognition of the license revenue.
F-31
FIREFOX COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Service and Other Revenue--Revenue from support contracts is deferred and
recognized ratably over the term of the agreement, which is typically one
year. Other revenue primarily consists of revenue from consulting
contracts. Such revenue is generally recognized using the percentage of
completion method.
Software Development Costs--Costs for the development of new software
products and substantial enhancements to existing software products are
expensed as incurred until technological feasibility has been established,
at which time any additional costs would be capitalized in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software To Be Sold, Leased, or Otherwise Marketed." To
date, the Company has essentially completed its software development
concurrently with the establishment of technological feasibility, and,
accordingly, no costs have been capitalized to date.
Income Taxes--Income taxes are provided under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
This statement requires an asset and liability approach to account for
income taxes and requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences
between the financial statement carrying amounts and the tax bases of
assets and liabilities and net operating losses and tax credit
carryforwards.
Net Income (Loss) Per Share--Net income (loss) per share is computed using
the weighted average number of common shares and dilutive common equivalent
shares outstanding during the periods. Common equivalent shares include
convertible preferred stock and common stock options; such common
equivalent shares have been excluded from the per share calculation in loss
periods as they would be anti-dilutive. All common shares issued and stock
options granted by the Company between March 17, 1994 and May 11, 1995 at a
price less than the initial public offering price have been included in the
computation of common and common equivalent shares outstanding for all
periods prior to the initial public offering (see Note 7).
For the purposes of the net income (loss) per share computation, net income
has been reduced (net loss has been increased) by the amount of the
periodic accretion of redemption and dividend amounts for redeemable
preference shares (see Note 6). Upon the completion of the Company's
initial public stock offering, the preference shares were redeemed.
Certain Significant Risks and Uncertainties--The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Such
management estimates include the allowance for doubtful accounts
receivable, the recoverability of prepaid license fees and future product
returns. Actual results could differ from those estimates.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents,
investments and accounts receivable. Cash equivalents consist primarily of
money market funds and commercial debt securities and are held primarily
with two financial institutions. The Company places its investments for
safekeeping with a credit-worthy financial institution. The Company sells
its products primarily to organizations in diversified industries in North
America, Europe, and the Far East, and generally does not require its
customers to provide collateral or other security to support accounts
receivable. While the Company maintains allowances for potential bad debt
losses, such losses to date have not been material.
F-32
FIREFOX COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
The Company participates in a very dynamic high technology industry and
believes that changes in any of the following areas could have a material
adverse effect on the Company's future financial position or results of
operations; changes in the overall demand for connectivity products;
changes in the technology underlying the connectivity market; increased
competition; litigation against the Company based on securities,
intellectual property or other claims; risks associated with international
operations; and the Company's ability to implement and improve its
operational and financial systems and attract and retain employees
necessary to support its growth.
Stock Compensation--Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," is effective for fiscal years
beginning after December 15, 1995. The Company will adopt this statement on
January 1, 1996 and will elect to continue applying APB Opinion No. 25 to
account for its stock-based employee compensation arrangements. Based on
the Company's current use of equity instruments, adoption of the new
standard will not affect reported earnings, financial position or cash
flows.
2.SHORT-TERM INVESTMENTS
The amortized cost and estimated market value of investments at December
31, 1995 are as follows (in thousands):
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
Equity securities................ $1,300 $ -- $ -- $1,300
Corporate bonds and commercial
paper........................... 7,469 6 (3) 7,472
U.S. agency security............. 1,002 -- -- 1,002
------ ----- ----- ------
$9,771 $ 6 $ (3) $9,774
====== ===== ===== ======
The contractual maturity of debt securities at December 31, 1995 are as
follows (in thousands):
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
Within one year......................................... $6,973 $6,978
One year to five years.................................. 1,498 1,496
------ ------
Total................................................... $8,471 $8,474
====== ======
During 1995, sales of investments did not result in significant gross
realized gains or losses.
F-33
FIREFOX COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
3.PROPERTY AND EQUIPMENT
Property and equipment at December 31 consists of (in thousands):
DECEMBER 31,
--------------
1994 1995
------ ------
Computers and equipment...................................... $ 824 $1,721
Motor vehicles............................................... 721 686
Furniture and fixtures....................................... 212 318
------ ------
1,757 2,725
Less accumulated depreciation and amortization............... (686) (838)
------ ------
Property and equipment--net.................................. $1,071 $1,887
====== ======
At December 31, 1994 and 1995, property and equipment included assets
leased under capital lease obligations of $655,000 and $246,000 (net of
accumulated amortization of $191,000 and $175,000), respectively.
4.ACCRUED LIABILITIES
Accrued liabilities at December 31 consist of (in thousands):
DECEMBER 31,
-------------
1994 1995
------ ------
Salaries and related benefits................................. $ 512 $ 448
Other accrued liabilities..................................... 1,006 1,049
------ ------
$1,518 $1,497
====== ======
5.AMOUNTS PAYABLE TO RELATED COMPANY
At December 31, 1994, the Company had a loan of $290,000 from Speakeasy
Limited, a company owned by two significant stockholders and officers of
the Company. The loan was interest free and was repaid in 1995.
6.REDEMPTION OBLIGATION FOR PREFERENCE SHARES
In November 1993, 750,000 redeemable preference shares of Firefox
Communications Ltd., a United Kingdom corporation and wholly-owned
subsidiary of the Company, were issued for $1,110,000. In connection with
the Company's initial public offering in May 1995, the Company redeemed the
preference shares for $1,343,000, which was $106,000 less than the amount
recorded on the consolidated balance sheet at that time. This excess
accretion has been reflected as an increase to retained earnings in the
consolidated statement of stockholders' equity.
7.STOCKHOLDERS' EQUITY
On May 3, 1995, the Company was reincorporated in Delaware, such that two
shares of the successor Delaware corporation's common stock were exchanged
for each share of the predecessor United Kingdom corporation's related
ordinary share and 0.97 shares of the Delaware corporation's Series A
preferred stock were exchanged for each A Ordinary share, and the Company's
name was changed to Firefox Communications Inc. All common stock data in
the accompanying financial statements have been retroactively adjusted to
reflect these exchanges, as well as previous stock splits.
F-34
FIREFOX COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Initial public offering
In May 1995, the Company completed its initial public offering and issued
1,500,000 shares of common stock to the public at a price of $18.00 per
share. As a result of this offering, the Company received $23,124,000, net
of underwriting discounts, commissions, offering costs and expenses payable
by the Company. Simultaneously, all outstanding preferred shares were
automatically converted into an equal number of shares of common stock.
Convertible Preferred Stock
The Company has authorized 3,000,000 shares of preferred stock. At December
31, 1995, no shares of preferred stock were issued or outstanding.
Stock Option Plans
Prior to the Company's 1995 reincorporation and initial public offering,
the Company granted options to employees under the 1994 Share Option Plan.
Options under this plan generally vest after three years and must be
exercised no later than seven years from date of grant. The Board has
determined that no additional options will be granted under this Plan.
During 1995, the Company adopted the 1995 Stock Option Plan and reserved a
total of 1,000,000 shares of common stock for issuance under this plan.
Under this plan, the Board of Directors may grant to employees, consultants
and directors options to purchase shares of the Company's common stock. The
exercise price for an incentive stock option and a nonqualified stock
option cannot be less than 100% and 85%, respectively, of the fair market
value of the Company's common stock at the date of grant. Options granted
under this plan generally vest over four years and must be exercised no
later than ten years from date of grant.
Also during 1995, the Company adopted the 1995 Outside Directors Stock
Option Plan (the "Directors Plan") and reserved 100,000 shares of common
stock for issuance under this plan. The Directors Plan provides for the
automatic grant of nonstatutory stock options to nonemployee directors of
the Company. Under the Directors Plan, certain outside directors at the
time of the initial public offering received, and each new outside director
will receive, an option to purchase 20,000 shares of the Company's common
stock. Each year thereafter, the outside director will receive an option to
purchase 6,667 shares of common stock. The exercise price of the Director
options is the fair market value of the Company's common stock at the date
of grant and such options vest over three years and must be exercised no
later than ten years from date of grant.
Option activity under all of the Company's Plans is summarized as follows
(shares in thousands):
OUTSTANDING OPTIONS
----------------------
NUMBER OF PRICE PER
SHARES SHARE
--------- ------------
Balances, January 1, 1994............................ -- $ --
Granted............................................ 190 0.16
---- ------------
Balances, December 31, 1994.......................... 190 0.16
Granted............................................ 333 6.58- 23.00
Cancelled.......................................... (119) 0.16- 8.31
---- ------------
Balances, December 31, 1995.......................... 404 $0.16-$23.00
==== ============
F-35
FIREFOX COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
At December 31, 1995, 869,000 shares and 80,000 shares were available for
future grant under the 1995 Stock Option Plan and Outside Directors Option
Plan, respectively. At December 31, 1995, no options were exercisable.
Employee Stock Transactions and Deferred Stock Compensation
During 1993, the Company entered into agreements to sell 266,000 shares of
common stock to three employees for a total of $1,000. Such shares were
issued in 1994. An additional 53,000 shares of common stock were sold to
employees in September 1994 for a total of $1,000 and, in December 1994, a
significant shareholder sold 22,000 shares of common stock to a director of
the Company for $47,000.
In connection with the above mentioned sales of stock to employees and with
the 1994 stock option grants, the Company recorded original stock
compensation of $291,000 for the difference between the deemed fair value
for accounting purposes and the issuance price or option price. Of such
amounts, $199,000 related to fully vested shares hence it was expensed
prior to December 31, 1994 and $92,000 was deferred and is being amortized
over the three year vesting term of the options; such deferred compensation
is presented as a reduction of stockholders' equity.
8.EMPLOYEE BENEFIT PLAN
In 1995, the Company established a Group Pension Plan, under which
employees in the United Kingdom may elect to have a portion of their annual
compensation deferred and contributed to the plan. Participants vest
immediately in their contributions. The Company is required to contribute
6% of employee's annual base compensation. During 1995, the Company
contributed $50,000 to the plan.
9.COMMITMENTS AND CONTINGENCIES
Leases
The Company leases equipment under capital leases and also leases
facilities, vehicles and equipment under noncancellable operating lease
agreements which expire through 2000.
Rent expense for the years ended December 31, 1993, 1994 and 1995 was
approximately $125,000, $174,000 and $865,000, respectively.
Future minimum lease commitments as of December 31, 1995 are as follows (in
thousands):
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ ------- ---------
1996..................................................... $ 159 $ 880
1997..................................................... 107 601
1998..................................................... 30 435
1999..................................................... -- 293
2000..................................................... -- 217
----- ------
Total minimum lease payments............................... 296 $2,426
======
Less amounts representing interest......................... (41)
-----
Present value of minimum lease payments.................... 255
Less current portion....................................... (151)
-----
Capital lease obligations.................................. $ 104
=====
F-36
FIREFOX COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Contingencies
The Company is involved in litigation in the normal course of business. In
the opinion of management, the ultimate resolution of these matters will
not have a material effect on the Company, the Company's financial position
or results of operations. In addition to these matters, the Company is a
defendant in a class action lawsuit; see Note 12 for further discussion
regarding this litigation.
10.INCOME TAXES
The provision (credit) for income taxes for the three years in the period
ended December 31 consists of (in thousands):
DECEMBER 31,
-------------------
1993 1994 1995
----- ----- -----
Current:
United States......................................... $ -- $ -- $ 255
Foreign............................................... 2 371 350
----- ----- -----
Total current........................................... 2 371 605
----- ----- -----
Deferred:
United States......................................... (103) (16) (139)
Foreign............................................... (22) 86 (20)
----- ----- -----
Total deferred.......................................... (125) 70 (159)
----- ----- -----
Total provision (credit) for income taxes............... $(123) $441 $ 446
===== ===== =====
Total income tax expense (benefit) differs from the amounts computed by
applying the statutory federal income tax rate to income (loss) before
income taxes as a result of the following (in thousands):
DECEMBER 31,
-----------------
1993 1994 1995
----- ---- ----
Tax (benefit) at statutory rates.......................... $(116) $370 $318
State tax, net of federal benefit......................... (8) -- (65)
Nondeductible stock compensation expense.................. 1 74 22
Foreign exchange loss..................................... -- -- 57
Permanent and other differences, net...................... -- (3) 114
----- ---- ----
Total provision (credit) for income taxes................. $(123) $441 $446
===== ==== ====
The components of deferred tax assets at December 31 consist of (in
thousands):
DECEMBER 31,
-------------
1994 1995
------ ------
Deferred tax assets:
Timing differences arising from:
Nondeductible accruals and reserves......................... $132 $341
Depreciation................................................ 23 (27)
------ ------
Net deferred tax asset........................................ $155 $314
====== ======
Income (loss) before taxes attributable to foreign subsidiaries was
$(8,000), $1,095,000 and $925,000 in 1993, 1994 and 1995, respectively.
F-37
FIREFOX COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
11.GEOGRAPHICAL AREA INFORMATION AND MAJOR CUSTOMERS
The Company operates in a single industry segment: the development,
marketing, and support of internetworking communications software. The
Company's foreign operations consist primarily of development, sales and
marketing and support conducted through its European subsidiaries.
Revenues, operating income (loss) and identifiable assets, classified by
the major geographical areas in which the Company operates, are as follows
(in thousands):
1993 1994 1995
------ ------- -------
Revenues from unaffiliated customers:
United States.................................. $ 921 $ 5,499 $ 8,815
Europe......................................... 4,251 8,037 10,953
------ ------- -------
Total............................................ $5,172 $13,536 $19,768
====== ======= =======
Transfers between geographical areas (eliminated
in consolidation):
From Europe to United States................... $ 133 $ 2,358 $ 2,639
------ ------- -------
Operating income (loss):
United States.................................. $ (324) $ 58 $ (662)
Europe......................................... 83 1,141 1,058
------ ------- -------
Total............................................ $ (241) $ 1,199 $ 396
====== ======= =======
Identifiable assets:
United States.................................. $ 593 $ 5,213 $28,632
Europe......................................... 3,432 5,395 8,403
Eliminations................................... (483) (3,622) (7,498)
------ ------- -------
Total............................................ $3,542 $ 6,986 $29,537
====== ======= =======
In 1993, one customer accounted for 17% of total net revenues. Another
customer accounted for 21% of total net revenues in 1994. No customer
accounted for greater than 10% of net revenues in 1995. Export sales from
the United Kingdom represented 14%, 19% and 16% of total net revenues in
1993, 1994 and 1995, respectively. In particular, sales to the Pacific Rim
represented 13% of total net revenues in 1994. (During 1993 and 1995, no
single geographic export market accounted for more than 10% of total
revenues.) Export sales from the United States were not significant in any
period presented. The Company's transfers between geographic areas are
accounted for on a basis intended to approximate arm's-length prices as
negotiated by unrelated entities.
12.SUBSEQUENT EVENTS
On January 17, 1996, as amended through May 21, 1996, the Company entered
into an Agreement and Plan of Merger with FTP Software, Inc. (FTP) whereby
all of the Company's outstanding shares of common stock and options to
purchase common stock would be acquired by FTP for $10,000,000 in cash plus
shares, or options to acquire shares, of approximately $50,000,000 of FTP
stock (based upon FTP's average closing price, as defined). In the event
that FTP's average share price, is less than $8 per share or greater than
$12 per share, the number of FTP shares exchanged will be 6,250,000 and
4,166,666 shares, respectively. If the mean of the high and low sales
prices of one share of the FTP Common Stock at the effective time of the
F-38
FIREFOX COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
merger (the "Effective Time Closing Price") is less than $7 per share, each
outstanding share of the Company's common stock will be entitled to receive
that additional number of shares of the FTP Common Stock equal to (a) the
amount obtained by dividing the difference between $7 and the Effective
Time Closing Price by $7, multiplied by (b) $10,000,000 divided by the
number of outstanding shares of the Company's common stock, divided by (c)
the Effective Time Closing Price (such number of additional shares of the
FTP Common Stock being referred to as the "Share Adjustment Factor"), and
the cash payment applicable to each outstanding share of the Company's
common stock shall be reduced by an amount equal to the product of the
Share Adjustment Factor multiplied by the Effective Time Closing Price. The
consummation of the proposed merger is subject to obtaining shareholder
approval and certain other conditions. Accordingly, there can be no
assurance that the merger will be completed.
On February 23, 1996, a class action lawsuit was filed in the United States
District Court for the Northern District of California, San Francisco
Division, naming the Company and certain of its officers and directors as
defendants. The lawsuit alleges that the defendants misrepresented or
failed to disclose material facts about the Company's operations and
financial results, which the plaintiffs contend resulted in an artificial
inflation of the price of the Company's stock. The suit is purportedly
brought on behalf of a class of purchasers of the Company's stock during
the period from August 3, 1995 to January 2, 1996. The complaint alleges
claims for violation of Section 10(b) and 20(a) of the Securities Exchange
Act of 1934. The Company has reviewed the allegations in the lawsuit,
believes them to be without merit, and intends to defend itself vigorously.
Nevertheless, due to the fact that this litigation is in its initial
stages, the ultimate outcome and possible loss, if any, cannot be
reasonably estimated at this time.
F-39
FIREFOX COMMUNICATIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents........................... $ 6,547 $ 6,519
Short-term investments.............................. 9,774 9,021
Accounts receivable (net of allowances of $105 and
$56)............................................... 6,695 5,654
Prepaid license fees................................ 3,079 3,015
Prepaid income taxes................................ -- 492
Prepaid expenses and other assets................... 1,241 1,468
Deferred income taxes............................... 314 208
------- -------
Total current assets.............................. 27,650 26,377
Property and equipment--net........................... 1,887 1,679
------- -------
Total assets...................................... $29,537 $28,056
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 1,069 $ 1,209
Income taxes payable................................ 649 --
Accrued liabilities................................. 1,497 1,604
Deferred revenue and customer deposits.............. 2,132 2,194
Current portion of capital lease obligations........ 151 137
------- -------
Total current liabilities......................... 5,498 5,144
Capital lease obligations, less current portion....... 104 62
------- -------
Total liabilities................................. 5,602 5,206
------- -------
Stockholders equity:
Common stock........................................ 23,673 23,673
Deferred stock compensation......................... (25) (17)
Net unrealized gain (loss) on short-term invest-
ments.............................................. 3 (6)
Accumulated translation adjustment.................. (3) (46)
Retained earnings (deficit)......................... 287 (754)
------- -------
Total stockholders' equity........................ 23,935 22,850
------- -------
Total liabilities and stockholders' equity........ $29,537 $28,056
======= =======
See accompanying notes.
F-40
FIREFOX COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS
ENDED
MARCH 31,
---------------
1995 1996
------ -------
Net revenues:
Licenses.................................................... $4,409 $ 3,538
Services and other.......................................... 313 645
------ -------
Total net revenues........................................ 4,722 4,183
------ -------
Cost of revenues:
Licenses.................................................... 663 651
Services and other.......................................... 191 322
------ -------
Total cost of revenues.................................... 854 973
------ -------
Gross margin.................................................. 3,868 3,210
------ -------
Operating expenses:
Research and development.................................... 558 917
Sales and marketing......................................... 2,148 3,069
General and administrative.................................. 651 1,176
------ -------
Total operating expenses.................................. 3,357 5,162
------ -------
Income (loss) from operations................................. 511 (1,952)
Interest income (expense), net................................ (46) 213
------ -------
Income (loss) before income taxes............................. 465 (1,739)
Provision (credit) for income taxes........................... 186 (697)
------ -------
Net income (loss)............................................. 279 (1,042)
Accretion for preference shares............................... (45) --
------ -------
Income (loss) attributable to common stock.................... $ 234 $(1,042)
====== =======
Net income (loss) per share................................... $ 0.04 $ (0.15)
====== =======
Shares used in per share computation.......................... 5,486 6,735
====== =======
See accompanying notes.
F-41
FIREFOX COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
THREE MONTHS
ENDED
MARCH 31,
--------------
1995 1996
----- -------
Cash flows from operating activities:
Net income (loss)............................................. $ 279 $(1,042)
Adjustments to reconcile net income (loss) to net cash pro-
vided by (used in)
operating activites:
Depreciation and amortization................................. 107 135
Deferred income taxes......................................... (13) 106
Stock compensation expense.................................... 1 8
Changes in assets and liabilities:
Accounts receivable.......................................... 85 1,041
Prepaid license fees......................................... (333) 64
Prepaid expenses and other assets............................ (252) (265)
Accounts payable............................................. (334) 140
Prepaid income taxes/taxes payable........................... 206 (1,141)
Accrued liabilities.......................................... 190 107
Deferred revenue and customer deposits....................... 79 62
----- -------
Net cash provided by (used in) operating activities........ 15 (785)
----- -------
Cash flows from investing activities:
Purchases of property and equipment, net...................... (126) (7)
Loss on disposal of assets.................................... -- 34
Proceeds from sales or maturities of short-term investments... -- 3,298
Purchases of short-term investments........................... -- (2,554)
----- -------
Net cash provided by (used in) investing activities........ (126) 771
----- -------
Cash flows from financing activities:
Bank borrowings, net.......................................... 324 --
Principal payments under capital lease obligations............ (46) (52)
----- -------
Net cash provided by (used in) financing activities........ 278 (52)
----- -------
Effect of exchange rate changes on cash........................ 12 38
----- -------
Net increase (decrease) in cash and cash equivalents........... 179 (28)
Cash and cash equivalents, beginning of period................. 191 6,547
----- -------
Cash and cash equivalents, end of period....................... $ 370 $ 6,519
===== =======
Noncash investing and financing activities:
Property and equipment acquired under capital leases.......... $ 52 $ --
Net unrealized loss on investments available for sale......... $ -- $ (6)
Accrued deferred offering costs............................... $(547) $ --
Supplemental disclosure of cash flow information:
Cash paid during the period--
Interest..................................................... $ 31 $ 8
Income taxes................................................. $ 3 $ 250
See accompanying notes.
F-42
FIREFOX COMMUNICATIONS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
1. BASIS OF PRESENTATION
The unaudited condensed financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not contain all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
the accompanying unaudited condensed financial statements reflect all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of the Company's financial condition at March 31, 1996
and for the three month periods ended March 31, 1995 and 1996. These financial
statements should be read in conjunction with the audited financial statements
of the Company and notes related thereto included elsewhere herein. The
interim results presented herein are not necessarily representative of the
results that may be expected for the year ended December 31, 1996 or for any
future period.
2. ACCOUNTING FOR CERTAIN INVESTMENTS
The Company has classified its investments as securities available-for-sale.
Available-for-sale securities are carried at fair market value, with
unrealized holding gains and losses reported as a separate component of
stockholders' equity until realized.
As of March 31, 1996, the Company had short-term investments of $9.0 million
which consisted primarily of highly liquid corporate bonds and commercial
paper purchased with a maturity date of less than one year. The net unrealized
holding losses totaled $6,000 which has been recorded as a separate component
of stockholders' equity.
3. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the periods.
Common equivalent shares include convertible preferred stock and common stock
options; such common equivalent shares are excluded from the per share
calculation in loss periods as they would be anti-dilutive. All common shares
issued and stock options granted by the Company at a price less than the
initial public offering (IPO) price subsequent to March 17, 1994 and prior to
the IPO (using the treasury stock method for outstanding options) have been
included in the computation of common and common equivalent shares outstanding
for all periods prior to the IPO (May, 1995).
4. PROPOSED MERGER WITH FTP SOFTWARE, INC.
On January 17, 1996, as amended through May 21, 1996, the Company entered
into an Agreement and Plan of Merger with FTP Software, Inc. (FTP) whereby all
of the Company's outstanding shares of common stock and options to purchase
common stock would be acquired by FTP for $10,000,000 in cash plus shares, or
options to acquire shares, of approximately $50,000,000 of FTP stock (based
upon FTP's average closing price, as defined). In the event that FTP's average
share price, is less than $8 per share or greater than $12 per share, the
number of FTP shares exchanged will be 6,250,000 and 4,166,666 shares,
respectively. If the mean of the high and low sales prices of one share of the
FTP Common Stock at the effective time of the merger (the "Effective Time
Closing Price") is less than $7 per share, each outstanding share of the
Company's common stock will be entitled to receive that additional number of
shares of the FTP Common Stock equal to (a) the amount obtained by dividing
the difference between $7 and the Effective Time Closing Price by $7,
multiplied by (b) $10,000,000 divided by the number of outstanding shares of
the Company's common stock, divided by (c) the Effective Time Closing Price
(such number of additional shares of the FTP Common Stock being referred to as
the "Share Adjustment Factor"), and the cash payment applicable to each
outstanding share of the Company's common stock shall be reduced by an amount
equal to the product of the Share Adjustment Factor multiplied by the
Effective Time Closing Price. The consummation of the proposed merger is
subject to obtaining shareholder approval and certain other conditions.
Accordingly, there can be no assurance that the merger will be completed.
F-43
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
FTP SOFTWARE, INC.
FIREFOX ACQUISITION CORP.
and
FIREFOX COMMUNICATIONS INC.
DATED AS OF JANUARY 17, 1996
AMENDED AND RESTATED AS OF
MAY 21, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
This Amended and Restated Agreement and Plan of Merger, dated as of May 21,
1996 amends and restates the Agreement and Plan of Merger, dated as of January
17, 1996 (as so amended and restated, this "AGREEMENT"), among FTP Software,
Inc., a Massachusetts corporation ("PARENT"), Firefox Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of Parent ("MERGER SUB"),
and Firefox Communications Inc., a Delaware corporation (together with its
predecessor, the "COMPANY").
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders for Parent to enter into a business combination with
the Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the merger (the
"MERGER") of Merger Sub with and into the Company in accordance with the
applicable provisions of the Delaware General Corporation Law (the "DGCL"),
and upon the terms and subject to the conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "CODE"), and the regulations promulgated
thereunder; and
WHEREAS, pursuant to the Merger, each outstanding share (a "SHARE") of the
Company's common stock, $.001 par value (the "COMPANY COMMON STOCK"), shall be
converted into the right to receive the Merger Consideration (as defined in
Section 1.7(b)), upon the terms and subject to the conditions set forth
herein; and
WHEREAS, the parties hereto having executed the original Agreement and Plan
of Merger as of January 17, 1996 and having amended and restated the original
Agreement on March 16 and March 25, 1996 in order to make certain changes
herein, have, subsequent to the date of such first and second amendment and
restatement, agreed to make certain additional changes herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company amend and restate the original form of the
aforesaid Agreement and Plan of Merger as set forth herein (all references
herein to "the date hereof" or "the date of this Agreement" or similar
references being deemed to refer to January 17, 1996 unless otherwise
indicated) and hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger.
(a) Effective Time. At the Effective Time (as defined in Section 1.2), and
subject to and upon the terms and conditions of this Agreement and the DGCL,
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation. The Company as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "SURVIVING CORPORATION."
(b) Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1 and subject to the satisfaction or waiver of the conditions set
A-1
forth in Article VI, the consummation of the Merger will take place as
promptly as practicable (and in any event within two business days) after
satisfaction or waiver of the conditions set forth in Article VI, at the
offices of Ropes & Gray, One International Place, Boston, Massachusetts,
unless another date, time or place is agreed to in writing by the parties
hereto.
SECTION 1.2 Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger as contemplated by the DGCL (the "CERTIFICATE OF MERGER"), together
with any required related certificates, with the Secretary of State of the
State of Delaware, in such form as required by, and executed in accordance
with the relevant provisions of, the DGCL (the time of such filing being the
"EFFECTIVE TIME").
SECTION 1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of
the Company and Merger Sub shall become the debts, liabilities and duties of
the Surviving Corporation.
SECTION 1.4 Certificate of Incorporation, By-Laws.
(a) Certificate of Incorporation. Unless otherwise determined by Parent
prior to the Effective Time, at the Effective Time the Certificate of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended in accordance with the DGCL and such Certificate of
Incorporation.
(b) By-Laws. Unless otherwise determined by Parent prior to the Effective
Time, the By-Laws of the Company, as in effect immediately prior to the
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended in accordance with the DGCL, the Certificate of
Incorporation of the Surviving Corporation and such By-Laws; provided,
however, that the Board of Directors of the Surviving Corporation shall
consist of the same number of directors as the number of directors of Merger
Sub at the Effective Time.
SECTION 1.5 Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
SECTION 1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Merger Sub, the Company
or the holders of any of the following securities:
(a) Conversion of Securities. Each Share issued and outstanding immediately
prior to the Effective Time (excluding any Shares to be canceled pursuant to
Section 1.6(b) (the "OUTSTANDING FIREFOX SHARES") and excluding Shares owned
by holders who have properly exercised their rights of appraisal within the
meaning of Section 262 of the DGCL ("DISSENTING SHARES")), shall be converted
into the right to receive the following: (i) that number of validly issued,
fully paid and nonassessable shares ("PARENT SHARES") of the Common Stock,
$.01 par value, of Parent ("PARENT COMMON STOCK") which equals the amount
obtained by dividing (x) $50,000,000 divided by the number of Outstanding
Firefox Shares by (y) the Closing Market Price (the "EXCHANGE RATIO"), subject
to Section 1.6(f); and (ii) cash in the amount of $10,000,000 divided by the
number of Outstanding Firefox Shares (the "CASH PAYMENT"); provided, however,
that (i) in the event that the Closing Market Price of one share of Parent
Common Stock is greater than $12.00, then the Closing Market Price shall be
deemed to be $12.00, and (ii) in the event that the Closing Market Price of
one share of Parent Common Stock is less than $8.00, then the Closing Market
Price shall be deemed to be $8.00; provided, further, however,
A-2
that in the event the mean of the high and low sales price of one share of
Parent Common Stock as quoted on Nasdaq on the day of the Effective Time (or
if the Effective Date is not a trading day, on the trading day immediately
preceding the Effective Time) (the "EFFECTIVE TIME CLOSING PRICE") is less
than $7.00 per share, each such Share shall be entitled to receive that number
of additional shares of Parent Common Stock equal to (i) the amount obtained
by dividing (A) the difference between $7.00 and the Effective Time Closing
Price by (B) $7.00, multiplied by (ii) (A) $10,000,000 divided by (B) the
number of Outstanding Firefox Shares, divided by (iii) the Effective Time
Closing Price (such number of additional shares of Parent Common Stock being
referred to as the "SHARE ADJUSTMENT FACTOR"), and the Cash Payment applicable
to each Outstanding Firefox Share shall be reduced by an amount equal to the
product of (i) the Share Adjustment Factor multiplied by (ii) the Effective
Time Closing Price.
"CLOSING MARKET PRICE" of a share of Parent Common Stock shall mean the
average closing price of the Parent Common Stock as quoted on Nasdaq for the
10 trading days immediately preceding the date of the Company Stockholders
Meeting referred to in Section 5.3.
(b) Cancellation. Each Share held in the treasury of the Company and each
Share owned by Parent, Merger Sub or any direct or indirect wholly owned
subsidiary of the Company or Parent immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the
holder thereof, cease to be outstanding, be canceled and retired without
payment of any consideration therefor and cease to exist.
(c) Stock Options.
(i) At the Effective Time, each outstanding option to purchase Company
Common Stock (a "STOCK OPTION") granted under the Company's 1995 Stock
Option Plan or the Company's 1995 Outside Directors Stock Option Plan
(collectively, and with the Company's 1994 Option Scheme, the "COMPANY
STOCK OPTION PLANS"), whether vested or unvested, shall be deemed assumed
by Parent and deemed to constitute an option to acquire, on the same terms
and conditions as were applicable under such Stock Option prior to the
Effective Time, the number (rounded down to the nearest whole number) of
shares of Parent Common Stock equal to the aggregate of (A) that number of
shares of Parent Common Stock (based on the Exchange Ratio) as the holder
of such Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such Option in full immediately prior to
the Effective Time (not taking into account whether or not such Option was
in fact exercisable) plus (B) that number of additional shares of Parent
Common Stock calculated by dividing (I) the aggregate Cash Payment that the
holder of such Stock Option would have been entitled to receive pursuant to
the Merger had such holder exercised such Option in full immediately prior
to the Effective Time (not taking into account whether or not such Option
was in fact exercisable) by (II) the Closing Market Price. The exercise
price for such Stock Options shall be price per share equal to (x) the
aggregate exercise price for Company Common Stock otherwise purchasable
pursuant to such Stock Option divided by (y) the number of shares of Parent
Common Stock deemed purchasable pursuant to such Stock Option.
(ii) At the Effective Time, each outstanding option to purchase Company
Common Stock granted under the Company's 1994 Option Scheme (a "SCHEME
OPTION") may be assumed by Parent and converted into an option to purchase
the number (rounded down to the nearest whole number) of shares of Parent
Common Stock equal to the aggregate of (A) that number of shares of Parent
Common Stock (based on the Exchange Ratio) as the holder of such Scheme
Option would have been entitled to receive pursuant to the Merger had such
holder exercised such Option in full immediately prior to the Effective
Time (not taking into account whether or not such Option was in fact
exercisable) plus (B) that number of additional shares of Parent Common
Stock calculated by dividing (I) the aggregate Cash Payment that the holder
of such Scheme Option would have been entitled to receive pursuant to the
Merger had such holder exercised such Option in full immediately prior to
the Effective Time (not taking into account whether or not such Option was
in fact exercisable) by (II) the Closing Market Price. The exercise price
for such Scheme Options shall be a price per share equal to (x) the
aggregate exercise price for Company Common Stock otherwise purchasable
pursuant to such Scheme Option divided by (y) the number of shares of
Parent Common Stock
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deemed purchasable pursuant to such Scheme Option. Any such assumption and
conversion shall be subject to the written agreement of each holder of a
Scheme Option to such assumption. In the event that a holder does not
consent to such written agreement, Scheme Options will become exercisable
in full for a six-month period beginning at the Effective Time for the same
number of shares of Parent Common Stock as calculated pursuant to the first
sentence of this subparagraph (ii), at the same exercise price as
calculated pursuant to the second sentence of this subparagraph (ii). At
the end of such six-month period, any Scheme Options which have not been so
converted and assumed or exercised will terminate.
(iii) As soon as practicable after the Effective Time, Parent shall
deliver to each holder of an outstanding Stock Option an appropriate notice
setting forth such holder's rights pursuant thereto, and such Stock Option
shall continue in effect on the same terms and conditions (including
antidilution provisions).
(iv) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of Parent Shares for delivery pursuant to the
terms set forth in this Section 1.6(c).
(v) Subject to any applicable limitations under the Securities Act of
1933, as amended, and the rules and regulations thereunder (the "SECURITIES
ACT"), Parent shall either (A) file a Registration Statement on Form S-8
(or any successor form), effective as of the Effective Time, with respect
to the shares of Parent Common Stock issuable upon exercise of the Stock
Options or Scheme Options, or (B) file any necessary amendments to the
Company's previously-filed Registration Statement(s) on Form S-8 in order
that the Parent will be deemed a "successor registrant" thereunder, and, in
either event the Parent shall use all reasonable efforts to maintain the
effectiveness of such registration statement(s) (and maintain the current
status of the prospectus or prospectuses relating thereto) for so long as
such options shall remain outstanding.
(d) Capital Stock of Merger Sub. Each share of common stock, $.01 par value,
of Merger Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, $.01 par value, of the Surviving
Corporation.
(e) Adjustments to Exchange Ratio and Cash Payment. The Exchange Ratio and
Cash Payment shall be adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock), reorganization,
recapitalization or other like change with respect to Parent Common Stock
occurring after the date hereof and prior to the Effective Time.
(f) Fractional Shares. No certificates or scrip representing less than one
Parent Share shall be issued upon the surrender for exchange of a certificate
or certificates which immediately prior to the Effective Time represented
outstanding Shares (the "CERTIFICATES"). In lieu of any such fractional share,
each holder of Shares who would otherwise have been entitled to a fraction of
a Parent Share (after aggregating all fractional Parent Shares to be received
by such holder) upon surrender of Certificates for exchange shall be paid upon
such surrender cash (without interest) equal to the product of (i) such
fraction, multiplied by (ii) the Closing Market Price.
(g) Dissenting Shares. Any Dissenting Shares shall be converted into the
right to receive from the Surviving Corporation such consideration as may be
determined to be due with respect to each such Dissenting Share pursuant to
Section 262 of the DGCL; provided, however, Shares that are Dissenting Shares
at the Effective Time of the Merger and are held by a holder who shall, after
the Effective Time of the Merger, withdraw his demand for appraisal or lose
his right of appraisal as provided in the Section 262 of the DGCL, shall be
deemed to be converted, as of the Effective Time of the Merger, into the right
to receive the Merger Consideration (as defined below) in accordance with the
procedures specified in Section 1.7. The Company shall give Parent (i) prompt
notice of any written demands for appraisal, withdrawals of demands for
appraisal and any other instruments served pursuant to Section 262 of the DGCL
received by the Company and (ii) the opportunity to direct all negotiations
and proceedings with respect to demands for appraisal under Section 262 of the
DGCL. The Company will not voluntarily make any payment with respect to any
demands for appraisal and will not, except with the prior written consent of
Parent, settle or offer to settle any such demands. It is
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understood and agreed that the obligation to make any payment under Section
262 of the DGCL shall be exclusively that of the Surviving Corporation and
that Parent shall be under no obligation to perform and discharge any such
obligation or to reimburse or make any contribution to the capital of the
Surviving Corporation to enable it to perform and discharge any such
obligation.
SECTION 1.7 Delivery of Cash and Exchange of Certificates.
(a) Exchange Agent. Parent shall supply, or shall cause to be supplied, to
or for the account of State Street Bank and Trust Company, or such other bank
or trust company as shall be designated by Parent (the "EXCHANGE AGENT"), in
trust for the benefit of the holders of Company Common Stock, for exchange in
accordance with this Section 1.7, through the Exchange Agent, (i) cash in an
amount sufficient to pay the aggregate amount of the Cash Payment which the
holders of Company Common Stock are entitled to receive pursuant to Section
1.6 above and (ii) certificates evidencing the Parent Shares issuable pursuant
to Section 1.6 in exchange for outstanding Shares.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of Certificates (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify), and (ii) instructions to effect the surrender
of the Certificates in exchange for the certificates evidencing Parent Shares
and the Cash Payment. Upon surrender of a Certificate for cancellation to the
Exchange Agent together with such letter of transmittal, duly executed, and
such other customary documents as may be required pursuant to such
instructions, the holder of such Certificate shall be entitled to receive in
exchange therefor (A) certificates evidencing that number of whole Parent
Shares which such holder has the right to receive in accordance with the
Exchange Ratio in respect of the Shares formerly evidenced by such Certificate
(subject to the terms of Section 5.18), (B) any dividends or other
distributions to which such holder is entitled pursuant to Section 1.7(c), (C)
cash (without interest) in respect of fractional shares as provided in Section
1.6(f) and (D) cash (without interest) in the amount of the Cash Payment which
such holder has the right to receive in accordance with Section 1.6 in respect
of the Shares formerly evidenced by such Certificate (the Parent Shares,
dividends, distributions, cash in lieu of fractional shares and Cash Payment
being, collectively, the "MERGER CONSIDERATION"), and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Shares which is not registered in the transfer records of the
Company as of the Effective Time, Parent Shares, dividends, distributions,
cash in lieu of fractional shares and Cash Payment may be issued and paid in
accordance with this Article I to a transferee if the Certificate evidencing
such Shares is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer pursuant to this Section 1.7(b)
and by evidence that any applicable stock transfer taxes have been paid. Until
so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented Shares of Company Common Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the payment of
dividends and subject to Section 1.6(f), to evidence the ownership of the
number of full Parent Shares into which such Shares of Company Common Stock
shall have been so converted. The holder of a Certificate that prior to the
Effective Time represented issued and outstanding shares of Company Common
Stock shall have no rights, after the Effective Time, with respect to such
shares except to surrender the certificates in exchange for the Merger
Consideration or to perfect the rights of appraisal as a holder of Dissenting
Shares that such holder may have pursuant to the applicable provisions of the
DGCL.
(c) Distributions With Respect to Unexchanged Parent Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Parent Shares they
are entitled to receive until the holder of such Certificate shall surrender
such Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole Parent Shares issued in exchange therefor, without
interest, at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole Parent Shares.
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(d) Transfers of Ownership. If any certificate for Parent Shares is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it will be a condition to the issuance
thereof that the Certificate so surrendered will be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer
or other taxes required by reason of the issuance of a certificate for Parent
Shares in any name other than that of the registered holder of the certificate
surrendered, or have established to the satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.
(e) No Liability. Neither Parent, Merger Sub nor the Company shall be liable
to any holder of Company Common Stock for any Merger Consideration delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
(f) Withholding Rights. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant
to this Agreement to any holder of Company Common Stock such amounts as Parent
or the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Parent or the
Exchange Agent, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the Shares in respect of
which such deduction and withholding was made by Parent or the Exchange Agent.
SECTION 1.8 Stock Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no further
registration of transfers of Company Common Stock thereafter on the records of
the Company.
SECTION 1.9 No Further Ownership Rights in Company Common Stock. The Merger
Consideration delivered upon the surrender for exchange of Shares in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation
of Shares which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided
in this Article I.
SECTION 1.10 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, such Parent
Shares as may be required pursuant to Section 1.6; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against
any claim that may be made against Parent or the Exchange Agent with respect
to the Certificates alleged to have been lost, stolen or destroyed.
SECTION 1.11 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. The parties hereto hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the United States Treasury Regulations.
SECTION 1.12 Taking of Necessary Action; Further Action. Each of Parent,
Merger Sub and the Company will take all such reasonable and lawful action as
may be necessary or appropriate in order to effectuate the Merger in
accordance with this Agreement as promptly as possible. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and
directors of the Company and Merger Sub immediately prior to the Effective
Time are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action.
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SECTION 1.13 Material Adverse Effect. When used in connection with the
Company or any of its subsidiaries, or Parent or any of its subsidiaries, as
the case may be, the term "MATERIAL ADVERSE EFFECT" means any change, effect
or circumstance that, individually or when taken together with all other such
changes, effects or circumstances that have occurred prior to the date of
determination of the occurrence of the Material Adverse Effect, (a) is or is
reasonably likely to be materially adverse to the business, assets (including
intangible assets), financial condition or results of operations of the
Company and its subsidiaries or Parent and its subsidiaries, as the case may
be, in each case taken as a whole, or (b) is or is reasonably likely to delay
or prevent the consummation of the transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that,
except as set forth in the written disclosure schedule delivered on January
24, 1996 that is arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article II (the "COMPANY DISCLOSURE
SCHEDULE"):
SECTION 2.1 Organization and Qualification; Subsidiaries. Each of the
Company and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders ("APPROVALS")
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing and in good standing or to have
such power, authority and Approvals could not reasonably be expected to have a
Material Adverse Effect. Each of the Company and each of its subsidiaries is
duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties
owned, leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that could not reasonably be
expected to have a Material Adverse Effect. A true and complete list of all of
the Company's subsidiaries, together with the jurisdiction of incorporation of
each subsidiary, the authorized capitalization of each subsidiary, and the
percentage of each subsidiary's outstanding capital stock owned by the Company
or another subsidiary, is set forth in Section 2.1 of the Company Disclosure
Schedule. Except as set forth in Section 2.1 of the Company Disclosure
Schedule as of the date hereof, the Company does not directly or indirectly
own any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity, with respect to which interest the Company has invested or is required
to invest $100,000 or more, excluding securities in any publicly traded
company held for investment by the Company and comprising less than five
percent of the outstanding stock of such company.
SECTION 2.2 Certificate of Incorporation and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of its Certificate
of Incorporation and By-Laws as most recently restated and subsequently
amended to date, and has furnished or made available to Parent the Certificate
of Incorporation and By-Laws (or equivalent organizational documents) of each
of its subsidiaries (the "COMPANY SUBSIDIARY DOCUMENTS"). Such Certificate of
Incorporation, By-Laws and Company Subsidiary Documents are in full force and
effect. Neither the Company nor any of subsidiaries is in violation of any of
the provisions of its Certificate of Incorporation or By-Laws or Company
Subsidiary Documents, except for immaterial violations of the Company
Subsidiary Documents which may exist.
SECTION 2.3 Capitalization. As of December 31, 1995, the authorized capital
stock of the Company consist of (1) 27,000,000 shares of Company Common Stock
and (ii) 3,000,000 shares of preferred stock, $.001 par value per share, none
of which is issued and outstanding and none of which is held in treasury. As
of December 31, 1995, (i) 6,735,484 shares of Company Common Stock were issued
and outstanding, all of which
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are validly issued, fully paid and nonassessable, and no shares were held in
treasury, (ii) no shares of Company Common Stock were held by subsidiaries of
the Company, and (iii) 407,246 shares of Company Common Stock were reserved
for future issuance pursuant to outstanding stock options granted under the
Company Stock Option Plans. No material change in such capitalization has
occurred between December 31, 1995 and the date hereof. Except as set forth in
Section 2.3 or Section 2.11 of the Company Disclosure Schedule, as of the date
hereof there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or
unissued capital stock of the Company or any of its subsidiaries or obligating
the Company or any of its subsidiaries to issue or sell any shares of capital
stock of, or other equity interests in, the Company or any of its
subsidiaries. All shares of Company Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable. Except as disclosed in Section
2.3 of the Company Disclosure Schedule, there are no obligations, contingent
or otherwise, of the Company or any of its subsidiaries to repurchase, redeem
or otherwise acquire any shares of Company Common Stock or the capital stock
of any subsidiary or to provide funds to or make any investment (in the form
of a loan, capital contribution or otherwise) in any such subsidiary or any
other entity other than guarantees of bank obligations of subsidiaries entered
into in the ordinary course of business. Except as set forth in Sections 2.1
and 2.3 of the Company Disclosure Schedule, all of the outstanding shares of
capital stock of each of the Company's subsidiaries is duly authorized,
validly issued, fully paid and nonassessable, and all such shares are owned by
the Company or another subsidiary of the Company free and clear of all
security interests, liens, claims, pledges, agreements, limitations in the
Company's voting rights, charges or other encumbrances of any nature
whatsoever (collectively, "LIENS").
SECTION 2.4 Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate
action, and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions so
contemplated (other than the adoption of this Agreement by the holders of at
least a majority of the outstanding shares of Company Common Stock entitled to
vote in accordance with the DGCL and the Company's Certificate of
Incorporation and By-Laws). The Board of Directors of the Company has
determined that it is advisable and in the best interest of the Company's
stockholders for the Company to enter into a business combination with Parent
and Merger Sub upon the terms and subject to the conditions of this Agreement,
and has unanimously recommended that the Company's stockholders approve and
adopt this Agreement and the Merger. This Agreement has been duly and validly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and Merger Sub, as applicable, constitutes a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms.
SECTION 2.5 No Conflict; Required Filings and Consents.
(a) Section 2.5(a) of the Company Disclosure Schedule includes a list as of
the date hereof of (i) all loan agreements, indentures, mortgages, pledges,
conditional sale or title retention agreements, security agreements, equipment
obligations, guaranties, standby letters of credit, equipment leases or lease
purchase agreements to which the Company or any of its subsidiaries is a party
or by which any of them is bound, each in an amount equal to or exceeding
$100,000, but excluding any such agreement between the Company and its wholly-
owned subsidiaries or between two or more wholly-owned subsidiaries of the
Company; (ii) all contracts, agreements, commitments or other understandings
or arrangements to which the Company or any of its subsidiaries is a party or
by which any of them or any of their respective properties or assets are bound
or affected, but excluding contracts, agreements, commitments or other
understandings or arrangements entered into in the ordinary course of business
and involving, in each case, payments or receipts by the Company or any of its
subsidiaries of less than $100,000 in any single instance but not more than
$500,000 in the aggregate; and (iii) all agreements which, as of the date
hereof, are required to be filed as "material contracts" with the Securities
Exchange Commission ("SEC") pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, and the SEC's rules and regulations
thereunder (the "EXCHANGE ACT").
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(b) Except as disclosed in Section 2.5(b) of the Company Disclosure
Schedule, (i) neither the Company nor any of its subsidiaries has breached, is
in default under, or has received written notice of any breach of or default
under, any of the agreements, contracts or other instruments referred to in
clauses (i), (ii) or (iii) of Section 2.5(a), (ii) to the best knowledge of
the Company, no other party to any of the agreements, contracts or other
instrument referred to in clauses (i), (ii) or (iii) of Section 2.5 (a) has
breached or is in default of any of its obligations thereunder, and (iii) each
of the agreements, contracts and other instruments referred to in clauses (i),
(ii) or (iii) of Section 2.5(a) is in full force and effect, except in any
such case for breaches, defaults or failures to be in full force and effect
that has not had and could not reasonably be expected to have a Material
Adverse Effect.
(c) Except as set forth in Section 2.5(c) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company do not,
and the performance of this Agreement by the Company and the consummation of
the transactions contemplated hereby will not, (i) conflict with or violate
the Certificate of Incorporation or By-Laws of the Company, (ii) conflict with
or violate any federal, foreign, state or provincial law, rule, regulation,
order, judgment or decree (collectively, "LAWS") applicable to the Company or
any of its subsidiaries or by which its or any of their respective properties
are bound or affected, or (iii) result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default under), or impair the Company's or any of its subsidiaries' rights or
alter the rights or obligations of any third party under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a Lien on any of the properties or assets of the
Company or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of
their respective properties are bound or affected, except in any such case for
any such conflicts, violations, breaches, defaults or other occurrences that
could not reasonably be expected to have a Material Adverse Effect.
(d) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any federal, foreign, state or provincial governmental or regulatory
authority except (i) for applicable requirements, if any, of the Securities
Act, the Exchange Act, state securities laws ("BLUE SKY LAWS"), the pre-merger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR ACT"), and the filing and recordation of
appropriate merger or other documents as required by the DGCL, and (ii) where
the failure to obtain such consents, approvals, authorizations or permits, or
to make such filings or notifications, would not prevent or delay consummation
of the Merger, or otherwise prevent or delay the Company from performing its
obligations under this Agreement, or would not otherwise have a Material
Adverse Effect.
SECTION 2.6 Compliance; Permits.
(a) Except as disclosed in Section 2.6(a) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is in conflict with,
or in default or violation of, (i) any Law applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties are
bound or affected or (ii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or its or any of their respective
properties are bound or affected, except for any such conflicts, defaults or
violations which could not reasonably be expected to have a Material Adverse
Effect.
(b) Except as disclosed in Section 2.6(b) of the Company Disclosure
Schedule, the Company and its subsidiaries hold all permits, licenses,
easements, variances, exemptions, consents, certificates, orders and approvals
from governmental authorities which are material to the operation of the
business of the Company and its subsidiaries taken as a whole as it is now
being conducted (collectively, the "COMPANY PERMITS"). The Company and its
subsidiaries are in compliance with the terms of the Company Permits, except
where the failure so to comply could not reasonably be expected to have a
Material Adverse Effect.
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SECTION 2.7 SEC Filings; Financial Statements.
(a) The Company has filed all forms, reports and documents required to be
filed with the SEC and has made available to Parent (i) its Annual Report on
Form 10-K for the year ended December 31, 1995 and its Quarterly Reports on
Form 10-Q for the periods ended June 30, 1995, September 30, 1995 and March
31, 1996, (ii) its Registration Statement on Form S-1 (File No. 33-90436) as
declared effective by the SEC (the "S-1 REGISTRATION STATEMENT"), (iii) all
other reports or registration statements filed by the Company with the SEC,
and (iv) all amendments and supplements to all such reports and registration
statements filed by the Company with the SEC (collectively, the "COMPANY SEC
REPORTS"). Except as disclosed in Section 2.7 of the Company Disclosure
Schedule, the Company SEC Reports (i) were prepared in all material respects
in accordance with the requirements of the Securities Act or the Exchange Act,
as the case may be, and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing) contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. None of the Company's subsidiaries is
required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports was prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated
in the notes thereto), and each fairly presents in all material respects the
consolidated financial position of the Company and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and
cash flows and stockholder equity for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be
material in amount.
SECTION 2.8 Absence of Certain Changes or Events. Except as set forth in
Section 2.8 of the Company Disclosure Schedule or the Company SEC Reports,
since January 1, 1995, the Company has conducted its business in the ordinary
course and there has not occurred: (a) any Material Adverse Effect; (b) after
May 11, 1995, any amendments or changes in the Certificate of Incorporation or
By-laws of the Company; (c) any damage to, destruction or loss of any asset of
the Company (whether or not covered by insurance) that could reasonably be
expected to have a Material Adverse Effect; (d) any material change by the
Company in its accounting methods, principles or practices; (e) any material
revaluation by the Company of any of its assets, including, without
limitation, writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business; (f) any
other material action or event that would have required the consent of Parent
pursuant to Section 4.1 had such action or event occurred after the date of
this Agreement; or (g) any sale of a material amount of property of the
Company or any of its subsidiaries, except in the ordinary course of business.
SECTION 2.9 No Undisclosed Liabilities. Except as is disclosed in Section
2.9 of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise),
except liabilities (a) in the aggregate adequately provided for in the
Company's audited balance sheet (including any related notes thereto) for the
fiscal year ended December 31, 1995 included in the Company's Annual Report on
form 10-K for the year ended December 31, 1995 (the "1995 COMPANY BALANCE
SHEET"), (b) incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected on the 1995
Company Balance Sheet, (c) incurred since December 31, 1995 in the ordinary
course of business consistent with past practice, (d) incurred in connection
with this Agreement, or (e) which could not reasonably be expected to have a
Material Adverse Effect.
SECTION 2.10 Absence of Litigation. Except as set forth in Section 2.10 of
the Company Disclosure Schedule and except for the pending legal proceeding
captioned Richard Zeid and Siom Misrahi et al v. John Kimberley, Frank M.
Richardson, Mark A. Rowlinson and Firefox Communications, Inc., Case No. C96
20136 (Northern District of California) (the "FIREFOX LITIGATION"), there are
no claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Company, threatened against the Company or any of its
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subsidiaries, or any properties or rights of the Company or any of its
subsidiaries, before any federal, foreign, state or provincial court,
arbitrator or administrative, governmental or regulatory authority or body
that could reasonably be expected to have a Material Adverse Effect.
SECTION 2.11 Employee Benefit Plans; Employment Agreements.
(a) Section 2.11(a) of the Company Disclosure Schedule lists as of the date
hereof all employee pension plans (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), all material
employee welfare plans (as defined in Section 3(1) of ERISA) and all other
material bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar fringe or
employee benefit plans, programs or arrangements, and any material current or
former employment, executive compensation, consulting or severance agreements,
written or otherwise, for the benefit of, or relating to, any employee of or
consultant to the Company, any trade or business (whether or not incorporated)
which is a member of a controlled group including the Company or which is
under common control with the Company (a "COMPANY ERISA AFFILIATE") within the
meaning of Section 414 of the Code, or any subsidiary of the Company, as well
as each plan with respect to which the Company or a Company ERISA Affiliate
could incur liability under Section 4069 (if such plan has been or were
terminated) or Section 4212(c) of ERISA (all such plans, practices and
programs are referred to as the "COMPANY EMPLOYEE PLANS"). There have been
made available to Parent copies of (i) each such written Company Employee Plan
(other than those referred to in Section 4(b)(4) of ERISA), (ii) the most
recent annual report on Form 5500 series, with accompanying schedules and
attachments, filed with respect to each Company Employee Plan required to make
such a filing, and (iii) the most recent actuarial valuation for each Company
Employee Plan subject to Title IV of ERISA. For purposes of this Section
2.11(a), the term "material," used with respect to any Company Employee Plan,
shall mean that the Company or a Company ERISA Affiliate has incurred or may
incur obligations in an annual amount exceeding $100,000 with respect to such
Company Employee Plan.
(b) Except in each case as set forth in Section 2.11(b) of the Company
Disclosure Schedule, and except where it could not reasonably be expected to
have a Material Adverse Effect, (i) none of the Company Employee Plans
promises or provides retiree medical or other retiree welfare benefits to any
person, and none of the Company Employee Plans is a "multiemployer plan" as
such term is defined in Section 3(37) of ERISA; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Company Employee Plan, which
could result in any material liability of the Company or any of its
subsidiaries; (iii) all Company Employee Plans are in compliance in all
material respects with the requirements prescribed by any and all Laws
(including ERISA and the Code) currently in effect with respect thereto
(including all applicable requirements for notification to participants or the
Department of Labor, Pension Benefit Guaranty Corporation (the "PBGC"),
Internal Revenue Service (the "IRS") or Secretary of the Treasury), and the
Company and each of its subsidiaries have performed all material obligations
required to be performed by them under, are not in any material respect in
default under or violation of, and have no knowledge of any material default
or violation by any other party to, any of the Company Employee Plans;
(iv) each Company Employee Plan intended to qualify under Section 401(a) of
the Code and each trust intended to qualify under Section 501(a) of the Code
is the subject of a favorable determination letter from the IRS, and nothing
has occurred which may reasonably be expected to impair in any material
respect such determination; (v) all contributions required to be made to any
Company Employee Plan pursuant to Section 412 of the Code, or the terms of the
Company Employee Plan or any collective bargaining agreement, have been made
on or before their due dates; (vi) with respect to each Company Employee Plan,
no "reportable event" within the meaning of Section 4043 of ERISA (excluding
any such event for which the 30 day notice requirement has been waived under
the regulations to Section 4043 of ERISA) nor any event described in Section
4062, 4063 or 4041 of ERISA has occurred; and (vii) neither the Company nor
any Company ERISA Affiliate has incurred, nor reasonably expects to incur, any
material liability under Title IV of ERISA (other than liability for premium
payments to the PBGC arising in the ordinary course).
(c) Section 2.11(c) of the Company Disclosure Schedule sets forth a true and
complete list of each current or former employee, officer or director of the
Company or any of its subsidiaries who holds (i) any option to
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purchase Company Common Stock as of the date hereof, together with the number
of shares of Company Common Stock subject to such option, the option price of
such option (to the extent determined as of the date hereof), whether such
option is intended to qualify as an incentive stock option within the meaning
of Section 422(b) of the Code (an "ISO"), and the expiration date of such
option and (ii) any other right, directly or indirectly, to acquire Company
Common Stock, together with the number of shares of Company Common Stock
subject to such right. Section 2.11(c) of the Company Disclosure Schedule also
sets forth the total number of such ISOs, such nonqualified options and such
other rights.
(d) Section 2.11(d) of the Company Disclosure Schedule sets forth a true and
complete list of: (i) all employment agreements with officers of the Company
or any of its subsidiaries; (ii) all agreements with consultants who are
individuals obligating the Company or any of its subsidiaries to make annual
cash payments in an amount exceeding $100,000; (iii) all employees of, or
consultants to, the Company or any of its subsidiaries who have executed a
non-competition agreement with the Company or any of its subsidiaries and to
whom the Company is obligated to make annual cash payments in excess of
$100,000. (iv) all severance agreements, programs and policies of the Company
or any of its subsidiaries with or relating to its employees, in each case
with outstanding commitments exceeding $100,000, excluding programs and
policies required to be maintained by law; and (v) all plans, programs,
agreements and other arrangements of the Company or any of its subsidiaries
with or relating to its employees which contain change in control provisions
which could reasonably be expected to have a Material Adverse Effect or impede
the transaction proposed hereunder in any material respect.
SECTION 2.12 Labor Matters. Except as set forth in Section 2.12 of the
Company Disclosure Schedule: (i) there are no claims or proceedings pending
or, to the knowledge of the Company or any of its subsidiaries, threatened,
between the Company or any of its subsidiaries and any of their respective
employees, asserting that the Company has committed an unfair labor practice
which claims or proceedings have or could reasonably be expected to have a
Material Adverse Effect; (ii) neither the Company nor any of its subsidiaries
is a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by the Company or its subsidiaries,
nor does the Company or any of its subsidiaries know of any activities or
proceedings of any labor union to organize any such employees; and (iii)
neither the Company nor any of its subsidiaries has any knowledge of any
strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with
respect to any employees of the Company or any of its subsidiaries which could
reasonably be expected to have a Material Adverse Effect.
SECTION 2.13 Registration Statement; Joint Proxy Statement/Prospectus. The
information supplied by the Company for inclusion in the Registration
Statement (as defined in Section 3.13) shall not at the time the Registration
Statement is declared effective by the SEC contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The information
supplied by the Company for inclusion in the joint proxy statement/prospectus
to be sent to the stockholders of the Company in connection with the meeting
of the stockholders of the Company to consider the Merger (the "COMPANY
STOCKHOLDERS MEETING") and to be sent to the stockholders of Parent in
connection with the meeting of the stockholders of Parent to consider the
Merger (the "PARENT STOCKHOLDERS MEETING," and together with the Company
Stockholder Meeting, the "STOCKHOLDERS MEETINGS") (such joint proxy
statement/prospectus as amended or supplemented is referred to herein as the
"JOINT PROXY STATEMENT/PROSPECTUS"), will not, on the date the Joint Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is first
mailed to stockholders, at the time of the Stockholders Meetings, or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with
respect to any material fact, or shall omit to state any material fact
necessary in order to make the statements made therein not false or
misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders Meetings which has become false or misleading. If
at any time prior to the Effective Time any event relating to the Company or
any of its affiliates, officers or directors should be discovered by the
Company which is required to be set forth in an amendment to the Registration
Statement or a supplement to the Joint Proxy Statement/Prospectus, the Company
shall promptly
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inform Parent and Merger Sub. Notwithstanding the foregoing, the Company makes
no representation or warranty with respect to any information supplied by
Parent or Merger Sub which is contained in any of the foregoing documents.
SECTION 2.14 [Intentionally Omitted]
SECTION 2.15 Title to Property. Except as set forth in Section 2.15 of the
Company Disclosure Schedule, the Company and each of its subsidiaries have
good and defensible title to all of their properties and assets, free and
clear of all liens, charges and encumbrances, except liens for taxes not yet
due and payable and such liens or other imperfections of title, which could
not reasonably be expected to have a Material Adverse Effect; and, to the
knowledge of the Company, all leases pursuant to which the Company or any of
its subsidiaries lease from others material amounts of real or personal
property, are in good standing, valid and effective in accordance with their
respective terms, and there is not, to the knowledge of the Company, under any
of such leases, any existing material default or event of default (or event
which with notice or lapse of time, or both, would constitute a material
default), except where the lack of such good standing, validity and
effectiveness or the existence of such default or event of default could not
reasonably be expected to have a Material Adverse Effect.
SECTION 2.16 Taxes.
(a) For purposes of this Agreement, "TAX" or "TAXES" shall mean taxes, fees,
levies, duties, tariffs, imposts, and governmental impositions or charges of
any kind in the nature of (or similar to) taxes, payable to any federal,
state, local or foreign taxing authority, including (without limitation) (i)
income, franchise, profits, gross receipts, ad valorem, net worth, value
added, sales, use, service, real or personal property, special assessments,
capital stock, license, payroll, withholding, employment, social security,
workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premiums, windfall profits, transfer
and gains taxes, and (ii) interest, penalties, additional taxes and additions
to tax imposed with respect thereto; and "TAX RETURNS" shall mean returns,
reports, and information statements with respect to Taxes required to be filed
with the IRS or any other federal, foreign, state or provincial taxing
authority, domestic or foreign, including, without limitation, consolidated,
combined and unitary tax returns.
(b) Other than as disclosed in Section 2.16(b) of the Company Disclosure
Schedule, (i) the Company and its subsidiaries have filed all Tax Returns
required to be filed by them, (ii) the Company and its subsidiaries have paid
and discharged all Taxes due in connection with or with respect to the periods
or transactions covered by such Tax Returns and have paid all other Taxes as
are due, except such as are being contested in good faith by appropriate
proceedings (to the extent that any such proceedings are required) and with
respect to which the Company is maintaining adequate reserves, and (iii) there
are no other Taxes that would be due if asserted by a taxing authority, except
with respect to which the Company is maintaining reserves to the extent
currently required unless the failure to do so could not reasonably be
expected to have a Material Adverse Effect. Except as does not involve or
would not result in liability to the Company or any of its subsidiaries that
could reasonably be expected to have a Material Adverse Effect: (i) there are
no tax liens on any assets of the Company or any subsidiary thereof; and (ii)
neither the Company nor any of its subsidiaries has granted any waiver of any
statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax. The accruals and reserves for Taxes (including
deferred taxes) reflected in the 1994 Company Balance Sheet are in all
material respects adequate to cover all Taxes required to be accrued through
the date thereof (including interest and penalties, if any, thereon and Taxes
being contested) in accordance with generally accepted accounting principles.
(c) Neither the Company nor any of its subsidiaries is, or has been, a
United States real property holding corporation (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code. To the best knowledge of the Company, neither
the Company nor any of its subsidiaries owns any property of a character, the
indirect transfer of which, pursuant to this Agreement, would give rise to any
material documentary, stamp or other transfer tax.
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SECTION 2.17 Environmental Matters. Except as set forth in Section 2.17 of
the Company Disclosure Schedule, and except in all cases as, in the aggregate,
have not had and could not reasonably be expected to have a Material Adverse
Effect, the Company and each of its subsidiaries to the Company's knowledge:
(i) have obtained all Approvals which are required to be obtained under all
applicable federal, state, foreign or local laws or any regulation, code,
plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous or toxic
materials or wastes into ambient air, surface water, ground water, or land or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants or hazardous or toxic materials or wastes by the Company or its
subsidiaries or their respective agents ("ENVIRONMENTAL LAWS"); (ii) are in
compliance with all terms and conditions of such required Approvals and also
are in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in applicable Environmental Laws; (iii) as of the date hereof, are
not aware of nor have received notice of any past or present violations of
Environmental Laws or any event, condition, circumstance, activity, practice,
incident, action or plan which is reasonably likely to interfere with or
prevent continued compliance with or which would give rise to any common law
or statutory liability, or otherwise form the basis of any claim, action, suit
or proceeding, against the Company or any of its subsidiaries based on or
resulting from the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge or
release into the environment, of any pollutant, contaminant or hazardous or
toxic material or waste; and (iv) have taken all actions necessary under
applicable Environmental Laws to register any products or materials required
to be registered by the Company or its subsidiaries (or any of their
respective agents) thereunder.
SECTION 2.18 Intellectual Property.
(a) The Company, directly or indirectly, owns, or is licensed or otherwise
possesses legally enforceable rights to use, (i) all trademarks, trade names,
service marks and copyrights, and any applications therefor, (ii) to its
knowledge, all patents and any applications therefore, and (iii) maskworks,
net lists, schematics, technology, know-how, computer software programs or
applications (in both source code and object code form), and tangible or
intangible proprietary information or material (excluding Commercial Software
as defined in paragraph (c) below), that are material to the business of the
Company and its subsidiaries as currently conducted (including with respect to
new products or product enhancements currently contemplated as part of the
business) by the Company or its subsidiaries (the "COMPANY INTELLECTUAL
PROPERTY RIGHTS").
(b) Section 2.18(b) of the Company Disclosure Schedule sets forth a complete
list of all material patents, trademarks, registered copyrights, trade names
and service marks, and any applications therefor, included in the Company
Intellectual Property Rights, and specifies, where applicable, the
jurisdictions in which each such Company Intellectual Property Right has been
issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners. None of the
software products currently marketed by the Company or any of its subsidiaries
has been registered for copyright protection with the United States Copyright
Office or any foreign offices nor has the Company or any of its subsidiaries
been requested to make any such registration. Section 2.18(b) of the Company
Disclosure Schedule also sets forth a complete list of all material licenses,
sublicenses and other agreements as to which the Company or any of its
subsidiaries is a party and pursuant to which the Company, any of its
subsidiaries or any other person is authorized to use any Company Intellectual
Property Right (excluding object code end-user licenses granted to end-users
in the ordinary course of business that permit use of software products
without a right to modify, distribute or sublicense the same ("END-USER
LICENSES")) or other trade secret material to the Company or any of its
subsidiaries, and includes the identity of all parties thereto and the
applicable royalty contained therein. None of the Company or any of its
subsidiaries is in violation of any license, sublicense or agreement described
on such list except such violations as do not materially impair the Company's
or such subsidiary's rights under such license, sublicense or agreement. The
execution and delivery of this Agreement by the Company, and the consummation
of the transactions contemplated hereby, will neither cause the Company or any
of its subsidiaries to be in material violation or
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default under any such license, sublicense or agreement, nor entitle any other
party to any such license, sublicense or agreement to terminate or materially
modify such license, sublicense or agreement. No claims with respect to the
Company Intellectual Property Rights have been asserted or, to the knowledge
of the Company, are threatened by any person that reasonably would be expected
to have a Material Adverse Effect on the Company or any of its subsidiaries,
(i) to the effect that the manufacture, sale, licensing or use of any of the
products of the Company or any of its subsidiaries as now manufactured, sold
or licensed or used or currently proposed for manufacture, use, sale or
licensing by the Company or any of its subsidiaries infringes on any
copyright, patent, trade mark, service mark or trade secret, (ii) against the
use by the Company or any of its subsidiaries of any material trademarks,
service marks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in the business
of the Company and its subsidiaries as currently conducted, or (iii)
challenging the ownership, validity or effectiveness of any of the Company
Intellectual Property Rights. All registered trademarks, service marks and
copyrights held by the Company are valid and subsisting. To the knowledge of
the Company, there is no unauthorized use, infringement or misappropriation of
any of the Company Intellectual Property Rights by any third party, including
any employee or former employee of the Company or any of its subsidiaries,
which could reasonably be expected to have a Material Adverse Effect. No
Company Intellectual Property Right or product of the Company or any of its
subsidiaries is subject to any outstanding decree, order, judgment, or
stipulation restricting in any manner the licensing thereof by the Company or
any of its subsidiaries. Neither the Company nor any of its subsidiaries has
entered into any agreement (other than exclusive distribution agreements
identified as such in Section 2.18(b) of the Company Disclosure Schedule)
under which the Company or its subsidiaries is restricted from selling,
licensing or otherwise distributing any of its products to any class of
customers, in any geographic area, during any period of time or in any segment
of the market. The Company and its subsidiaries have a policy requiring each
employee to execute a confidentiality agreement substantially in the form
previously delivered to Parent.
(c) "COMMERCIAL SOFTWARE" means software programs generally available to the
public through retail dealers or other sources in computer software which have
been licensed or made available legitimately to the Company or any of its
subsidiaries (or, in the case of Section 3.18, to Parent) pursuant to End-User
Licenses or other channels of distribution without restriction as to use and
which are used in the Company's or its subsidiaries' business (or in Parent's
business in the case of Section 3.18).
SECTION 2.19 Interested Party Transactions. Except as set forth in Section
2.19 of the Company Disclosure Schedule and except for the Company's
commitment to advance the payment of certain expenses to certain of its
directors and officers in connection with the Firefox Litigation, since
December 31, 1995, no event has occurred that would be required to be reported
as a Certain Relationship or Related Transaction, pursuant to Item 404 of
Regulation S-K promulgated by the SEC.
SECTION 2.20 Insurance. Section 2.20 of the Company Disclosure Schedule sets
forth a complete list of all material fire and casualty, general liability,
business interruption, product liability, professional liability and sprinkler
and water damage insurance policies maintained by the Company or any of its
subsidiaries. All such policies are with reputable insurance carriers, provide
full and adequate coverage for all normal risks incident to the business of
the Company and its subsidiaries and their respective properties and assets
and are in character and amount similar to that carried by entities engaged in
similar businesses and subject to the same or similar perils or hazards,
except as could not reasonably be expected to have a Material Adverse Effect.
SECTION 2.21 Accounts Receivable. The accounts receivable of the Company and
its subsidiaries as reflected in the most recent financial statements
contained in the Company SEC Reports, to the extent uncollected on the date
hereof and the accounts receivable reflected on the books of the Company and
its subsidiaries are valid and existing and represent monies due, subject to
reserves reasonably considered adequate for receivables not collectible in the
ordinary course of business, and (subject to the aforesaid reserves) are
subject to no refunds or other adjustments and to no defenses, rights of
setoff, assignments, restrictions, encumbrances or conditions enforceable by
third parties on or affecting any thereof, except for such refunds,
adjustments, defenses, rights of setoff, assignments, restrictions,
encumbrances or conditions as could not reasonably be expected to have a
Material Adverse Effect.
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SECTION 2.22 [Intentionally Omitted.]
SECTION 2.23 Opinion of Financial Advisor. The Company has been advised in
writing by its financial advisor, Cowen & Company, that in its opinion, as of
May 21, 1996, the Exchange Ratio and Cash Payment set forth herein, considered
together, are fair to the holders of Shares from a financial point of view.
SECTION 2.24 Brokers. No broker, finder or investment banker (other than
Cowen & Company, the fees and expenses of which will be paid by the Company)
is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company or its subsidiaries or
affiliates. The Company has heretofore furnished to Parent a complete and
correct copy of all agreements between the Company and Cowen & Company
pursuant to which such firm would be entitled to any payment relating to the
transactions contemplated hereunder.
SECTION 2.25 Section 203 of the DGCL Not Applicable. The Board of Directors
of the Company has taken all actions so that the restrictions contained in
Section 203 of the DGCL applicable to a "business combination" (as defined in
Section 203) will not apply to the execution, delivery or performance of this
Agreement or the respective Stockholders Agreements dated as of the date
hereof between Parent and certain stockholders of the Company (collectively,
the "STOCKHOLDERS AGREEMENTS"), copies of which are attached as Exhibit 2.25
hereto, or the consummation of the Merger or the other transactions
contemplated by this Agreement or by the Stockholders Agreements.
SECTION 2.26 Change in Control Payments. Except as set forth on Section
2.11(d) or Section 2.26 of the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries have any plans, programs or agreements to
which they are parties, or to which they are subject, pursuant to which
payments may be required or acceleration of benefits may be required upon a
change of control of the Company.
SECTION 2.27 Expenses. The Company has provided to Parent a good faith
estimate and description of the expenses of the Company and its subsidiaries
which the Company expects to incur, or has incurred, in connection with the
transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company that, except as set forth in the written disclosure schedule
delivered on January 24, 1996 that is arranged in paragraphs corresponding to
the numbered and lettered paragraphs contained in this Article III (the
"PARENT DISCLOSURE SCHEDULE"):
SECTION 3.1 Organization and Qualification; Subsidiaries. Each of Parent and
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority and is in possession of all Approvals
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing and in good standing or to have
such power, authority and Approvals could not reasonably be expected to have a
Material Adverse Effect. Each of Parent and each of its subsidiaries is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that could not reasonably be
expected to have a Material Adverse Effect. A true and complete list as of the
date hereof of all of Parent's subsidiaries, together with the jurisdiction of
incorporation of each subsidiary, the authorized capitalization of each
subsidiary and the percentage of each subsidiary's outstanding capital stock
owned by Parent or another subsidiary, is set forth in Section 3.1 of the
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Parent Disclosure Schedule. Except as set forth in Section 3.1 of the Parent
Disclosure Schedule as of the date hereof, Parent does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in,
any corporation, partnership, joint venture or other business association or
entity, with respect to which Parent has invested or is required to invest
$100,000 or more, excluding securities in any publicly traded company held for
investment by Parent and comprising less than five percent of the outstanding
capital stock of such company.
SECTION 3.2 Charter and By-Laws. Parent has heretofore furnished to the
Company a complete and correct copy of its Restated Articles of Organization
and By-Laws, as most recently restated and subsequently amended to date, and
has furnished or made available to the Company the Certificate of
Incorporation and By-Laws (or equivalent organizational documents) of each of
its subsidiaries (the "PARENT SUBSIDIARY DOCUMENTS"). Such Restated Articles
of Organization, By-Laws and Parent Subsidiary Documents are in full force and
effect. Neither Parent nor Merger Sub nor any other subsidiaries is in
violation of any of the provisions of its Charter or By-Laws or Parent
Subsidiary Documents, except for immaterial violations of the Parent
Subsidiary Documents (other than of Merger Sub) that may exist.
SECTION 3.3 Capitalization. As of December 31, 1995, the authorized capital
stock of Parent consisted of (i) 50,000,000 shares of Parent Common Stock of
which 26,506,729 shares were issued and outstanding, all of which are validly
issued, fully paid and non-assessable, no shares were held in treasury,
9,777,322 shares were reserved for future issuance under Parent's stock option
and employee stock purchase plans and (ii) 5,000,000 shares of preferred
stock, $.01 par value per share, of which 500,000 shares have been designated
as shares of Junior Preferred Stock, $.01 par value per share, none of which
was issued and outstanding and none of which was held in treasury. No material
change in such capitalization has occurred between December 31, 1995 and the
date hereof. Except as set forth in Sections 3.3 and 3.11 of the Parent
Disclosure Schedule, as of the date hereof there are no options, warrants or
other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of Parent or any of its
subsidiaries or obligating Parent or any of its subsidiaries to issue or sell
any shares of capital stock of, or other equity interests in, Parent or any of
its subsidiaries. All shares of Parent Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in Section
3.3 of the Parent Disclosure Schedule as of the date hereof, there are no
obligations, contingent or otherwise, of Parent or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of Parent Common Stock or
the capital stock of any subsidiary or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
such subsidiary or any other entity other than guarantees of bank obligations
of subsidiaries entered into in the ordinary course of business. Except as set
forth in Section 3.1 or 3.3 of the Parent Disclosure Schedule, all of the
outstanding shares of capital stock of each of Parent's subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and all such shares
are owned by Parent or another subsidiary of Parent free and clear of all
security interests, liens, claims, pledges, agreements, limitations in
Parent's voting rights, charges or other encumbrances of any nature
whatsoever.
SECTION 3.4 Authority Relative to this Agreement. Each of Parent and Merger
Sub has all necessary corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent and Merger Sub, and no other
corporate proceedings on the part of Parent or Merger Sub (other than approval
by a majority of the outstanding shares of Parent Common Stock entitled to
vote therein of the issuance of Parent Shares in the Merger) are necessary to
authorize this Agreement or to consummate the transactions contemplated
thereby. The Board of Directors of Parent has determined that it is advisable
and in the best interest of Parent's stockholders for Parent to enter into a
business combination with the Company upon the terms and subject to the
conditions of this Agreement. This Agreement has been duly and validly
executed and delivered by Parent and Merger Sub and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal,
valid and binding obligation of Parent and Merger Sub enforceable against each
of them in accordance with its terms.
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SECTION 3.5 No Conflict, Required Filings and Consents.
(a) Section 3.5(a) of the Parent Disclosure Schedule includes a list as of
the date hereof of: (i) all loan agreements, indentures, mortgages, pledges,
conditional sale or title retention agreements, security agreements, equipment
obligations, guaranties, standby letters of credit, equipment leases or lease
purchase agreements to which Parent or any of its subsidiaries is a party or
by which any of them is bound, each in an amount equal to or exceeding
$500,000, but excluding any such agreement between Parent and its wholly-owned
subsidiaries or between two or more wholly-owned subsidiaries of Parent; (ii)
all contracts, agreements, commitments or other understandings or arrangements
to which Parent or any of its subsidiaries is a party or by which any of them
or any of their respective property or assets are bound or affected, but
excluding contracts, agreements, commitments or other understandings or
arrangements entered into in the ordinary course of business and involving, in
each case, payments or receipts by Parent or any of its subsidiaries of less
than $1,000,000 in any single instance but not more than $2,000,000 in the
aggregate; and (iii) all agreements which, as of the date hereof are required
to be filed with the SEC pursuant to the requirements of the Exchange Act as
"material contracts."
(b) Except as disclosed in Section 3.5(b) of the Parent Disclosure Schedule,
(i) neither the Parent nor any of its subsidiaries has breached, is in default
under, or has received written notice of any breach of or default under, any
of the agreements, contracts or other instruments referred to in clauses (i),
(ii) or (iii) of Section 3.5(a), (ii) to the best knowledge of Parent, no
other party to any of the agreements, contracts or other instrument referred
to in clauses (i), (ii) or (iii) of Section 3.5(a) has breached or is in
default of any of its obligations thereunder, and (iii) each of the
agreements, contracts and other instruments referred to in clauses (i), (ii)
or (iii) of Section 3.5(a) is in full force and effect, except in any such
case for breaches, defaults or failures to be in full force and effect that
has not had and could not reasonably be expected to have a Material Adverse
Effect.
(c) Except as set forth in Section 3.5(c) of the Parent Disclosure Schedule,
the execution and delivery of this Agreement by Parent and Merger Sub do not,
and the performance of this Agreement by Parent and Merger Sub and the
consummation of the transactions contemplated hereby will not, (i) conflict
with or violate the Articles of Organization (or Certificate of Incorporation)
or By-Laws of Parent or Merger Sub, (ii) conflict with or violate any Law,
applicable to Parent or any of its subsidiaries or by which its or their
respective properties are bound or affected, or (iii) result in any breach of
or constitute a default (or an event which with notice or lapse of time or
both would become a default under), or impair Parent's or any of its
subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien on any of the properties
or assets of Parent or any of its subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Parent or any of its subsidiaries is a
party or by which Parent or any of its subsidiaries or its or any of their
respective properties are bound or affected, except in any such case for any
such conflicts, violations, breaches, defaults or other occurrences that could
not reasonably be expected to have a Material Adverse Effect.
(d) The execution and delivery of this Agreement by Parent and Merger Sub do
not, and the performance of this Agreement by Parent and Merger Sub will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Securities
Act, the Exchange Act, the Blue Sky Laws, the pre-merger notification
requirements of the HSR Act, and the filing and recordation of appropriate
merger or other documents as required by the DGCL, and (ii) where the failure
to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay consummation of the
Merger, or otherwise prevent or delay Parent or Merger Sub from performing
their respective obligations under this Agreement, or would not otherwise have
a Material Adverse Effect.
SECTION 3.6 Compliance; Permits.
(a) Except as disclosed in Section 3.6(a) of the Parent Disclosure Schedule,
neither Parent nor any of its subsidiaries is in conflict with, or in default
or violation of, (i) any Law applicable to Parent or any of its
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subsidiaries or by which its or any of their respective properties are bound
or affected or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Parent or any of its subsidiaries is a party or by which Parent or any of its
subsidiaries or its or any of their respective properties are bound or
affected, except for any such conflicts, defaults or violations which could
not reasonably be expected to have a Material Adverse Effect.
(b) Except as disclosed in Section 3.6(b) of the Parent Disclosure Schedule,
Parent and its subsidiaries hold all permits, licenses, easements, variances,
exemptions, consents, certificates, orders and approvals from governmental
authorities which are material to the operation of the business of the Parent
and its subsidiaries taken as a whole as it is now being conducted
(collectively, the "PARENT PERMITS"). Parent and its subsidiaries are in
compliance with the terms of the Parent Permits, except where the failure so
to comply could not reasonably be expected to have a Material Adverse Effect.
SECTION 3.7 SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports and documents required to be filed
with the SEC and has heretofore delivered to the Company, in the form filed
with the SEC, (i) its Annual Reports on Form 10-K for the fiscal years ended
December 31, 1993, 1994 and 1995, (ii) its Quarterly Reports on Form 10-Q for
the periods ended March 31, 1995, June 30, 1995 and September 30, 1995 and
March 31, 1996, (iii) all proxy statements relating to Parent's meetings of
stockholders (whether annual or special) since January 1, 1994, (iv) all other
reports or registration statements (other than Reports on Form 10-Q not
referred to in clause (ii) above) filed by Parent with the SEC, and (v) all
amendments and supplements to all such reports and registration statements
filed by Parent with the SEC (collectively, the "PARENT SEC REPORTS"). The
Parent SEC Reports (i) were prepared in all material respects in accordance
with the requirements of the Securities Act or the Exchange Act, as the case
may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date
of such filing) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading. None of Parent's subsidiaries is required to
file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports has been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto), and each fairly presents in all material
respects the consolidated financial position of Parent and its subsidiaries as
at the respective dates thereof and the consolidated results of its operations
and cash flows and stockholder equity for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be
material in amount.
SECTION 3.8 Absence of Certain Changes or Events. Except as set forth in
Section 3.8 of the Parent Disclosure Schedule or in the Parent SEC Reports,
since January 1, 1995, Parent has conducted its business in the ordinary
course and there has not occurred: (a) any Material Adverse Effect; (b) any
amendments or changes in the Articles of Organization or By-Laws of Parent;
(c) any damage to, destruction or loss of any assets of the Parent (whether or
not covered by insurance) that could reasonably be expected to have a Material
Adverse Effect; (d) any material change by Parent in its accounting methods,
principles or practices; (e) any material revaluation by Parent of any of its
assets, including without limitation, writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course of
business; (f) any other action or event that would have required the consent
of the Company pursuant to Section 4.3 had such action or event occurred after
the date of this Agreement; or (g) any sale of a material amount of assets of
Parent or any of its subsidiaries, except in the ordinary course of business.
SECTION 3.9 No Undisclosed Liabilities. Except as is disclosed in Section
3.9 of the Parent Disclosure Schedule, neither Parent nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise),
except liabilities (a) in the aggregate adequately provided for in Parent's
balance sheet (including any related
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notes thereto) as of December 31, 1994 included in the Parent's 1994 Annual
Report on Form 10-K (the "PARENT BALANCE SHEET"), (b) incurred in the ordinary
course of business and not required under generally accepted accounting
principles to be reflected on the Parent Balance Sheet, (c) incurred since
December 31, 1994 in the ordinary course of business and consistent with past
practice, (d) incurred in connection with this Agreement, or (e) which could
not reasonably be expected to have a Material Adverse Effect.
SECTION 3.10 Absence of Litigation. Except as set forth in Section 3.10 of
the Parent Disclosure Schedule and except for the legal proceeding captioned
Lawrence M. Greebel v. FTP Software Inc., Robert W. Goodnow, Jr., Penny C.
Leavy, Douglas F. Flood, Jonathan Rodin, Charlotte H. Evans and David H.
Zirkle (Case No. 96-10544) (District of Massachusetts) (the "GREEBEL CASE"),
there are no claims, actions, suits, proceedings or investigations pending or,
to the knowledge of the Parent, threatened against the Parent or any of its
subsidiaries, or any properties or rights of the Parent or any of its
subsidiaries, before any federal, foreign, state or provincial court,
arbitrator or administrative, governmental or regulatory authority or body,
that could reasonably be expected to have a Material Adverse Effect.
SECTION 3.11 Employee Benefit Plans; Employment Agreements.
(a) Section 3.11(a) of the Parent Disclosure Schedule lists as of the date
hereof all employee pension plans (as defined in Section 3(2) of ERISA), all
material employee welfare plans, (as defined in Section 3(1) of ERISA) and all
other material bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar fringe or
employee benefit plans, programs or arrangements, and any material current or
former employment, executive compensation or severance agreements, written or
otherwise, for the benefit of, or relating to, any employee of or consultant
to Parent, any trade or business (whether or not incorporated) which is a
member of a controlled group including Parent or which is under common control
with Parent (a "PARENT ERISA AFFILIATE") within the meaning of Section 414 of
the Code, or any subsidiary of Parent, as well as each plan with respect to
which Parent or a Parent ERISA Affiliate could incur liability under Section
4069 (if such plan has been or were terminated) or Section 4212(c) of ERISA
(all such plans, practices, and programs are referred to herein as the "PARENT
EMPLOYEE PLANS"). There have been made available to the Company copies of (i)
each such written Parent Employee Plan (other than those referred to in
Section 4(b)(4) of ERISA), (ii) the most recent annual report on form 5500
series, with accompanying schedules and attachments, filed with respect to
each Parent Employee Plan required to make such a filing, and (iii) the most
recent actuarial valuation for each Parent Employee Plan subject to Title IV
of ERISA. For purposes of this Section 3.11(a) the term "material", used with
respect to any Parent Employee Plan, shall mean that Parent or a Parent ERISA
Affiliate has incurred or may incur obligations in an annual amount exceeding
$1,000,000 with respect to such Parent Employee Plan.
(b) Except as set forth in Section 3.1l(b) of the Parent Disclosure
Schedule, (i) none of the Parent Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person, and none of the
Parent Employee Plans is a "multiemployer plan" as such term is defined in
Section 3(37) of ERISA; (ii) there has been no "prohibited transaction," as
such term is defined in Section 406 of ERISA and Section 4975 of the Code,
with respect to any Parent Employee Plan, which could result in any material
liability of Parent or any of its subsidiaries; (iii) all Parent Employee
Plans are in compliance in all material respects with the requirements
prescribed by any and all Laws (including ERISA and the Code) currently in
effect with respect thereto (including all applicable requirements for
notification to participants or the Department of Labor, IRS, PBGC or
Secretary of the Treasury), and Parent and each of its subsidiaries have
performed all material obligations required to be performed by them under, are
not in any material respect in default under or violation of, and have no
knowledge of any default or violation by any other party to, any of the Parent
Employee Plans; (iv) each Parent Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under Section
501(a) of the Code is the subject of a favorable determination letter from the
IRS, and nothing has occurred which may reasonably be expected to impair such
determination; (v) all contributions required to be made to any Parent
Employee Plan pursuant to Section 412 of the Code, or the terms of the Parent
Employee Plan or any collective bargaining agreement, have been made on or
before their due dates; (vi) with respect to each Parent Employee Plan, no
"reportable event" within the meaning of Section 4043 of ERISA
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(excluding any such event for which the 30 day notice requirement has been
waived under the regulations to Section 4043 of ERISA) nor any event described
in Section 4062, 4063 or 4041 of ERISA has occurred; and (vii) neither Parent
nor any Parent ERISA Affiliate has incurred, nor reasonably expects to incur,
any liability under Title IV of ERISA (other than liability for premium
payments to the PBGC arising in the ordinary course).
(c) Section 3.1l(c) of the Parent Disclosure Schedule sets forth a true and
complete list of each current or former employee, officer or director of
Parent or any of its subsidiaries who holds (i) any option to purchase Parent
Common Stock as of the date hereof, together with the number of shares of
Parent Common Stock subject to such option, the option price of such option
(to the extent determined as of the date hereof), whether such option is
intended to qualify as an ISO, and the expiration date of such option and (ii)
any other right, directly or indirectly, to acquire Parent Common Stock,
together with the number of shares of Parent Common Stock subject to such
right. Section 3.11(c) of the Parent Disclosure Schedule also sets forth the
total number of such ISOs, such nonqualified options and such other rights
outstanding on the date hereof.
(d) Section 3.11(d) of the Parent Disclosure Schedule sets forth a true and
complete list of: (i) all employment agreements with officers of Parent or any
of its subsidiaries; (ii) all agreements with consultants who are individuals
obligating Parent or any of its subsidiaries to make annual cash payments in
an amount exceeding $100,000; (iii) all employees of or consultants to, Parent
or any of its subsidiaries who have executed a non-competition agreement with
Parent or any of its subsidiaries; (iv) all severance agreements, programs and
policies of Parent with or relating to its employees in each case with
outstanding commitments exceeding $100,000, excluding programs and policies
required to be maintained by law; and (iii) all plans, programs, agreements
and other arrangements of Parent or any of its subsidiaries with or relating
to its employees which contain change in control provisions.
SECTION 3.12 Labor Matters. Except as set forth in Section 3.12 of the
Parent Disclosure Schedule: (i) there are no claims or proceedings pending or,
to the knowledge of Parent or any of its subsidiaries, threatened, between
Parent or any of its subsidiaries and any of their respective employees,
asserting that Parent has committed an unfair labor practice which claims or
proceedings have or could reasonably be expected to have a Material Adverse
Effect; (ii) neither Parent nor any of its subsidiaries is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by Parent or its subsidiaries, nor does Parent or any of its
subsidiaries know of any activities or proceedings of any labor union to
organize any such employees; and (iii) neither Parent nor any of its
subsidiaries has any knowledge of any strikes, slowdowns, work stoppages,
lockouts, or threats thereof, by or with respect to any employees of Parent or
any of its subsidiaries which could reasonably be expected to have a Material
Adverse Effect.
SECTION 3.13 Registration Statement; Joint Proxy
Statement/Prospectus. Subject to the accuracy of the representations of the
Company in Section 2.13, the registration statement (the "REGISTRATION
STATEMENT") pursuant to which the Parent Common Stock to be issued in the
Merger will be registered with the SEC shall not, at the time the Registration
Statement (including any amendments or supplements thereto) is declared
effective by the SEC, contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements included
therein, in light of the circumstances under which they were made, not
misleading. The information supplied by Parent for inclusion in the Joint
Proxy Statement/Prospectus will not, on the date the Joint Proxy
Statement/Prospectus is first mailed to stockholders, at the time of the
Stockholders Meetings and at the Effective Time, contain any statement which,
at such time and in light of the circumstances under which it shall be made,
is false or misleading with respect to any material fact, or will omit to
state any material fact necessary in order to make the statements therein not
false or misleading; or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders Meetings which has become false or misleading. If
at any time prior to the Effective Time any event relating to Parent, Merger
Sub or any of their respective affiliates, officers or directors should be
discovered by Parent or Merger Sub which should be set forth in an amendment
to the Registration Statement or
a supplement to the Joint Proxy Statement/Prospectus, Parent or Merger Sub
will promptly inform the Company. Notwithstanding the foregoing, Parent and
Merger Sub make no representation or warranty with respect to any information
supplied by the Company which is contained in any of the foregoing documents.
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SECTION 3.14 [Intentionally Omitted]
SECTION 3.15 Title to Property. Except as disclosed in Section 3.15 of the
Parent Disclosure Schedule, Parent and each of its subsidiaries have good and
defensible title to all of their properties and assets, free and clear of all
liens, charges and encumbrances, except liens for taxes not yet due and
payable and such liens or other imperfections of title, which could not
reasonably be expected to have a Material Adverse Effect; and, to Parent's
knowledge, all leases pursuant to which Parent or any of its subsidiaries
lease from others material amounts of real or personal property are in good
standing, valid and effective in accordance with their respective terms, and
there is not, to the knowledge of Parent, under any of such leases, any
existing material default or event of default (or event which with notice or
lapse of time, or both, would constitute a material default), except where the
lack of such good standing, validity and effectiveness, or the existence of
such default or event of default could not reasonably be expected to have a
Material Adverse Effect.
SECTION 3.16 Taxes. Other than as disclosed in Section 3.16 of the Parent
Disclosure Schedule, (a) Parent and its subsidiaries have filed all Tax
Returns required to be filed by them, (b) Parent and its subsidiaries have
paid and discharged all Taxes due in connection with or with respect to the
periods or transactions covered by such Tax Returns and have paid all other
Taxes as are due, except such as are being contested in good faith by
appropriate proceedings (to the extent that any such proceedings are required)
and (c) there are no other Taxes that would be due if asserted by a taxing
authority, except with respect to which Parent is maintaining reserves to the
extent currently required unless the failure to do so could not reasonably be
expected to have a Material Adverse Effect. Except as does not involve or
would not result in liability to Parent that could reasonably be expected to
have a Material Adverse Effect: (a) there are no tax liens on any assets of
Parent or any subsidiary thereof; and (b) neither Parent nor any of its
subsidiaries has granted any waiver of any statute of limitations with respect
to, or any extension of a period for the assessment of, any Tax. The accruals
and reserves for Taxes (including deferred taxes) reflected in the Parent
Balance Sheet are in all material respects adequate to cover all Taxes
required to be accrued through the date thereof (including interest and
penalties, if any, thereon and Taxes being contested) in accordance with
generally accepted accounting principles.
SECTION 3.17 Environmental Matters. Except as set forth in Section 3.17 of
the Parent Disclosure Schedule, and except in all cases as, in the aggregate,
have not had and could not reasonably be expected to have a Material Adverse
Effect, Parent and each of its subsidiaries to the best of Parent's knowledge:
(i) have obtained all Approvals which are required to be obtained under all
applicable Environmental Laws by Parent or its subsidiaries (or their
respective agents); (ii) are in compliance with all terms and conditions of
such required Approvals and also are in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in applicable Environmental Laws; (iii) as
of the date hereof, are not aware of nor have received notice of any past or
present violations of Environmental Laws, or any event, condition,
circumstance, activity, practice, incident, action or plan which is reasonably
likely to interfere with or prevent continued compliance with or which would
give rise to any common law or statutory liability, or otherwise form the
basis of any claim, action, suit or proceeding, against Parent or any of its
subsidiaries based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or
the emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable Environmental Laws to register any products
or materials required to be registered by Parent or its subsidiaries (or any
of their respective agents) thereunder.
SECTION 3.18 Intellectual Property. Parent, directly or indirectly, owns, or
is licensed or otherwise possesses legally enforceable rights to use, all
patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, maskworks, net lists, schematics, technology, know-how,
computer software programs or applications (in both source code and object
code form), and tangible or intangible proprietary information or material
(excluding Commercial Software) that are material to the business of Parent
and its subsidiaries as currently conducted or as proposed to be conducted by
Parent and its subsidiaries (the "PARENT INTELLECTUAL PROPERTY RIGHTS"). None
of Parent or any of its subsidiaries is, nor will they be as a result of the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, in violation of any
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agreement to which a Parent or any of its subsidiaries is a party and pursuant
to which Parent, any of its subsidiaries or any other person is authorized to
use any Parent Intellectual Property Rights except such violations as do not
materially impair Parent's or any such subsidiary's rights under any such
agreement, nor will the execution of this Agreement by Parent entitle any
other party to such license agreement or sublicense to terminate or modify
such license agreement or sublicense. Either Parent or one of its subsidiaries
is the sole and exclusive owner or licensee of, with all right, title and
interest in and to (free and clear of any liens or encumbrances), Parent
Intellectual Property Rights, and has sole and exclusive rights (and is not
contractually obligated to pay any compensation to any third party in respect
thereof) to the use thereof or the material covered thereby in connection with
the services or products in respect of which Parent Intellectual Property
Rights are being used, except in each case as set forth in the Parent
Disclosure Schedule. No claims with respect to Parent Intellectual Property
Rights have been asserted or, to the knowledge of Parent, are threatened by
any person that reasonably would be expected to have a Material Adverse Effect
on Parent or any of its subsidiaries, nor are there any valid grounds, to the
knowledge of Parent, for any bona fide claims that reasonably would be
expected to have a Material Adverse Effect on Parent or any of its
subsidiaries, (i) to the effect that the manufacture, sale, licensing or use
of any product of Parent or any of its subsidiaries as now used, sold or
licensed or proposed for use, sale or license by Parent or any of its
subsidiaries infringes on any copyright, patent, trade mark, service mark or
trade secret, (ii) against the use by Parent or any of its subsidiaries of any
trademarks, service marks, trade names, trade secrets, copyrights, patents,
technology, know-how or computer software programs and applications used in
Parent's or its subsidiaries' business as currently conducted or as proposed
to be conducted, or (iii) challenging the ownership, validity or effectiveness
of any of Parent Intellectual Property Rights. All United States registered
trademarks, service marks and copyrights held by Parent or any of its
subsidiaries are valid and subsisting, except as described in the Parent
Disclosure Schedule. To the knowledge of Parent, there is no unauthorized use,
infringement or misappropriation of any Parent Intellectual Property Rights by
any third party, including any employee or former employee of Parent or any of
its subsidiaries, which could reasonably be expected to have a Material
Adverse Effect. No Parent Intellectual Property Right or product of Parent or
any of its subsidiaries is subject to any outstanding decree, order, judgment,
or stipulation restricting in any manner the licensing thereof by Parent or
any of its subsidiaries. Neither Parent nor any of its subsidiaries has
entered into any agreement (other than exclusive distribution agreements
identified as such in Section 3.18 of the Parent Disclosure Schedule) under
which Parent or any of its subsidiaries is restricted from selling, licensing
or otherwise distributing any of its products to any class of customers, in
any geographic area, during any period of time or in any segment of the
market. There is no outstanding order, judgment, decree or stipulation on
Parent or any of its subsidiaries restricting in any manner the licensing of
products by Parent or any of its subsidiaries. Parent and its subsidiaries
have a policy of requiring each employee to execute a confidentiality
agreement substantially in the form previously delivered to the Company.
SECTION 3.19 Interested Party Transactions. Except as set forth in Section
3.19 of the Parent Disclosure Schedule and except for the Parent's commitment
to advance the payment of certain expenses to certain directors and officers
in connection with the Greeble Case, since September 30, 1995, no event has
occurred that would be required to be reported as a Certain Relationship or
Related Transaction, pursuant to Item 404 of Regulation S-K promulgated by the
SEC.
SECTION 3.20 Insurance. Section 3.20 of the Parent Disclosure Schedule sets
forth a complete list of all material fire and casualty, general liability,
business interruption, product liability, professional liability and sprinkler
and water damage insurance policies maintained by Parent or any of its
subsidiaries. All such policies are with reputable insurance carriers, provide
full and adequate coverage for all normal risks incident to the business of
Parent and its subsidiaries and their respective properties and assets and are
in character and amount at least equivalent to that carried by entities
engaged in similar businesses and subject to the same or similar perils or
hazards, except as could not reasonably be expected to have a Material Adverse
Effect.
SECTION 3.21 Accounts Receivable. The accounts receivable of Parent and its
subsidiaries as reflected in the most recent financial statements contained in
the Parent SEC Reports, to the extent uncollected on the date hereof and the
accounts receivable reflected on the books of Parent and its subsidiaries are
valid and existing
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and represent monies due, and Parent has made reserves reasonably considered
adequate for receivables not collectible in the ordinary course of business,
and (subject to the aforesaid reserves) are subject to no refunds or other
adjustments and to no defenses, rights of setoff, assignments, restrictions,
encumbrances or conditions enforceable by third parties on or affecting any
thereof, except for such refunds, adjustments, defenses, rights of setoff,
assignments, restrictions, encumbrances or conditions as could not reasonably
be expected to have a Material Adverse Effect.
SECTION 3.22 [Intentionally Omitted].
SECTION 3.23 Opinion of Financial Advisor. Parent has received the opinion
of its financial advisor, Montgomery Securities, that, as of May 20, 1996, the
Exchange Ratio and Cash Payment, considered together, are fair to Parent from
a financial point of view.
SECTION 3.24 Brokers. No broker, finder or investment banker (other than
Montgomery Securities, the fees and expenses of which will be paid by Parent)
is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Merger Sub. Parent has
heretofore furnished to the Company a complete and correct copy of all
agreements between Parent and Montgomery Securities pursuant to which such
firm would be entitled to any payment relating to the transactions
contemplated hereunder.
SECTION 3.25 [Intentionally Omitted].
SECTION 3.26 Ownership of Merger Sub; No Prior Activities.
(a) Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement and except for this Agreement
and any other agreements or arrangements contemplated by this Agreement,
Merger Sub has not and will not have incurred, directly or indirectly, through
any subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1 Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees that, during the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, unless Parent shall otherwise agree in
writing, the Company shall conduct its business and shall cause the businesses
of its subsidiaries to be conducted only in, and the Company and its
subsidiaries shall not take any action except in, the ordinary course of
business and the Company shall use all reasonable commercial efforts to
preserve substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the present officers,
employees and consultants of the Company and its subsidiaries and to preserve
the present relationships of the Company and its subsidiaries with customers,
suppliers and other persons with which the Company or any of its subsidiaries
has significant business relations. By way of amplification and not
limitation, except as contemplated by this Agreement, neither the Company nor
any of its subsidiaries shall, during the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, directly or indirectly do, or propose to do,
any of the following without the prior written consent of Parent:
(a) amend or otherwise change the Charter or By-Laws of the Company or any
of its subsidiaries;
(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance,
sale, pledge, disposition or encumbrance of, any shares of capital stock of
any class, or any options, warrants, convertible securities or other
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rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest) in
the Company, any of its subsidiaries or affiliates (except for the issuance of
shares of Company Common Stock issuable pursuant to Stock Options which were
granted under either the Company Stock Option Plans or the Director Option
Plan and are outstanding on the date hereof).
(c) sell, pledge, dispose of or encumber any assets of the Company or any of
its subsidiaries (except for (i) sales of assets in the ordinary course of
business and in a manner consistent with past practice, (ii) dispositions of
obsolete or worthless assets, and (iii) sales of immaterial assets not in
excess of $100,000 in the aggregate);
(d) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned subsidiary of the Company
may declare and pay a dividend to its parent, (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or (iii) amend the terms or change the period
of exercisability of, purchase, repurchase, redeem or otherwise acquire, or
permit any subsidiary to purchase, repurchase, redeem or otherwise acquire,
any of its securities or any securities of its subsidiaries, including,
without limitation, shares of Company Common Stock or any option, warrant or
right, directly or indirectly, to acquire shares of Company Common Stock, or
propose to do any of the foregoing (other than pursuant to the Company Stock
Option Plans);
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof other than those listed on Section 4.1(e) of the Company
Disclosure Schedule; (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any person or, except
in the ordinary course of business consistent with past practice, make any
loans or advances; (iii) enter into or amend any material contract or
agreement; (iv) authorize any capital expenditures or purchase of fixed assets
which are, in the aggregate, in excess of $100,000 for the Company and its
subsidiaries taken as a whole; or (v) enter into or amend any contract,
agreement, commitment or arrangement to effect any of the matters prohibited
by this Section 4.1(e);
(f) increase the compensation payable or to become payable to its officers
or employees, or grant any severance or termination pay which in the aggregate
exceeds $400,000, or enter into any employment agreement or severance
agreement (except with regard to severance agreements which in the aggregate
do not exceed a liability of $400,000) (subject to the same $400,000
limitation) with any director, officer or other employee of the Company or any
of its subsidiaries, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any current or former directors, officers or
employees, except, in each case, as may be required by law;
(g) take any action to change accounting policies or procedures (including,
without limitation, procedures with respect to revenue recognition, payments
of accounts payable and collection of accounts receivable);
(h) make any material tax election inconsistent with past practice or settle
or compromise any material federal, state, local or foreign tax liability or
agree to an extension of a statute of limitations;
(i) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities reflected
or reserved against in the financial statements contained in the Company SEC
Reports filed prior to the date of this Agreement or incurred in the ordinary
course of business and consistent with past practice; or
(j) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1 (a) through (i) above, or any action which would
make any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect or prevent the Company from performing or cause
the Company not to perform its covenants hereunder.
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SECTION 4.2 No Solicitation.
(a) The Company shall not, directly or indirectly, through any officer,
director, employee, representative or agent of the Company or any of its
subsidiaries, (i) solicit, initiate or encourage the initiation of any
inquiries or proposals regarding any merger, sale of substantial assets, sale
of shares of capital stock (including without limitation by way of a tender
offer) or similar transactions involving the Company or any subsidiaries of
the Company other than the Merger (any of the foregoing inquiries or proposals
being referred to herein as an "ACQUISITION PROPOSAL"), (ii) engage in
negotiations or discussions concerning, or provide any nonpublic information
to any person relating to, any Acquisition Proposal or (iii) agree to, approve
or recommend any Acquisition Proposal. Nothing contained in this Section
4.2(a) shall prevent the Board of Directors of the Company from considering,
discussing, negotiating, agreeing, approving and recommending to the
stockholders of the Company a bona fide Acquisition Proposal not solicited in
violation of this Agreement, provided the Board of Directors of the Company
determines in good faith (upon advice of outside counsel) that it is required
to do so in order to discharge properly its fiduciary duties.
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal, or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to the Company or
any of its subsidiaries in connection with an Acquisition Proposal or for
access to the properties, books or records of the Company or any subsidiary by
any person or entity that informs the Board of Directors of the Company or
such subsidiary that it is considering making, or has made, an Acquisition
Proposal. Such notice to Parent shall be made orally and in writing, and shall
indicate whether the Company is providing or intends to provide the person
making the Acquisition Proposal with access to information concerning the
Company as provided in Section 4.2(c).
(c) If the Board of Directors of the Company receives a request for material
nonpublic information by a person who makes, or indicates that it is
considering making, a bona fide Acquisition Proposal, and the Board of
Directors determines in good faith and upon the advice of outside counsel that
it is required to cause the Company to act as provided in this Section 4.2(c)
in order to discharge properly the directors' fiduciary duties, then, provided
the person making the Acquisition Proposal has executed a confidentiality
agreement substantially similar to the one then in effect between the Company
and Parent, the Company may provide such person with access to information
regarding the Company.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from the confidentiality
provisions of any confidentiality agreement to which the Company is a party.
(e) The Company shall ensure that the officers, directors and key employees
of the Company and its subsidiaries and any investment banker or other advisor
or representative retained by the Company are aware of the restrictions
described in this Section 4.2.
SECTION 4.3 Conduct of Business by Parent Pending the Merger. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Parent covenants and
agrees that, unless the Company shall otherwise agree in writing, Parent shall
conduct its business, and cause the businesses of its subsidiaries to be
conducted, in the ordinary course, other than actions taken by Parent or its
subsidiaries in contemplation of the Merger as provided for herein, and shall
not directly or indirectly do, or propose to do, any of the following without
the prior written consent of the Company:
(a) amend or otherwise change Parent's Restated Articles of Organization or
By-Laws;
(b) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned subsidiary of Parent may
declare and pay a dividend to its parent; or
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(c) take or agree in writing or otherwise to take any action which would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect or prevent Parent from performing or cause
Parent not to perform its covenants hereunder.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 HSR Act. As promptly as practicable after the date of the
execution of this Agreement, the Company, Parent and all other necessary
parties shall file notifications under and in accordance with the HSR Act in
connection with the Merger and the transactions contemplated hereby and shall
respond as promptly as practicable to any inquiries received from the Federal
Trade Commission (the "FTC") and the Antitrust Division of the Department of
Justice (the "ANTITRUST DIVISION") for additional information or documentation
and to respond as promptly as practicable to all inquiries and requests
received from any State Attorney General or other governmental authority in
connection with antitrust matters.
SECTION 5.2 Joint Proxy Statement Prospectus; Registration Statement. As
promptly as practicable after the execution of this Agreement, the Company and
Parent shall prepare and file with the SEC preliminary proxy materials which
shall constitute the Joint Proxy Statement/Prospectus and the Registration
Statement of the Parent with respect to the Parent Common Stock to be issued
in connection with the Merger. As promptly as practicable after comments are
received from the SEC thereon and after the furnishing by the Company and
Parent of all information required to be contained therein, the Company and
Parent shall file with the SEC a combined proxy and Registration Statement on
Form S-4 (or on such other form as shall be appropriate) (the "S-4
REGISTRATION STATEMENT") relating to the adoption of this Agreement and
approval of the transactions contemplated hereby by the stockholders of the
Company and the approval by the stockholders of Parent to increase the number
of authorized shares of Parent Common Stock and the issuance of Parent Common
Stock in the Merger pursuant to this Agreement, and shall use all reasonable
efforts to cause the Registration Statement to become effective, and to mail
the Joint Proxy Statement/Prospectus to their respective shareholders, as soon
thereafter as practicable. The Joint Proxy Statement/Prospectus shall include
the recommendation of the Boards of Directors of the Company and Parent in
favor of the Merger, subject to the last sentence of Section 5.3.
SECTION 5.3 Stockholders Meetings. The Company and Parent shall call and
hold their respective Stockholders Meetings as promptly as practicable and in
accordance with applicable laws for the purpose of voting upon the approval of
the Merger, and Parent and the Company shall use their reasonable best efforts
to hold the Stockholders Meetings on the same day (and at the same time of
such day) and as soon as practicable after the date on which the Registration
Statement becomes effective. Unless otherwise required under the applicable
fiduciary duties of the respective directors of the Company and Parent, as
determined by such directors in good faith after consultation with and based
upon the advice of outside legal counsel, the Company and Parent shall use all
reasonable efforts to solicit from their respective stockholders proxies in
favor of adoption of this Agreement and approval of the transactions
contemplated hereby or approval of the increase in the number of authorized
shares of Parent Common Stock and the issuance of Parent Common Stock in the
Merger pursuant to this Agreement, as the case may be, and shall take all
other action necessary or advisable to secure the vote or consent of
stockholders to obtain such approvals.
SECTION 5.4 Access to Information; Confidentiality. Upon reasonable notice
and subject to restrictions contained in confidentiality agreements to which
such party is subject (from which such party shall use reasonable efforts to
be released), the Company and Parent shall each (and shall cause each of their
subsidiaries to) afford to the officers, employees, accountants, counsel and
other representatives of the other, reasonable access, during the period to
the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, the Company and Parent each shall (and shall
cause each of their subsidiaries to) furnish promptly to the other all
information concerning its business, properties and personnel as such other
party may reasonably request, and each shall make available to the other the
appropriate individuals (including attorneys,
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accountants and other professionals) for discussion of the other's business,
properties and personnel as either Parent or the Company may reasonably
request. Each party shall keep such information confidential in accordance
with the terms of the respective confidentiality letters, each dated October
2, 1995 (the "CONFIDENTIALITY LETTERS"), between Parent and the Company.
SECTION 5.5 Consents; Approvals. The Company and Parent shall each use all
reasonable efforts to obtain all consents, waivers, approvals, authorizations
or orders (including, without limitation, all United States and foreign
governmental and regulatory rulings and approvals), and the Company and Parent
shall make all filings (including, without limitation, all filings with United
States and foreign governmental or regulatory agencies) required in connection
with the authorization, execution and delivery of this Agreement by the
Company and Parent and the consummation by them of the transactions
contemplated hereby, in each case as promptly as practicable. The Company and
Parent shall furnish promptly all information required to be included in the
Joint Proxy Statement/Prospectus and the Registration Statement, or for any
application or other filing to be made pursuant to the rules and regulations
of any United States or foreign governmental body in connection with the
transactions contemplated by this Agreement.
SECTION 5.6 Agreements with Respect to Affiliates. Each of Parent and the
Company shall deliver to the other, prior to the date the Registration
Statement becomes effective under the Securities Act, a letter (each an
"AFFILIATE LETTER") identifying all persons who are, at the time of the Parent
Stockholders Meeting or Company Stockholders Meeting, as the case may be,
"affiliates" of Parent or the Company, respectively, for purposes of Rule 145
under the Securities Act ("RULE 145"). Each of Parent and the Company shall
use all reasonably efforts to cause each person who is identified as an
"affiliate" in its Affiliate Letter to deliver, prior to the Effective Time, a
written agreement (an "AFFILIATE AGREEMENT") in connection with restrictions
on affiliates under Rule 145, in form and substance reasonably satisfactory to
a Parent and the Company.
SECTION 5.7 Indemnification and Insurance.
(a) The By-Laws of the Surviving Corporation shall contain the provisions
with respect to indemnification set forth in the By-Laws of the Company, which
provisions shall not be amended, repealed or otherwise modified for a period
of three years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who at the Effective Time were
directors, officers, employees or agents of the Company, unless such
modification is required by law.
(b) The Company shall, to the fullest extent permitted under applicable law
or under the Company's Certificate of Incorporation or By-Laws and regardless
of whether the Merger becomes effective, indemnify and hold harmless, and,
after the Effective Time, the Surviving Corporation shall, to the fullest
extent permitted under applicable law or under the Surviving Corporation's
Certificate of Incorporation or By-Laws, indemnify and hold harmless, each
present and former director, officer or employee of the Company or any of its
subsidiaries (collectively, the "INDEMNIFIED PARTIES") against any costs or
expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation (excluding any damage or loss
suffered by any Indemnified Party as a Record Holder (as defined in Section
5.18) on account of the operation of Section 5.18), whether civil, criminal,
administrative or investigative, (x) arising out of or pertaining to the
transactions contemplated by this Agreement or (y) otherwise with respect to
any acts or omissions occurring at or prior to the Effective Time, to the same
extent as provided in the Company's Certificate of Incorporation or By-Laws or
any applicable contract or agreement as in effect on the date hereof, in each
case for a period of three years after the Effective Time. In the event of any
such claim, action, suit, proceeding or investigation (whether arising before
or after the Effective Time), (i) any counsel retained by the Indemnified
Parties for any period after the Effective Time shall be reasonably
satisfactory to the Surviving Corporation, (ii) after the Effective Time, the
Surviving Corporation shall pay the reasonable fees and expenses of such
counsel, promptly after statements therefor are received, and (iii) the
Surviving Corporation will cooperate in the defense of any such matter;
provided, however, that the Surviving Corporation shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld); and provided, further, that, in the event that any
claim or claims for
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indemnification are asserted or made within such three-year period, all rights
to indemnification in respect of any such claim or claims shall continue until
the disposition of any and all such claims. The Indemnified Parties as a group
may retain only one law firm to represent them with respect to any single
action unless there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Indemnified Parties.
(c) The Surviving Corporation shall honor and fulfill in all respects the
obligations of the Company pursuant to indemnification agreements with the
Company's current or former directors, officers and employees in effect at or
before the Effective Time.
(d) For a period of three years after the Effective Time, Parent shall cause
the Surviving Corporation to maintain in effect, if available, directors' and
officers' liability insurance covering those persons who are currently covered
by the Company's directors' and officers' liability insurance policy (a copy
of which has been made available to Parent) on terms comparable to those now
applicable to directors and officers of the Company; provided, however, that
in no event shall Parent or the Surviving Corporation be required to expend in
excess of 150% of the annual premium currently paid by the Company for such
coverage; and provided further, that if the premium for such coverage exceeds
such amount, Parent or the Surviving Corporation shall purchase a policy with
the greatest coverage available for 150% of the annual premium.
(e) This Section shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding on all successors and assigns of
Parent and the Surviving Corporation, as applicable, and shall be enforceable
by the Indemnified Parties in accordance with its terms.
SECTION 5.8 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i)
the occurrence or nonoccurrence of any event the occurrence or nonoccurrence
of which would be likely to cause any representation or warranty contained in
this Agreement to become materially untrue or inaccurate, or (ii) any failure
of the Company, Parent or Merger Sub, as the case may be, materially to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice; and provided further,
that failure to give such notice shall not be treated as a breach of covenant
for the purposes of Sections 6.2(a) or 6.3(a) unless the failure to give such
notice results in material prejudice to the other party.
SECTION 5.9 Further Action/Tax Treatment. Upon the terms and subject to the
conditions hereof each of the parties hereto shall use all reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
other things necessary, proper or advisable to consummate and make effective
as promptly as practicable the transactions contemplated by this Agreement, to
obtain in a timely manner all necessary waivers, consents and approvals and to
effect all necessary registrations and filings, and otherwise to satisfy or
cause to be satisfied all conditions precedent to its obligations under this
Agreement. The foregoing covenant shall not include any obligation by Parent
to agree to divest, abandon, license or take similar action with respect to
any assets (tangible or intangible) of Parent or the Company. Each of Parent,
Merger Sub and the Company shall use all reasonable efforts to cause the
Merger to qualify, and will not (both before and after consummation of the
Merger) take any actions which to its knowledge could reasonably be expected
to prevent the Merger from qualifying, as a reorganization under the
provisions of Section 368 of the Code.
SECTION 5.10 Public Announcements. Parent and the Company shall consult with
each other before issuing any press release with respect to the Merger or this
Agreement and shall not issue any such press release or make any such public
statement without the prior consent of the other party, which consent shall
not be unreasonably withheld; provided, however, that a party may, without the
prior consent of the other party, issue such press release or make such public
statement as may upon the advice of counsel be required by law or the rules
and regulations of the Nasdaq National Market ("NASDAQ"), if it has used all
reasonable efforts to consult with the other party prior thereto.
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SECTION 5.11 Conveyance Taxes. Parent and the Company shall cooperate in the
preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer or
gains, sales, use, transfer, value added, stock transfer and stamp taxes, any
transfer, recording, registration and other fees, and any similar taxes which
become payable in connection with the transactions contemplated hereby that
are required or permitted to be filed at or before the Effective Time.
SECTION 5.12 Accountants' Letters. Upon reasonable notice from the other,
the Company and Parent shall use their respective reasonable efforts to cause
Deloitte & Touche LLP and Coopers & Lybrand L.L.P., respectively, to deliver
to Parent and the Company letters, dated within 2 business days of the
Effective Date of the S-4 Registration Statement addressed to each such
Company and the respective Board of Directors covering such matters as are
reasonably requested by Parent and the Company, and as are customarily
addressed in accountant's "comfort" letters.
SECTION 5.13 [Intentionally Omitted].
SECTION 5.14 Board Representation. Parent will take such action as is
necessary to cause John Kimberley to be elected to serve as a director of
Parent as of the Effective Time and will provide Mr. Kimberley and Mr. Simkin
(as an officer of Parent) with such indemnification and insurance as is
provided to other members of the Parent's Board of Directors and executive
officers, respectively.
SECTION 5.15 Nasdaq Listing. The Company shall use its best efforts to
continue the quotation of the Company Common Stock on the Nasdaq during the
term of this Agreement and until the Effective Time.
SECTION 5.16 Listing of Parent Shares. Parent shall use its best efforts to
cause the Parent Shares to be issued in the Merger to be approved for
quotation, upon official notice of issuance, on the Nasdaq at or before the
Effective Time.
SECTION 5.17 Consent of Option Holders. The Company shall use its reasonable
efforts to obtain from each holder of a Scheme Option granted under the
Company's 1994 Option Scheme, a written consent to the assumption of such
option by Parent in accordance with Section 1.6(c) hereof.
SECTION 5.18 Conduct of Firefox Litigation. Until the Effective Time, the
Company will conduct the defense of the Firefox Litigation, having due regard
for the mitigation of costs and expenses, and shall consult with Parent
regarding the conduct of such litigation and afford Parent and its
representatives the opportunity to review and comment upon all pleadings and
other papers to be filed in court in connection with the Firefox Litigation.
Prior to the Effective Time, the Company shall not settle or otherwise
compromise the Firefox Litigation without Parent's prior written consent.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.1 Conditions to Obligation of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Effectiveness of the Registration Statement. The Registration Statement
shall have been declared effective by the SEC under the Securities Act. No
stop order suspending the effectiveness of the Registration Statement shall
have been issued by the SEC and no proceedings for that purpose and no similar
proceeding in respect of the Joint Proxy Statement/Prospectus shall have been
initiated or threatened by the SEC;
(b) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of the Company,
and the issuance of shares of Parent Common Stock in the Merger pursuant to
this Agreement shall have been approved by the requisite vote of the
stockholders of Parent;
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(c) HSR Act. All waiting periods applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated;
(d) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court
of competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect, nor shall any proceeding
brought by any administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the
foregoing be pending; and there shall not be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to
the Merger, which makes the consummation of the Merger illegal; and
(e) Governmental Actions. There shall not have been instituted, pending or
threatened any action or proceeding (or any investigation or other inquiry
that might result in such an action or proceeding) by any governmental
authority or administrative agency before any governmental authority,
administrative agency or court of competent jurisdiction, nor shall there be
in effect any judgment, decree or order of any governmental authority,
administrative agency or court of competent jurisdiction, in either case,
seeking to prohibit or limit Parent from exercising all material rights and
privileges pertaining to its ownership of the Surviving Corporation or the
ownership or operation by Parent or any of its subsidiaries of all or a
material portion of the business or assets of Parent or any of its
subsidiaries, or seeking to compel Parent or any of its subsidiaries to
dispose of or hold separate all or any material portion of the business or
assets of Parent or any of its subsidiaries (including the Surviving
Corporation and its subsidiaries), as a result of the Merger or the
transactions contemplated by this Agreement.
(f) Dissenting Shares. The aggregate number of Dissenting Shares and cash in
lieu of fractional shares of Parent Common Stock issuable in the Merger shall
not be such as to result in the Merger not constituting a reorganization
within the meaning of Section 368 of the Code.
SECTION 6.2 Additional Conditions to Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company contained in this Agreement shall be true and correct in all
material respects at and as of the Effective Time as if made at and as of such
time, except for (i) changes contemplated by this Agreement, (ii) those
representations and warranties which address matters only as of a particular
date (which shall have been true and correct as of such date, subject to
clause (iii)), and (iii) where the failure to be true and correct could not
reasonably be expected to have a Material Adverse Effect, with the same force
and effect as if made at and as of the Effective Time, and Parent and Merger
Sub shall have received a certificate to such effect signed by the President
and the Chief Financial Officer of the Company;
(b) Agreements and Covenants. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Effective
Time, and Parent and Merger Sub shall have received a certificate to such
effect signed on behalf of the Company by the President and the Chief
Financial Officer of the Company;
(c) Consents Obtained. All consents, waivers, approvals, authorizations or
orders required to be obtained, and all filings required to be made, by the
Company for the due authorization, execution and delivery of this Agreement
and the consummation by it of the transactions contemplated hereby shall have
been obtained and made by the Company, except where the failure to receive
such consents, waivers, approvals, authorizations or orders could not
reasonably be expected to (i) have a Material Adverse Effect on the Company or
Parent, or (ii) significantly delay or prevent the consummation of the Merger;
(d) Opinion of Counsel. Parent shall have received a written opinion from
Ropes & Gray, in form and substance reasonably satisfactory to Parent, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368 of the Code;
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(e) Release of Liens. All liens, encumbrances and security interests
relating to the Company's prior or current borrowing, financing, or similar
arrangements with National Westminister Bank (or any other banking
institutions) shall have been released and discharged, and evidence of such
release and discharge shall have been duly filed and recorded in all
applicable filing offices and registries.
(f) Affiliate Agreements. Parent shall have received from each person who is
identified in the Affiliate Letter as an "affiliate" of the Company, an
Affiliate Agreement, and such Affiliate Agreement shall be in full force and
effect;
(g) Stockholders Agreements. Stockholders Agreements with Mr. Kimberley, Mr.
Simkin and Mr. Whitehead shall be in full force and effective at and as of the
Effective Time;
(h) Fairness Opinion. The fairness opinion referred to in Section 3.23 shall
not have been withdrawn, amended or modified;
(i) Blue Sky Laws. Parent shall have received all permits and other
authorizations necessary under the Blue Sky Laws to issue shares of Parent
Common Stock pursuant to the Merger; and
(j) Employment Agreements. Parent and the Company shall have entered into
employment agreements with each of John Kimberley and Peter Simkin, and the
Company shall have entered into an employment agreement with Richard
Whitehead, each in form and substance reasonably satisfactory to Parent but in
no event on terms less favorable than such employees respective existing
employment arrangements with the Company, and providing for a prohibition of
sales of more than 40,000 shares of Parent Common Stock by each such
individual during any fiscal quarter.
SECTION 6.3 Additional Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is also subject to the
following conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub contained in this Agreement shall be true and correct in
all respects on and as of the Effective Time, except for (i) changes
contemplated by this Agreement, (ii) those representations and warranties
which address matters only as of a particular date (which shall have been true
and correct as of such date, subject to clause (iii)), and (iii) where the
failure to be true and correct could not reasonably be expected to have a
Material Adverse Effect, with the same force and effect as if made on and as
of the Effective Time, and the Company shall have received a certificate to
such effect signed by the President and the Chief Financial Officer of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by them on or prior to the
Effective Time, and the Company shall have received a certificate to such
effect signed by the President and the Chief Financial Officer of Parent;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to
be made, by Parent and Merger Sub for the authorization, execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained and made by Parent and Merger
Sub, except where the failure to receive such consents, waivers, approvals,
authorizations or orders could not reasonably be expected to have a Material
Adverse Effect on the Company or Parent;
(d) Tax Opinion. The Company shall have received a written opinion of Gray
Cary Ware & Freidenrich, in form and substance reasonably satisfactory to the
Company, to the effect that the Merger will constitute a reorganization within
the meaning of Section 368 of the Code;
(e) [Intentionally Omitted].
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(f) Fairness Opinion. A fairness opinion shall have been delivered to the
Company and its Board of Directors dated as of the Effective Time, such
opinion to be in substantially the same form as the opinion delivered by Cowen
& Company as of May 21, 1996 pursuant to Section 2.23;
(g) Employment Agreements. Parent shall have executed and delivered
employment agreements as contemplated by Section 6.2(j) above.
(h) Nasdaq. The Parent Shares to be issued in the Merger shall have been
approved, upon official notice of issuance, for quotation on the Nasdaq.
(i) Registration Rights Agreement. Parent shall have executed and delivered
to John Kimberley, Peter Simkin and Richard Whitehead a registration rights
agreement providing piggyback registration rights on customary terms with pro
rata cutbacks and expenses, including the fees of one counsel for selling
stockholders, to be paid by Parent.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, notwithstanding approval thereof by the stockholders of
the Company or Parent:
(a) by mutual written consent duly authorized by the Boards of Directors of
Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by August 15, 1996 (provided that the right to terminate this
Agreement under this Section 7.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of
or resulted in the failure of the Merger to occur on or before such date); or
(c) by either Parent or the Company if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued a nonappealable final order, decree or ruling or taken any other action
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger (provided that the right to terminate this Agreement
under this Section 7.1(c) shall not be available to any party who has not
complied with its obligations under Section 5.9 and such noncompliance
materially contributed to the issuance of any such order, decree or ruling or
the taking of such action); or
(d) by Parent or the Company, if the requisite vote of the stockholders of
the Company or Parent, respectively, shall not have been obtained by August
15, 1996; or
(e) by Parent or the Company, if: (i) the Board of Directors of the Company
shall withdraw, modify or change its approval or recommendation of this
Agreement or the Merger in a manner adverse to Parent or shall have resolved
to do so; (ii) the Board of Directors of the Company shall have recommended to
the stockholders of the Company an Alternative Transaction (as defined below);
or (iii) a tender offer or exchange offer for 25% or more of the outstanding
shares of Company Common Stock is commenced (other than by Parent or an
affiliate of Parent) and the Board of Directors of the Company recommends that
the stockholders of the Company tender their shares in such tender or exchange
offer; or
(f) by Parent or the Company, (i) if any representation or warranty of the
Company or Parent, respectively, set forth in this Agreement shall be untrue
when made, or (ii) upon a breach of any covenant or agreement on the part of
the Company or Parent, respectively, set forth in this Agreement, such that
the conditions set forth in Section 6.2(a) or 6.2(b), or Section 6.3(a) or
6.3(b), as the case may be, would not be satisfied (either (i) or (ii) above
being a "TERMINATING BREACH"), provided, that, if such Terminating Breach is
curable prior to August 15, 1996 by the Company or Parent, as the case may be,
through the exercise of its reasonable efforts and for so long as the Company
or Parent, as the case may be, continues to exercise such reasonable efforts,
neither Parent nor the Company, respectively, may terminate this Agreement
under this Section 7.1(f); or
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(g) [Intentionally Omitted]; or
(h) by Parent or the Company, if the Board of Directors of Parent shall
withdraw, modify or change its approval or recommendation of this Agreement or
the Merger in a manner adverse to the Company or shall have resolved to do so;
or
(i) by Parent, if any person (or "group", as defined in Section 13(d)(3) of
the Exchange Act) other than Parent or its affiliates is or becomes the
beneficial owner of 25% or more of the outstanding Shares.
As used herein, "Alternative Transaction" means any of (i) a transaction
pursuant to which any person (or group of persons) other than Parent or its
affiliates (a "THIRD PARTY") acquires or would acquire more than 25% of the
outstanding Shares, whether from the Company or pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger or other business combination
involving the Company pursuant to which any Third Party acquires more than 25%
of the outstanding equity securities of the Company or the entity surviving
such merger or business combination, or (iii) any other transaction pursuant
to which any Third Party acquires or would acquire control of assets
(including for this purpose the outstanding equity securities of subsidiaries
of the Company, and the entity surviving any merger or business combination
including any of them) of the Company or any of its subsidiaries having a fair
market value (as determined by the Board of Directors of the Company in good
faith) equal to more than 25% of the fair market value of all the assets of
the Company and its subsidiaries, taken as a whole, immediately prior to such
transaction.
SECTION 7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto or any of its
affiliates, directors, officers or stockholders except (i) as set forth in
Section 7.3 and Section 8.1 hereof, and (ii) nothing herein shall relieve any
party from liability for any breach hereof; provided, that in the event a
payment is required under Section 7.3(b) hereof, such payment shall be the
sole and exclusive remedy of Parent.
SECTION 7.3 Fees and Expenses.
(a) Except as set forth in this Section 7.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expenses, whether or not the Merger
is consummated; provided, however, that Parent and the Company shall share
equally all fees and expenses, other than accountants' and attorneys' fees,
incurred in connection with the printing and filing of the Joint Proxy
Statement/Prospectus (including any preliminary materials related thereto) and
the Registration Statement (including financial statements and exhibits) and
any amendments or supplements thereto.
(b) The Company shall pay Parent a fee of $2,400,000 (the "FEE") upon the
termination of this Agreement by Parent or the Company pursuant to Section
7.1(e) and subsequent thereto, the Company enters into a definitive agreement
with a Third Party with respect to an Alternative Transaction.
(c) The Fee payable pursuant to Section 7.3(b) shall be paid within one
business day after the execution and delivery of the definitive agreement
referred to in Section 7.3(b); provided, that, in no event shall the Company
be required to pay such Fee to Parent if, immediately prior to the termination
of this Agreement, Parent was in material breach of its obligations under this
Agreement.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Effectiveness of Representations, Warranties and Agreements;
Knowledge, Etc.
(a) Except as otherwise provided in this Section 8.1, the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
officers or directors,
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whether prior to or after the execution of this Agreement. The
representations, warranties and agreements in this Agreement shall terminate
at the Effective Time or upon the termination of this Agreement pursuant to
Section 7.1, as the case may be, except that the agreements set forth in
Article I and Sections 5.7 and 5.18 shall survive the Effective Time
indefinitely and those set forth in Section 7.3 shall survive such termination
indefinitely. The Confidentiality Letters shall survive termination of this
Agreement as provided therein.
(b) Any disclosure made with reference to one or more sections of the
Company Disclosure Schedule or the Parent Disclosure Schedule, as the case may
be, shall be deemed disclosed with respect to any section with such Disclosure
Schedule to which such disclosure reasonably relates.
SECTION 8.2 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly
given or made if and when delivered personally or by overnight courier to the
parties at the following addresses or sent by electronic transmission, with
confirmation received, to the telecopy numbers specified below (or at such
other address or telecopy number for a party as shall be specified by like
notice):
(a) If to Parent or Merger Sub:
FTP Software, Inc.
100 Brickstone Square, Fifth Floor
Andover, MA 01810
Telecopier No.: (508) 684-6162
Telephone No.: (508) 685-5000
Attention: General Counsel
With a copy to:
Gregory E. Moore, Esq. and
David B. Walek, Esq.
Ropes & Gray
One International Place
Boston, MA 02110
Telecopier No.: (617) 951-7050
Telephone No.: (617) 951-7388
(b) If to the Company:
Firefox Communications Inc.
2841 Junction Avenue, Suite 103
San Jose, CA 95134-1921
Telecopier No.: (408) 467-1109
Telephone No.: (408) 321-8344
Attention: President
With a copy to:
Diane Holt Frankle, Esq.
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Telecopier No.: (415) 327-3699
Telephone No.: (415) 833-2026
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SECTION 8.3 Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliates" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person; including, without limitation, any
partnership or joint venture in which the first mentioned person (either
alone, or through or together with any other subsidiary) has, directly or
indirectly, an interest of 10% or more;
(b) "beneficial owner" with respect to any shares of Company Common Stock
means a person who shall be deemed to be the beneficial owner of such shares
(i) which such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 of the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to
any agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (B) the right
to vote pursuant to any agreement, arrangement or understanding, or (iii)
which are beneficially owned, directly or indirectly, by any other persons
with whom such person or any of its affiliates or associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares;
(c) "business day" means any day other than a day on which banks in The
Commonwealth of Massachusetts are required or authorized to be closed;
(d) "control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management or policies of
a person, whether through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise;
(e) "generally accepted accounting principles" shall mean United States
generally accepted accounting principles;
(f) "knowledge" means the actual knowledge of any director, executive
officer or other officer having oversight responsibility for a business unit
within a person;
(g) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act); and
(h) "subsidiary" or "subsidiaries" of the Company, Parent or any other
person means any corporation, partnership, joint venture or other legal entity
of which the Company, the Surviving Corporation, Parent or such other person,
as the case may be (either alone or through or together with any other
subsidiary), owns, directly or indirectly, more than 50% of the stock or other
equity interests the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
SECTION 8.4 Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that, after approval of
the Merger by the stockholders of the Company, no amendment may be made which
by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 8.5 Waiver. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, or (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall
be valid only if set forth in an instrument in writing signed by the party or
parties to be bound thereby.
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SECTION 8.6 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.7 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the fullest extent possible.
SECTION 8.8 Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Letters), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof.
SECTION 8.9 Assignment; Guarantee of Merger Sub Obligations. This Agreement
shall not be assigned by operation of law or otherwise, except that Parent and
Merger Sub may assign all or any of their rights hereunder to any affiliate
thereof provided that no such assignment shall relieve the assigning party of
its obligations hereunder. Parent guarantees the full and punctual performance
by Merger Sub of all the obligations hereunder of Merger Sub (which shall not
include any obligations arising under or with respect to Section 262 of the
DGCL) or any such assignees pertaining to the period prior to the Effective
Time.
SECTION 8.10 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement, including, without limitation, by way of
subrogation, other than Section 5.7 (which is intended to be for the benefit
of the Indemnified Parties and may be enforced by each such Indemnified
Parties).
SECTION 8.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
any other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 8.12 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware
applicable to contracts executed and fully performed within the State of
Delaware.
SECTION 8.13 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
[This space intentionally left blank.]
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Amended and Restated Agreement and Plan of Merger Agreement to be executed as
of May 21, 1996 by their respective officers thereunto duly authorized.
FTP SOFTWARE, INC.
By: /s/ Douglas F. Flood
----------------------------------
Name: Douglas F. Flood
Title: Senior Vice President
FIREFOX ACQUISITION CORP.
By: /s/ Douglas F. Flood
----------------------------------
Name: Douglas F. Flood
Title: President
FIREFOX COMMUNICATIONS INC.
By: /s/ Mark A. Rowlinson
----------------------------------
Name: Mark A. Rowlinson
Title: Chief Financial Officer
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EXHIBIT 2.25
AMENDED AND RESTATED STOCKHOLDER AGREEMENT
This AMENDED AND RESTATED STOCKHOLDER AGREEMENT, dated as of May 21, 1996
(as so amended and restated, the "Agreement"), between the undersigned holder
(the "Holder") of shares of the common stock, $.001 par value (the "Company
Common Stock"), of Firefox Communications Inc., a Delaware corporation (the
"Company"), and FTP Software, Inc., a Massachusetts corporation ("Parent")
amends and restates the Stockholder Agreement dated as of January 17, 1996
(the "Original Agreement") among the parties hereto.
RECITALS
The Company, Parent and Firefox Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Parent ("Merger Sub"), propose to enter into
an Amended and Restated Agreement and Plan of Merger dated the date hereof
(the "Merger Agreement"; capitalized terms not otherwise defined herein being
used herein as therein defined), pursuant to which Merger Sub would be merged
(the "Merger") with and into the Company, and each outstanding share of
Company Common Stock would be converted into the right to receive shares
("Parent Shares") of the common stock, $0.01 par value, of Parent and cash as
provided therein;
In order to induce Parent to enter into the Merger Agreement, and at the
request of Parent, the Holder has agreed, to enter into this Agreement in
order to make certain changes in the Original Agreement;
Prior to the date hereof, except for the Original Agreement, Parent, Merger
Sub and the Holder had no agreement, arrangement or understanding (as defined
in Section 203 of the Delaware General Corporation Law (the "DGCL")) for the
purpose of acquiring, holding, voting or disposing of shares of Company Common
Stock; and
In consideration for the agreements contained herein and in the Merger
Agreement, prior to the date hereof, and prior to the time at and date on
which each of Parent and Merger Sub became an "interested stockholder" for
purposes of Section 203 of the DGCL, the board of the directors of the Company
has approved this Agreement in its original form.
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
1. Representations and Warranties of Holder. The Holder represents and
warrants to Parent as follows:
(a) Ownership of Securities. The Holder is the record and beneficial
owner of the number of shares of Company Common Stock (together with any
shares of Company Common Stock hereafter acquired by the Holder, the
"Subject Shares") and the number and kind of other securities of the
Company (together with the Subject Shares and any other securities of the
Company hereafter acquired by the Holder, the "Subject Securities") set
forth on the signature page to this Agreement. The Holder has sole voting
power and sole power to issue instructions with respect to the voting of
the Subject Securities, sole power of disposition, sole power of exercise
or conversion and the sole power to demand appraisal right, in each case
with respect to all of the Subject Securities.
(b) Power; Binding Agreement. The Holder has the legal capacity, power
and authority to enter into and perform all of the Holder's obligations
under this Agreement. The execution, delivery and performance of this
Agreement by the Holder will not violate any other agreement to which such
Holder is a party including, without limitation, any trust agreement,
voting agreement, stockholder's agreement or voting
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trust. This Agreement has been duly and validly executed and delivered by
the Holder and constitutes a valid and binding agreement of such Holder,
enforceable against the Holder in accordance with its terms. If the Holder
is married and the Subject Securities constitute community property, this
Agreement has been duly authorized, executed and delivered by, and
constitutes a valid and binding agreement of, the Holder's spouse,
enforceable against such person in accordance with its terms.
(c) No Conflicts. Except for filings under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), if
applicable, no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for
the execution of this Agreement by the Holder and the consummation by the
Holder of the transactions contemplated hereby and neither the execution
and delivery of this Agreement by the Holder nor the consummation by the
Holder of the transactions contemplated hereby nor compliance by the Holder
with any of the provisions hereof shall conflict with or result in any
breach of any applicable partnership or other organizational documents
applicable to the Holder, result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default (or give rise
to any third-party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which the Holder is a party or by which the
Holder's properties or assets may be bound or violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable
to the Holder or any of the Holder's properties or assets.
(d) No Liens. The Subject Securities are now and are at all times during
the term hereof will be held by the Holder, or by a nominee or custodian
for the benefit of the Holder, free and clear of all liens, claims,
security interests, proxies, voting trusts or agreements, understandings or
arrangements or any other encumbrances whatsoever, except for any
encumbrances arising hereunder.
(e) No Plan or Intention. The Holder has no present plan or intention (a
"Plan") to engage in a sale, exchange, transfer, distribution (other than
distributions by a partnership to its partners pursuant to the provisions
of its partnership agreement), pledge, disposition, a transaction to reduce
the risk of loss (by short sale or otherwise) or any other transaction
which would result in a direct or indirect disposition (a "Sale") of, or an
interest in, Parent Shares which would have an aggregate fair market value,
as of the Effective Time of the Merger, in excess of fifty percent (50%) of
the aggregate fair market value, immediately prior to the Merger, of all
outstanding shares of the Company Common Stock held by the Holder
immediately prior to the Merger. For purposes of this representation,
shares of Company Common Stock (or the portion thereof) with respect to
which a Sale occurs prior to the Merger shall be considered shares of
outstanding Company Common Stock exchanged for Parent Shares in the Merger
and then disposed of pursuant to a Plan. The Holder acknowledges that this
representation is being given to enable counsel to opine that the Merger
constitutes a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code and further recognizes that significant adverse tax
consequences may result if such representation is not true. The Holder
understands and agrees that, in connection with the Merger, such Holder
will be required to restate the foregoing representation on or about the
Effective Time of the Merger.
2. Agreement to Vote Shares. At every meeting of the stockholders of the
Company called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the
stockholders of the Company with respect to any of the following, the Holder
shall vote all or cause to be voted the Subject Securities that it
beneficially owns on the record date of any such vote: (i) in favor of the
Merger, the adoption of the Merger Agreement and the approval of the terms
thereof and (ii) until such time as the Company's Board of Directors has
terminated the Merger Agreement pursuant to Section 7.1(e)(i) or (ii) thereto,
against the following actions (other than the Merger and the transactions
contemplated by the Merger Agreement): (1) any merger, consolidation or other
business combination involving the Company or its subsidiaries; (2) a sale,
lease or transfer of a material amount of assets of the Company or its
subsidiaries or a reorganization, recapitalization, dissolution or liquidation
of the Company or its subsidiaries that under applicable law requires the
approval of the Company's stockholders; (3) any change in a majority of the
board of directors
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of the Company; or (4) any other action that under applicable law requires the
approval of the Company's stockholders which is intended, or could reasonably
be expected, to impede, interfere with, delay, postpone, or materially
adversely affect the consummation of the Merger or the transactions
contemplated by the Merger Agreement or this Agreement. This Agreement is
intended to bind the Holder only with respect to the specific matters set
forth herein, and shall not prohibit the Holder from acting in accordance with
his fiduciary duties as an officer or director of the Company. The Holder will
retain at all times the right to vote the Holder's Subject Securities, in
Holder's sole discretion, on all matters other than those in this Section 2
which are at any time or from time to time presented to the Company's
stockholders.
3. PROXY. THE STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS MERGER SUB AND THE
PRESIDENT OF MERGER SUB AND THE TREASURER OF MERGER SUB, IN THEIR RESPECTIVE
CAPACITIES AS OFFICERS OF MERGER SUB, AND ANY INDIVIDUAL WHO SHALL HEREAFTER
SUCCEED TO ANY SUCH OFFICE OF MERGER SUB, AND ANY OTHER DESIGNEE OF MERGER
SUB, EACH OF THEM INDIVIDUALLY, THE STOCKHOLDER'S PROXY AND ATTORNEY-IN-FACT
(WITH FULL POWER OF SUBSTITUTION) TO VOTE OR ACT BY WRITTEN CONSENT WITH
RESPECT TO THE SUBJECT SECURITIES SOLELY WITH RESPECT TO THE MATTERS IN
CLAUSES (i) and (ii) OF, AND SOLELY IN ACCORDANCE WITH SECTION 2 HEREOF. THIS
PROXY IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE, AND THE HOLDER
WILL TAKE SUCH FURTHER ACTION OR EXECUTE SUCH OTHER INSTRUMENTS AS MAY BE
NECESSARY TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY REVOKES ANY PROXY
PREVIOUSLY GRANTED BY HIM WITH RESPECT TO THE SUBJECT SECURITIES.
4. Covenants of the Holder. The Holder hereby agrees and covenants that:
(a) No Solicitation. The Holder, solely in its capacity as a stockholder
of the Company, shall not, directly or indirectly, solicit (including by
way of furnishing information) or respond to any inquiries or the making of
any proposal by any person or entity (other than Parent or any affiliate of
Parent) with respect to the Company that constitutes or could reasonably be
expected to lead to an Acquisition Proposal. If the Holder receives any
such inquiry or proposal, then it shall promptly inform Parent of the terms
and conditions, if any, of such inquiry or proposal and the identity of the
person making it. The Holder will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. The
restrictions and covenants contained in this Section 4(a) shall apply to
the Holder only in its capacity as a stockholder, and not to the Holder, or
any of its officers or partners, in its or his capacity as a director or
officer of the Company.
(b) Distributions to Partner Transferees and Transfers to Other
Transferees
(i) From and after the date of this Agreement, the Holder may
distribute Subject Securities or Parent Shares to any partner of the
Holder (a "Partner Transferee") only (x) in compliance with the
provisions of Sections 4(b)(ii) and (iii), and (y) with the written
consent of Parent, which consent shall not be unreasonably withheld.
(ii) The Holder may only distribute Subject Securities and Parent
Shares to its Partner Transferees in accordance with the Holder's
partnership agreement as in effect on the date hereof or as from time
to time in effect; provided, however, that such Partner Transferees
shall not engage in any Sale of Subject Securities or Parent Shares,
prior to the Termination Date.
(iii) It shall be a condition of any distribution to a Partner
Transferee that, prior to or concurrently with such distribution, such
Partner Transferee shall agree in a writing, for the benefit of and
delivered to Parent, to be bound by all terms and provisions of this
Agreement, including that it will be subject to the stop transfer
instructions and legend requirements referred to in the following
sentence. Prior to any distribution of Subject Securities to any
Partner Transferee, the Holder shall request in writing to the Company
to place such Subject Securities distributed to such Partner
Transferee, on the "stop transfer list" maintained by the Company's
transfer agent, to maintain such listing until the earlier to occur of
the Effective Time or the Termination Date, and to place on the
certificate(s) representing
A-41
such Subject Securities, or any certificate(s) delivered in
substitution therefor, a legend (which may be removed at the request of
the Holder if the Termination Date shall occur) stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
THE AMENDED AND RESTATED STOCKHOLDER AGREEMENT, DATED AS OF MAY
21, 1996, RELATING THERETO, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF FIREFOX COMMUNICATIONS INC."
(iv) The Holder may transfer the Holder's Subject Securities to any
other person who is on the date hereof, or to any family member of a
person or charitable institution which prior to such transfer becomes,
a party to this Agreement bound by all the obligations of the Holder
hereunder.
(c) Restriction on Transfer, Proxies and Noninterference. The Holder
shall not, directly or indirectly: (i) except pursuant to the terms of the
Merger Agreement or distributions to Partner Transferees or other
transferees in compliance with this Section 4, offer for sale, sell,
transfer, tender, pledge, encumber, assign or otherwise dispose of, or
enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, sale, transfer, tender,
pledge, encumbrance, assignment or other disposition of, any or all of the
Holder's Subject Securities; (ii) except as contemplated hereby, grant any
proxies or powers of attorney, deposit any Subject Shares into a voting
trust or enter into a voting agreement with respect to any Subject Shares;
or (iii) take any action that would make any representation or warranty
contained herein untrue or incorrect or have the effect of preventing or
disabling the Holder from performing its obligations under this Agreement.
Holder agrees within three (3) business days of the date of this Agreement
to cause to be affixed a legend on each certificate representing Subject
Securities the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
THE AMENDED AND RESTATED STOCKHOLDER AGREEMENT, DATED AS OF MAY
21, 1996, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
FIREFOX COMMUNICATIONS INC."
(d) Additional Transfer Restriction. Notwithstanding and without limiting
any of the other provisions of this Agreement, the Holder shall not sell,
transfer, pledge, encumber, assign or otherwise dispose of more than
500,000 shares of Subject Securities during any six-month period following
the date of this Agreement.
5. [INTENTIONALLY OMITTED.]
6. Covenants under Rule 145.
(a) Applicability of Rule 145. The Holder has been advised that the
issuance of the Parent Shares to the undersigned pursuant to the Merger
will be registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a registration statement on Form S-4. The
undersigned has also been advised that, if the undersigned is in fact an
"affiliate" of the Company at the time the merger is submitted to a vote of
the stockholders of the Company, Rule 145 under the Securities Act will
restrict the Holder's sales of Parent Shares received in the Merger. The
Holder has also been advised that if it is so subject to Rule 145, the
Holder may not sell or otherwise dispose of any Parent Shares except in
accordance with Rule 145(d) or pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act.
(b) Stop Transfer; Legends. The Holder understands and agrees that Parent
is under no obligation to register the sale, transfer or other disposition
by Holder of the Parent Shares to be received by the Holder in
A-42
the Merger except as set forth in written agreements with the undersigned
that have been entered into by Parent or that have been specifically
assumed by Parent, as provided herein. Stop transfer instructions will be
given to Parent's transfer agent with respect to the Parent Shares to be
received by the Holder in the Merger, and there will be placed on the
certificate(s) representing the Parent Shares, or any certificate(s)
delivered in substitution therefor, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 UNDER THE SECURITIES ACT OF 1933
(THE "ACT") APPLIES. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH RULE 145
(D) OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
EXEMPTION FROM REGISTRATION UNDER THE ACT."
Unless the transfer by the Holder of the Parent Shares is a sale made in
conformity with the provisions of Rule 145(d), or is made pursuant to a
registration statement under the Securities Act, Parent reserves the right
to put an appropriate Securities Act legend on the certificate issued to a
transferee.
(c) Availability of Rule 144 and Rule 145. Parent agrees that for so long
as and to the extent necessary to permit the Holder to sell the Parent
Shares pursuant to Rule 145 and, to the extent applicable, Rule 144 under
the Securities Act, Parent shall use its best efforts to file, on a timely
basis, all reports required to be filed with the SEC by it pursuant to
Section 13 of the Exchange Act, so long as it is subject to such
requirement, and shall furnish to the Holder upon request a written
statement as to whether Parent has complied with such reporting
requirements during the 12 months preceding any proposed sale under Rule
145 and shall otherwise use its reasonable best efforts to permit such
sales pursuant to Rule 145 and Rule 144. Parent has filed, on a timely
basis, all reports required to be filed with the SEC pursuant to Section 13
of the Exchange Act during the preceding 12 months.
(d) Legend Removal. Parent agrees that the stop transfer instructions and
legends referred to in paragraph (b) above shall be promptly terminated and
removed if the Holder shall have delivered to Parent a copy of a letter
from the staff of the SEC or an opinion of counsel with recognized
expertise in securities law matters, in form and substance reasonably
satisfactory to Parent, to the effect that such instructions and legends
are not required for the purposes of the Securities Act.
7. Agreement as Stockholder. Parent and the Holder acknowledge and agree
that none of the provisions set forth herein shall be deemed to restrict or
limit any fiduciary duty that the Holder may have as a director or an officer
of the Company provided that no such duty shall excuse the Holder from its
obligation to vote the Subject Securities, to the extent that they may be so
voted as provided herein, and to otherwise comply with each of the terms and
conditions of the Agreement.
8. Hart-Scott-Rodino, etc. The Holder and Parent shall use all reasonable
efforts promptly to make all filings and applications with any governmental or
regulatory agencies required to be made in connection with the acquisition by
the Holder of Parent Shares in the Merger, including, without limitation,
under the HSR Act, and to furnish all information required to be furnished in
or in connection with any such filing or application.
9. Assignment; Benefits. The rights (but not the obligations) of Parent
hereunder may be assigned, in whole or in part, to Merger Sub or any other
direct or indirect wholly owned subsidiary of Parent, to the extent and for so
long as it remains a direct or indirect wholly owned subsidiary of Parent.
Other than as permitted in the preceding sentence, this Agreement may not be
assigned by any party hereto without the prior written consent of the other
party.
This Agreement shall be binding upon, and shall inure to the benefit of, the
Holder, Parent and their respective successors and permitted assigns.
A-43
10. Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
if and when delivered personally or by overnight courier or sent by electronic
transmission, with confirmation received, to the telecopy numbers specified
below:
If to the Holder, to the Holder at the address appearing on the signature
page beneath the Holder's name, with a copy to:
Gray Cary War & Friedenrich
A Professional Corporation
400 Hamilton Avenue
Palo Alto, CA 94301
Telecopier No.: 415-327-3699
Telephone No.: 415-328-6561
Attention: Timothy J. Moore
If to Parent or Merger Sub:
FTP Software, Inc.
100 Brickstone Square
Fifth Floor
Andover, MA 01810
Telecopier No.: 508-794-4488
Telephone No.: 508-685-4000
Attention: Chairman
With a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Telecopier No.: 617-951-7050
Telephone No.: 617-951-7000
Attention: David B. Walek, Esq.
Gregory E. Moore, Esq.
or to such other address or telecopy number as any party may have furnished to
the other parties in writing in accordance herewith.
11. Specific Performance. The parties hereto agree that irreparable harm
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with its specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
12. Amendment. This Agreement may not be amended or modified, except by an
instrument in writing signed by or on behalf of each of the parties hereto.
This Agreement may not be waived by either party hereto, except by an
instrument in writing signed by or on behalf of the party granting such
waiver.
13. Governing Law; Consent to Jurisdiction. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware. Each
party hereto hereby irrevocably submits to the jurisdiction of any Delaware
State or Federal court sitting in the City of Wilmington in any action or
proceeding arising out of or related to this Agreement, and hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard
and determined in such State or Federal court. Each party hereto hereby
irrevocably
A-44
consents to the service of process, which may be served in any such action or
proceeding by certified mail, return receipt requested, by delivering a copy
of such process to such party at its address specified in Section 10 or by any
other method permitted by law.
14. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
15. Termination. Unless the Merger shall have been consummated, this
Agreement shall terminate upon the earliest to occur of (i) the termination of
the Merger Agreement pursuant to Section 7.1 thereof (other than a termination
by the Company pursuant to Section 7.1(d) as a result of the failure to
receive the requisite vote of the stockholders of the Company by August 15,
1996), or (ii) August 15, 1996. The date and time at which this Agreement is
terminated in accordance with this Section 15 is referred to herein as the
"Termination Date." Upon any termination of this Agreement, this Agreement
shall thereupon become void and of no further force and effect, and there
shall be no liability in respect of this Agreement or of any transactions
contemplated hereby or by the Merger Agreement on the part of any party hereto
or any of its directors, officers, partners, stockholders, employees, agents,
advisors, representatives or affiliates; provided, however, that nothing
herein shall relieve any party from any liability for such party's wilful
breach of this Agreement; and provided further that nothing herein shall
limit, restrict, impair, amend or otherwise modify the rights, remedies,
obligations or liabilities of any person under any other contract or
agreement, including, without limitation, the Merger Agreement. This Agreement
shall survive the consummation of the Merger.
IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of each
of the parties hereto, all as of the date first above written.
FTP Software, Inc.
By: _________________________________
Name:
Title:
The Holder:
By: _________________________________
Name:
Title:
Shares of Common Stock:
A-45
TABLE OF CONTENTS
ARTICLE I
THE MERGER
Section 1.1 The Merger................................................. A-1
Section 1.2 Effective Time............................................. A-2
Section 1.3 Effect of the Merger....................................... A-2
Section 1.4 Certificate of Incorporation, By-Laws...................... A-2
Section 1.5 Directors and Officers..................................... A-2
Section 1.6 Effect on Capital Stock.................................... A-2
Section 1.7 Delivery of Cash and Exchange of Certificates.............. A-5
Section 1.8 Stock Transfer Books....................................... A-6
Section 1.9 No Further Ownership Rights in Company Common Stock........ A-6
Section 1.10 Lost, Stolen or Destroyed Certificates..................... A-6
Section 1.11 Tax Consequences........................................... A-6
Section 1.12 Taking of Necessary Action; Further Action................. A-6
Section 1.13 Material Adverse Effect.................................... A-7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 2.1 Organization and Qualification; Subsidiaries............... A-7
Section 2.2 Certificate of Incorporation and By-Laws................... A-7
Section 2.3 Capitalization............................................. A-7
Section 2.4 Authority Relative to this Agreement....................... A-8
Section 2.5 No Conflict; Required Filings and Consents................. A-8
Section 2.6 Compliance; Permits........................................ A-9
Section 2.7 SEC Filings; Financial Statements.......................... A-10
Section 2.8 Absence of Certain Changes or Events....................... A-10
Section 2.9 No Undisclosed Liabilities................................. A-10
Section 2.10 Absence of Litigation...................................... A-10
Section 2.11 Employee Benefit Plans; Employment Agreements.............. A-11
Section 2.12 Labor Matters.............................................. A-12
Section 2.13 Registration Statement; Joint Proxy Statement/Prospectus... A-12
Section 2.14 [Intentionally Omitted].................................... A-13
Section 2.15 Title to Property.......................................... A-13
Section 2.16 Taxes...................................................... A-13
Section 2.17 Environmental Matters...................................... A-14
Section 2.18 Intellectual Property...................................... A-14
Section 2.19 Interested Party Transactions.............................. A-15
Section 2.20 Insurance.................................................. A-15
Section 2.21 Accounts Receivable........................................ A-15
Section 2.22 [Intentionally Omitted].................................... A-16
Section 2.23 Opinion of Financial Advisor............................... A-16
Section 2.24 Brokers.................................................... A-16
Section 2.25 Section 203 of the DGCL Not Applicable..................... A-16
Section 2.26 Change in Control Payments................................. A-16
Section 2.27 Expenses................................................... A-16
i
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Section 3.1 Organization and Qualification; Subsidiaries............... A-16
Section 3.2 Charter and By-Laws........................................ A-17
Section 3.3 Capitalization............................................. A-17
Section 3.4 Authority Relative to this Agreement....................... A-17
Section 3.5 No Conflict, Required Filings and Consents................. A-18
Section 3.6 Compliance; Permits........................................ A-18
Section 3.7 SEC Filings; Financial Statements.......................... A-19
Section 3.8 Absence of Certain Changes or Event........................ A-19
Section 3.9 No Undisclosed Liabilities................................. A-19
Section 3.10 Absence of Litigation...................................... A-20
Section 3.11 Employee Benefit Plans; Employment Agreements.............. A-20
Section 3.12 Labor Matters.............................................. A-21
Section 3.13 Registration Statement; Joint Proxy Statement/Prospectus... A-21
Section 3.14 [Intentionally Omitted].................................... A-22
Section 3.15 Title to Property.......................................... A-22
Section 3.16 Taxes...................................................... A-22
Section 3.17 Environmental Matters...................................... A-22
Section 3.18 Intellectual Property...................................... A-22
Section 3.19 Interested Party Transactions.............................. A-23
Section 3.20 Insurance.................................................. A-23
Section 3.21 Accounts Receivable........................................ A-23
Section 3.22 [Intentionally Omitted].................................... A-24
Section 3.23 Opinion of Financial Advisor............................... A-24
Section 3.24 Brokers.................................................... A-24
Section 3.25 [Intentionally Omitted].................................... A-24
Section 3.26 Ownership of Merger Sub; No Prior Activities............... A-24
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
Section 4.1 Conduct of Business by the Company Pending the Merger...... A-24
Section 4.2 No Solicitation............................................ A-26
Section 4.3 Conduct of Business by Parent Pending the Merger........... A-26
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 HSR Act.................................................... A-27
Section 5.2 Joint Proxy Statement Prospectus; Registration Statement... A-27
Section 5.3 Stockholders Meetings...................................... A-27
Section 5.4 Access to Information; Confidentiality..................... A-27
Section 5.5 Consents; Approvals........................................ A-28
Section 5.6 Agreements with Respect to Affiliates...................... A-28
Section 5.7 Indemnification and Insurance.............................. A-28
Section 5.8 Notification of Certain Matters............................ A-29
Section 5.9 Further Action/Tax Treatment............................... A-29
Section 5.10 Public Announcements....................................... A-29
Section 5.11 Conveyance Taxes........................................... A-30
Section 5.12 Accountants' Letters....................................... A-30
ii
APPENDIX B
[MONTGOMERY LETTERHEAD]
May 20, 1996
Board of Directors
FTP Software, Inc.
100 Brickstone Square
Andover, Massachusetts 01810
Gentlemen:
We understand that FTP Software, Inc., a Massachusetts corporation (the
"Company"), Firefox Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of the Company ("Merger Sub"), and Firefox Communications Inc., a
Delaware corporation ("Target"), propose to enter into an Amended and Restated
Agreement and Plan of Merger, dated as of January 17, 1996 and amended and
restated as of May 21, 1996 (the "Merger Agreement"), pursuant to which Merger
Sub will be merged with and into Target, which will be the surviving entity
(the "Merger"). Pursuant to the Merger, as more fully described in the Merger
Agreement, we understand that each outstanding share of the common stock of
Target, par value $.001 per share ("Target Common Stock"), not owned directly
or indirectly by the Company or Target, will be converted into (a) a number of
shares (the "Stock Consideration") of the common stock of the Company, par
value $.01 per share ("Company Common Stock"), equal to the quotient obtained
by dividing (i) $50,000,000 divided by the number of outstanding shares of
Target Common Stock immediately prior to consummation of the Merger that are
not owned directly or indirectly by the Company or Target (the "Outstanding
Target Shares") by (ii) the Closing Market Price (as defined below), plus (b)
cash (the "Cash Consideration," and collectively with the Stock Consideration,
the "Consideration") equal to the quotient obtained by dividing (i)
$10,000,000 by (ii) the Outstanding Target Shares. The "Closing Market Price"
is equal to the average of the per share closing prices on the Nasdaq National
Market of the Company Common Stock during the ten consecutive trading days
ending on the trading day prior to the meeting of the Company's shareholders
to vote on the Merger; provided, however, that if the Closing Market Price is
greater than $12.00 or less than $8.00, it shall be deemed to be $12.00 or
$8.00, respectively, for purposes of calculating the Stock Consideration.
In addition, if the per share closing price on the Nasdaq National Market of
the Company Common Stock on the trading day immediately prior to the effective
date of the Merger is less than $7.00, the Merger Agreement provides that the
Stock Consideration will be increased and the Cash Consideration will be
decreased by equal amounts, which adjustment the Company has advised us is
designed to preserve the treatment of the Merger as a reorganization for
federal income tax purposed.
We also understand that a legal proceeding captioned Richard Zeid and Siom
Misrahi et al. v. John A. Kimberley, Frank M. Richardson, Mark A. Rowlinson
and Firefox Communications Inc., Case No. C96 20136 (Northern District of
California) has been commenced against Target and certain of its directors and
officers (the "Litigation"). We have been advised by Target, and with your
consent have assumed without obligation independently to verify such advice,
that the first $10 million of any actual losses, liabilities, claims, damages,
expenses and defense and attorneys' fees that are incurred in connection with
the Litigation (collectively, "Losses") is covered in full by insurance,
subject to retention and any agreement on allocation.
You have asked for our opinion as investment bankers as to whether the
Consideration to be paid by the Company pursuant to the Merger is fair to the
Company from a financial point of view, as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to the
Company and Target, including the consolidated financial statements for recent
years and interim periods to March 31, 1996 and publicly disclosed financial
information for the year
B-1
ended December 31, 1995, and certain other relevant financial and operating
data relating to the Company and Target made available to us from published
sources and from the internal records of the Company and Target; (ii) reviewed
the Merger Agreement; (iii) reviewed certain historical market prices and
trading volumes of the Company Common Stock and the Target Common Stock as
reported on the Nasdaq National Market; (iv) compared the Company and Target
from a financial point of view with certain other companies in the software
industry that we deemed to be relevant; (v) considered the financial terms, to
the extent publicly available, of selected recent business combinations of
companies in the software industry that we deemed to be comparable, in whole
or in part, to the Merger; (vi) reviewed and discussed with representatives of
the management of the Company and Target certain information of a business and
financial nature regarding the Company and Target, furnished to us by them;
(vii) reviewed and discussed with representatives of the management of the
Company and Target financial forecasts and related assumptions of the Company
and Target, provided to us by them; (viii) discussed the Litigation with the
respective managements and legal counsels of the Company and Target; (ix) made
inquiries regarding and discussed the Merger and the Merger Agreement and
other matters related thereto with the Company's counsel; and (x) performed
such other analyses and examinations as we have deemed appropriate.
In connection with our review, we have assumed and relied upon the accuracy
and completeness of the foregoing information and we have not assumed any
responsibility for independent verification of such information. With respect
to the financial forecasts provided to us as described above, we have assumed
for purposes of our opinion that such forecasts have been reasonably prepared
on bases reflecting the best available estimates and judgments of the
respective managements of the Company and Target at the time of preparation as
to the future financial performance of the Company and Target, and that they
provide a reasonable basis upon which we can form our opinion. We have also
assumed that there have been no material changes in the Company's or Target's
assets, financial condition, results of operations, business or prospects
since the respective dates of their last financial statements made available
to us, other than two acquisitions consummated by the Company, the terms of
which have been described to us by the Company's management. We have relied on
advice of counsel and independent accountants to the Company as to all legal
and financial reporting matters with respect to the Company, the Merger and
the Merger Agreement. In addition, we have not assumed responsibility for
making an independent evaluation, appraisal or physical inspection of the
assets or individual properties of the Company or Target, nor have we been
furnished with any such appraisals. Finally, our opinion is based on economic,
monetary and market and other conditions as in effect on, and the information
made available to us as of, the date hereof.
We have further assumed, with your consent, that the Merger will be
consummated in accordance with the terms described in the Merger Agreement
without any amendments thereto, and without waiver by the Company or Target of
any of the conditions to their respective obligations thereunder.
Finally, we have been advised by Target that, based on the limited
information currently available to it at this early stage of the Litigation,
it believes that the amount of Losses, if any, to be incurred in connection
with the Litigation should not exceed the amount of available insurance
coverage of Target, as described above, subject to retention and any agreement
on allocation, and we have assumed, with your consent and without assuming
responsibility for independent verification of such estimate, that such Losses
will not exceed that amount.
In the ordinary course of our business, we actively trade the equity
securities of the Company and Target for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position
in such securities. We have also acted as an underwriter in connection with
offerings of securities of the Company and Target and have performed various
investment banking services for the Company.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be paid by the Company pursuant
to the Merger is fair to the Company from a financial point of view, as of the
date hereof.
B-2
This opinion is directed to the Board of Directors of the Company and is not
a recommendation to any shareholder as to how such shareholder should vote
with respect to the Merger. This opinion may not be used or referred to by the
Company, or quoted or disclosed to any person in any manner, without our prior
written consent, which consent is hereby given to its inclusion in any proxy
statement or prospectus filed with the Securities and Exchange Commission in
connection with the Merger. In furnishing this opinion, we do not admit that
we are experts within the meaning of the term "experts" as used in the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the "Securities Act"), nor do we admit that this opinion
constitutes a report or valuation within the meaning of Section 11 of the
Securities Act.
Very truly yours,
/s/ MONTGOMERY SECURITIES
MONTGOMERY SECURITIES
B-3
APPENDIX C
[COWEN LETTERHEAD]
May 21, 1996
Board of Directors
Firefox Communications Inc.
2099 Gateway Place
San Jose, CA 95110
Gentlemen:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of the outstanding shares of
Common Stock, par value $.001 per share ("Company Common Stock"), of Firefox
Communications Inc. (the "Company"), of the consideration to be received by
the holders of Company Common Stock pursuant to the Transaction (as
hereinafter defined). For the purposes of this opinion, the "Transaction"
means the transaction described below pursuant to that certain Agreement and
Plan of Merger by and among FTP Software, Inc. ("FTP"), Firefox Acquisition
Corp. and the Company dated as of January 17, 1996, as amended by the Amended
and Restated Agreement and Plan of Merger dated as of May 21, 1996 (as so
amended, the "Agreement").
As more specifically set forth in the Agreement, and subject to certain
terms and conditions thereof, the Company has agreed to a merger with FTP,
pursuant to which a wholly owned subsidiary of FTP will merge with and into
the Company. As more specifically set forth in the Agreement, int he
Transaction all of the outstanding shares of Company Common Stock will be
exchanged for $10 million in cash (subject to adjustment as described in
clause (i) below) and a number of newly issued shares of common stock, par
value $.01 per share, of FTP ("FTP Common Stock") based on the average closing
price of such shares for the 10 trading days preceding the Company's
shareholders meeting to approve the Transaction (the "Calculation Price") as
follows:
(i) if the Calculation Price is less than $7.00, the number of newly
issued shares of FTP Common Stock will equal 6,250,000 subject to
adjustment such that the cash portion shall not exceed 20% of the total
consideration paid;
(ii) if the Calculation Price is greater than or equal to $7.00 or less
than $8.00, the number of newly issued shares of FTP Common Stock will
equal 6,250,000;
(iii) if the Calculation Price is greater than or equal to $8.00 or less
than or equal to $12.00, the number of newly issued shares of FTP Common
Stock will equal the quotient obtained by dividing (x) $50,000,000 by (y)
the Calculation Price; and
(iv) if the Calculation Price is greater than $12.00, the number of newly
issued shares of FTP Common Stock will equal 4,166,667.
The Transaction is subject to the approval of the holders of shares of each
of FTP Common Stock and Company Common Stock.
In the ordinary course of its services, Cowen & Company ("Cowen") is
regularly engaged in the valuation and pricing of businesses and their
securities and in advising corporate securities issuers on related matters.
In arriving at our opinion, Cowen has, among other things:
(1) reviewed the Agreement and discussed with the Company's management
the terms of the Agreement;
C-1
(2) reviewed certain financial and other data with respect to the Company
provided by management, including the Company's consolidated financial
statements for each of the fiscal years ended December 31, 1993, 1994 and
1995 and for the three months ended March 31, 1996; certain publicly
available filings with the Securities and Exchange Commission and certain
other relevant financial and projected operating data of the Company;
(3) reviewed certain financial and other data with respect to FTP
provided by management, including consolidated financial statements for
each of the fiscal years ended December 31, 1993, 1994 and 1995 and for the
three months ended March 31, 1996; certain publicly available filings with
the Securities and Exchange Commission and certain other relevant financial
and projected operating data of FTP;
(4) held meetings and discussions with management and senior personnel of
FTP and the Company to discuss the business, operations, historical
financial results and future prospects of the Company, FTP and the combined
company;
(5) reviewed financial projections furnished to us by the managements of
the Company and FTP, including, among other things, the capital structure,
sales, net income, cash flow, capital requirements, potential synergies and
other data of the Company, FTP and the combined company we deemed relevant;
(6) reviewed the valuation of the Company and FTP in comparison to other
similar publicly traded companies;
(7) compared the financial terms of the Transaction contemplated by the
Agreement with the financial terms, to the extent available, of other
similar transactions;
(8) conducted a discounted cash flow analysis of the Company's
projections, provided to us by the Company;
(9) analyzed the potential pro forma financial effects of the transaction
contemplated by the Agreement;
(10) reviewed the historical market prices, trading volumes and exchange
ratios of Company Common Stock and FTP Common Stock;
(11) reviewed the Company's contribution to revenues and net income
relative to its pro forma ownership in FTP;
(12) discussed with the Company's management potential market reaction to
the Transaction, considering strategic, financial and structural
perspectives; and
(13) conducted such other studies, analysis, inquiries and investigations
and considered such other financial, economic and market data as we deemed
appropriate.
In addition, Cowen solicited selected third party indications of interest in
acquiring the Company in the fourth quarter of 1995.
In rendering our opinion, we relied upon the Company's and FTP's management
with respect to the accuracy and completeness of the financial and other
information furnished to us as described above. We have not assumed any
responsibility for independent verification of such information, including
financial information, nor have we made an independent evaluation or appraisal
of any of the properties or assets of the Company or FTP.
On March 18, 1996, a class action lawsuit (the "FTP Litigation") was
commenced by a shareholder of FTP against FTP and certain of its officers and
directors alleging violations of the federal securities laws in that the
defendants publicly disseminated false and misleading statements regarding
FTP. Among the material which the complaint filed in the FTP Litigation
alleges contained such false and misleading statements and omissions was the
information made available to Cowen in connection with rendering this opinion.
FTP's chairman and chief executive officer David H. Zirkle has stated with
respect to the FTP Litigation that "Since going public in
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November 1993, FTP has presented a forthright description of our company, our
potential, our markets and our competitors that has been supported by solid
financial performance. We have always been open and factual with our
investors. Our investor presentations and conference calls are a matter of
public record and we stand behind these disclosures." Cowen has relied upon
FTP's management with respect to the accurace and completeness of the
information regarding FTP provided to Cowen and with respect to FTP's
statements with respect to the FTP Litigation. In rendering this opinion,
Cowen has not considered any possible adverse effects of the FTP Litigation or
its outcome on FTP or its business, financial condition, results of operations
or the price of FTP Common Stock. In addition, we express no opinion, nor have
we considered in arriving at this opinion, the merits or consequences of the
class action lawsuit filed against the Company in the Northern District of
California on February 23, 1996 and certain related litigation.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the transaction contemplated by the Agreement and will
receive a fee for our services, a significant portion of which is contingent
upon the consummation of the Transaction. In the past, Cowen and its
affiliates have provided financial advisory and financing services to the
Company, including acting as a co-manager of the Company's initial public
offering in May 1995. Additionally, Cowen has acted as underwriter for FTP and
acted as FTP's financial advisor for the adoption of its stockholders' rights
plan on December 1, 1995. Cowen has received fees from each of the Company and
FTP for the rendering of these services.
In the ordinary course of its business, Cowen trades the equity securities
of the Company and FTP and, accordingly, it may at any time hold a long or
short position in such securities.
On the basis of our review and analysis, as described above, it is our
opinion as investment bankers that, as of the date hereof, the consideration
to be received by the holders of Company Common Stock is fair, from a
financial point of view, to such holders.
Very truly yours,
/s/ Cowen & Company
Cowen & Company
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APPENDIX D
TEXT OF SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW
(S) 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S) 228 of this Chapter shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this Section. As used in this Section,
the word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a non-stock corporation; the words
"stock" and "share" mean and include what is ordinarily meant by those words
and also membership or membership interest of a member of a non-stock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to Sections 251, 252, 254, 257, 258, 263 or 264 of this
Chapter:
(1) Provided, however, that no appraisal rights under this Section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsections (f) or (g) of Section 251 of this Chapter.
(2) Notwithstanding the provisions of subsection (b)(1) of this Section,
appraisal rights under this section shall be available for the shares of
any class or series of stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of merger or
consolidation pursuant to Sections 251, 252, 254, 257, 258, 263 and 264 of
this Chapter to accept for such stock anything except (i) shares of stock
of the corporation surviving or resulting from such merger or
consolidation, or depository receipts in respect thereof; (ii) shares of
stock of any other corporation, or depository receipts in respect thereof,
which shares of stock or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or
held of record by more than 2,000 holders; (iii) cash in lieu of fractional
shares or fractional depository receipts described in the foregoing clauses
(i) and (ii); or (iv) any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares, or fractional depository
receipts described in the foregoing clauses (i), (ii) and (iii) of this
subsection.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this Chapter is not owned
by the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this Section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision,
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the procedures of this Section, including those set forth in subsections (d)
and (e) shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this Section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this Section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this Chapter, the surviving or resulting corporation,
either before the effective date of the merger or consolidation or within
10 days thereafter, shall notify each of the stockholders entitled to
appraisal rights of the effective date of the merger or consolidation and
that appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
Section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition
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by registered or certified mail to the surviving or resulting corporation and
to the stockholders shown on the list at the addresses therein stated. Such
notice shall so be given by one or more publications at least one week before
the day of the hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court deems advisable.
The forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this Section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had
to pay to borrow money during the pendency of the proceeding. Upon application
by the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon
the appraisal prior to the final determination of the stockholder entitled to
an appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this Section
and who has submitted his certificates of stock to the Register in Chancery,
if such is required, may participate fully in all proceedings until it is
finally determined that he is not entitled to appraisal rights under this
Section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this Section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this Section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this Section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
D-3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 67 of Chapter 156B of the Massachusetts General Laws authorizes a
corporation to indemnify any director, officer, employee or other agent of the
corporation, and a person who serves at the corporation's request as a
director, officer, employee or other agent of the corporation, or who serves
at its request in any capacity with respect to any employee benefit plan, to
whatever extent specified in or authorized by (a) the articles of
organization, (b) a by-law adopted by the stockholders or (c) a vote adopted
by the holders of a majority of the shares of stock entitled to vote on the
election of directors.
The Registrant's Amended and Restated Bylaws (the "Bylaws") provide
indemnity to each of its directors and officers (including persons who serve
at its request as directors, officers or trustees of another organization, or
in any capacity with respect to any employee benefit plan) against all
liabilities and expenses, including amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, and counsel fees, reasonably incurred
by him or her in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, in which he or she may be
involved or with which he or she may be threatened, while in office or
thereafter, by reason of his or her being or having been such a director or
officer. Under Massachusetts law and the Bylaws, no indemnification may be
provided for any person with respect to any matter as to which he or she shall
have been adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that his or her action was in the best interest of the
Registrant (any person serving another organization in one or more of the
indicated capacities at the request of the Registrant who shall have acted in
good faith in the reasonable belief that his or her action was in the best
interest of such other organization to be deemed as having acted in such
manner with respect to the Registrant) or, to the extent that such matter
relates to service with respect to any employee benefit plan, in the best
interest of the participants or beneficiaries of such employee benefit plan.
The Bylaws also provide that as to any matter disposed of by a compromise
payment by such director or officer, pursuant to a consent decree or
otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless such compromise shall be approved as in the
best interest of the Registrant, after notice that it involves such
indemnification: (a) by a disinterested majority of the directors then in
office; (b) by a majority of the disinterested directors then in office,
provided that there has been obtained an opinion in writing of independent
legal counsel to the effect that such director or officer appears to have
acted in good faith in the reasonable belief that his or her action was in the
best interest of the Registrant; or (c) by the holders of a majority of the
outstanding stock at the time entitled to vote for directors, voting as a
single class, exclusive of any stock owned by any interested director or
officer. The Bylaws allow expenses, including counsel fees, reasonably
incurred by any director or officer in connection with the defense or
disposition of any such action, suit or other proceeding to be paid from time
to time by the Registrant in advance of the final disposition thereof upon
receipt of an undertaking by such director or officer to repay the amounts so
paid to the Registrant if it is ultimately determined that indemnification for
such expenses is not authorized by the Bylaws. The right of indemnification
provided in the Bylaws is not exclusive of and does not affect any other
rights to which any director or officer may be entitled. As used in the
Bylaws, the terms "director" and "officer" include the relevant individual's
heirs, executors and administrators, and an "interested" director or officer
is one against whom in such capacity the proceedings in question or another
proceeding on the same or similar grounds is then pending.
Section 67 of Chapter 156B of the Massachusetts General Laws further
authorizes a corporation to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or other agent of the
corporation, or who is or was serving at the request of the corporation as a
director, officer, employee or other agent of another organization with
respect to any employee benefit plan, against any liability incurred by him or
her in such capacity, or arising out of his or her status as such, whether or
not the corporation would have the power to indemnify him or her against such
liability.
II-1
The Registrant has purchased directors' and officers' liability insurance.
Such insurance covers its directors and officers with respect to liability
that they may incur in connection with their serving as such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed with this Registration Statement:
EXHIBITS
-------- ---
2.1 Amended and Restated Agreement and Plan of Merger by and
among the Registrant, Firefox Acquisition Corp. and Firefox
Communications Inc. ("Firefox"), dated as of May 21, 1996
(as amended, the "Merger Agreement") (attached as Appendix A
to the Joint Proxy Statement/Prospectus contained in this
Registration Statement, and including as attachments the
forms of Stockholder Agreement and Escrow Agreement) and in-
corporated herein by reference. Pursuant to Item 601(b) of
Regulation S-K, the Disclosure Schedules of the Registrant
and of Firefox are not included with the Merger Agreement. A
list of the Disclosure Schedules is filed herewith as part
of Exhibit 2.1. The Registrant agrees to furnish
supplementally to the Commission, upon request, a copy of
the Disclosure Schedules.
3.1 Restated Articles of Organization of the Registrant.
3.2 Certificate of Designation, Preferences and Rights of Junior
Preferred Stock of the Registrant.
3.3 Amended and Restated Bylaws of the Registrant.
4.1 Specimen stock certificate representing FTP Common Stock.
4.2 Rights Agreement between the Registrant and State Street Bank
and Trust Company, as Rights Agent, dated as of December 1,
1995 (including form of Rights Certificate).
5.1 Opinion of Ropes & Gray as to the legality of the securities
being issued.
8.1 Opinion of Ropes & Gray as to certain federal income tax con-
sequences of the Merger.
8.2 Opinion of Gray Cary Ware & Freidenrich as to certain federal
income tax consequences of the Merger.
10.1 Indenture of Lease between the Registrant and North Andover
Mills Realty dated as of November 19, 1991.
10.2 Amendment No. 1 to Indenture of Lease between the Registrant
and North Andover Mills Realty dated as of September 1,
1992.
10.3 Amendment No. 2 to Indenture of Lease between the Registrant
and North Andover Mills Realty dated as of January 6, 1993.
10.4 Amendment No. 3 to Indenture of Lease between the Registrant
and North Andover Mills Realty dated as of June 18, 1993.
10.5 Amendment No. 4 to Indenture of Lease between the Registrant
and North Andover Mills Realty dated as of September 30,
1993.
10.6 Amendment No. 5 to Indenture of Lease between the Registrant
and North Andover Mills Realty Limited Partnership dated Au-
gust 12, 1995.
10.7 Employment Agreement between the Registrant and David H.
Zirkle dated as of March 1, 1993.
10.8 Amendment No. 1 to Employment Agreement between the Regis-
trant and David H. Zirkle dated as of June 14, 1993.
10.9 Amendment No. 2 to Employment Agreement between the Regis-
trant and David H. Zirkle dated as of August 15, 1994.
10.10 Amendment No. 3 to Employment Agreement between the Regis-
trant and David H. Zirkle dated as of February 28, 1995.
II-2
EXHIBITS
-------- ---
10.11 FTP Software, Inc. Stock Option Plan.
10.12 FTP Software, Inc. 1993 Non-Employee Directors' Stock Option
Plan.
10.13 Amendment No. 1 to FTP Software, Inc. 1993 Non-Employee Di-
rectors' Stock Option Plan effective as of June 2, 1995.
10.14 FTP Software, Inc. 1993 Executive Bonus Plan.
10.15 FTP Software, Inc. 1994 Executive Compensation Plan.
10.16 FTP Software, Inc. 1995 Executive Compensation Plan.
10.17 Indenture of Lease between the Registrant and Andover Mills
Realty Limited Partnership dated as of October 1, 1993.
10.18 Amendment No. 1 to Indenture of Lease between the Registrant
and Andover Mills Realty Limited Partnership dated as of
February 10, 1994.
10.19 Amendment to Indenture of Lease between the Registrant and
Andover Mills Realty Limited Partnership dated as of May 19,
1995.
10.20 Amendment No. 2 to Indenture of Lease between the Registrant
and Andover Mills Realty Limited Partnership dated as of
June 7, 1995.
10.21 FTP Software, Inc. 1995 V-P Sales Plan.
10.22 Form of Registration Rights Agreement between the Registrant
and Messrs. Kimberley, Simkin and Whitehead.
10.23 Form of Affiliates Agreement.
11.1 Weighted Shares Used in Computation of Earnings Per Share--
Years Ended December 31, 1993, 1994 and 1995.
11.2 Weighted Shares Used in Computation of Earnings Per Share--
Three Months Ended March 31, 1995 and March 31, 1996.
21 List of subsidiaries.
23.1 Consent of Ropes & Gray (included in its opinions filed as
Exhibits 5.1 and 8.1 herewith).
23.2 Consent of Gray Cary Ware & Freidenrich (included in its
opinion filed as Exhibit 8.2 herewith).
23.3 Consent of Coopers & Lybrand L.L.P. with respect to the Reg-
istrant's financial statements.
23.4 Consent of Deloitte & Touche LLP with respect to Firefox's
financial statements.
23.5 Consent of Deloitte & Touche with respect to Firefox's finan-
cial statements.
23.6 Consent of Montgomery Securities (included in its opinion
filed as Appendix B to the Merger Agreement herewith).
23.7 Consent of Cowen & Company.
24.1 Power of Attorney (included on the signature page).
99.1 Form of proxy card to be used in soliciting the Registrant's
stockholders for its special meeting.
99.2 Form of proxy card to be used in soliciting Firefox's stock-
holders for its special meeting.
99.3 Consent of John A. Kimberley.
II-3
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(b) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated
by reference in the Registration Statement shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(6) That every prospectus (i) that is filed pursuant to the immediately
preceding paragraph, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(7) That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction
II-4
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(8) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(9) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
II-5
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, THE REGISTRANT,
FTP SOFTWARE, INC., A MASSACHUSETTS CORPORATION, HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO
DULY AUTHORIZED, IN THE TOWN OF ANDOVER, COMMONWEALTH OF MASSACHUSETTS ON THE
26TH DAY OF JUNE, 1996.
FTP SOFTWARE, INC.
/s/ David H. Zirkle
By: _________________________________
David H. Zirkle
Chief Executive Officer and
Chairman of the Board (Principal
Executive Officer)
II-6
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY CONSTITUTES AND APPOINTS
DAVID H. ZIRKLE AND JOHN J. WARNOCK, JR., AND EACH OF THEM, HIS OR HER TRUE
AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION, TO
SIGN ON HIS OR HER BEHALF, INDIVIDUALLY AND IN EACH CAPACITY STATED BELOW, ALL
AMENDMENTS AND POST-EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT ON
FORM S-4 AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND ANY OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION
UNDER THE SECURITIES ACT OF 1933, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY AND TO
ALL INTENTS AND PURPOSES AS EACH MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING
AND CONFIRMING EACH ACT THAT SAID ATTORNEYS-IN-FACT AND AGENTS MAY LAWFULLY DO
OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ David H. Zirkle Chief Executive June 26, 1996
- ------------------------------------- Officer and
DAVID H. ZIRKLE Chairman of the
Board (Principal
Executive Officer)
and a Director
/s/ John J. Warnock, Jr. Senior Vice June 26, 1996
- ------------------------------------- President, Chief
JOHN J. WARNOCK, JR. Financial Officer
and Treasurer
(Principal
Financial and
Accounting Officer)
/s/ John H. Keller Senior Vice June 26, 1996
- ------------------------------------- President of
JOHN H. KELLER Business Operations
and a Director
/s/ Vinton G. Cerf Director June 26, 1996
- -------------------------------------
VINTON G. CERF
/s/ David D. Clark Director June 26, 1996
- -------------------------------------
DAVID D. CLARK
II-7
SIGNATURE TITLE DATE
--------- ----- ----
/s/ F. David Fowler Director June 26, 1996
- -------------------------------------
F. DAVID FOWLER
/s/ Louise A. Mathews Director June 26, 1996
- -------------------------------------
LOUISE A. MATHEWS
/s/ Glenn C. Hazard President and Chief June 26, 1996
- ------------------------------------- Operating Officer
GLENN C. HAZARD and Director
II-8
EXHIBIT INDEX
EXHIBITS PAGE
-------- ----
2.1 Amended and Restated Agreement and Plan of Merger by and among
the Registrant, Firefox Acquisition Corp. and Firefox Commu-
nications Inc. ("Firefox"), dated as of May 21, 1996 (as
amended, the "Merger Agreement") (attached as Appendix A to
the Joint Proxy Statement/Prospectus contained in this Regis-
tration Statement and incorporated herein by reference, and
including as attachments the forms of Stockholder Agreement
and Escrow Agreement). Pursuant to Item 601(b) of Regulation
S-K, the Disclosure Schedules of the Registrant and of
Firefox are not included with the Merger Agreement. A list of
the Disclosure Schedules is filed herewith as part of Exhibit
2.1. The Registrant agrees to furnish supplementally to the
Commission, upon request, a copy of the Disclosure Schedules.
3.1 Restated Articles of Organization of the Registrant.
3.2 Certificate of Designation, Preferences and Rights of Junior
Preferred Stock of the Registrant.
3.3 Amended and Restated Bylaws of the Registrant.
4.1 Specimen stock certificate representing FTP Common Stock.
4.2 Rights Agreement between the Registrant and State Street Bank
and Trust Company, as Rights Agent, dated as of December 1,
1995 (including form of Rights Certificate).
5.1 Opinion of Ropes & Gray as to the legality of the securities
being issued.
8.1 Opinion of Ropes & Gray as to certain federal income tax con-
sequences of the Merger.
8.2 Opinion of Gray Cary Ware & Freidenrich as to certain federal
income tax consequences of the Merger.
10.1 Indenture of Lease between the Registrant and North Andover
Mills Realty dated as of November 19, 1991.
10.2 Amendment No. 1 to Indenture of Lease between the Registrant
and North Andover Mills Realty dated as of September 1, 1992.
10.3 Amendment No. 2 to Indenture of Lease between the Registrant
and North Andover Mills Realty dated as of January 6, 1993.
10.4 Amendment No. 3 to Indenture of Lease between the Registrant
and North Andover Mills Realty dated as of June 18, 1993.
10.5 Amendment No. 4 to Indenture of Lease between the Registrant
and North Andover Mills Realty dated as of September 30,
1993.
10.6 Amendment No. 5 to Indenture of Lease between the Registrant
and North Andover Mills Realty Limited Partnership dated Au-
gust 12, 1995.
10.7 Employment Agreement between the Registrant and David H.
Zirkle dated as of March 1, 1993.
10.8 Amendment No. 1 to Employment Agreement between the Registrant
and David H. Zirkle dated as of June 14, 1993.
10.9 Amendment No. 2 to Employment Agreement between the Registrant
and David H. Zirkle dated as of August 15, 1994.
10.10 Amendment No. 3 to Employment Agreement between the Registrant
and David H. Zirkle dated as of February 28, 1995.
10.11 FTP Software, Inc. Stock Option Plan.
10.12 FTP Software, Inc. 1993 Non-Employee Directors' Stock Option
Plan.
10.13 Amendment No. 1 to FTP Software, Inc. 1993 Non-Employee Direc-
tors' Stock Option Plan effective as of June 2, 1995.
EXHIBITS PAGE
-------- ----
10.14 FTP Software, Inc. 1993 Executive Bonus Plan.
10.15 FTP Software, Inc. 1994 Executive Compensation Plan.
10.16 FTP Software, Inc. 1995 Executive Compensation Plan.
10.17 Indenture of Lease between the Registrant and Andover Mills
Realty Limited Partnership dated as of October 1, 1993.
10.18 Amendment No. 1 to Indenture of Lease between the Registrant
and Andover Mills Realty Limited Partnership dated as of Feb-
ruary 10, 1994.
10.19 Amendment to Indenture of Lease between the Registrant and An-
dover Mills Realty Limited Partnership dated as of May 19,
1995.
10.20 Amendment No. 2 to Indenture of Lease between the Registrant
and Andover Mills Realty Limited Partnership dated as of June
7, 1995.
10.21 FTP Software, Inc. 1995 V-P Sales Plan.
10.22 Form of Registration Rights Agreement between the Registrant
and Messrs. Kimberley, Simkin and Whitehead.
10.23 Form of Affiliates Agreement.
11.1 Weighted Shares Used in Computation of Earnings Per Share--
Years Ended December 31, 1993, 1994 and 1995.
11.2 Weighted Shares Used in Computation of Earnings Per Share--
Three Months Ended March 31, 1995 and March 31, 1996.
21 List of subsidiaries.
23.1 Consent of Ropes & Gray (included in its opinions filed as Ex-
hibits 5.1 and 8.1 herewith).
23.2 Consent of Gray Cary Ware & Freidenrich (included in its opin-
ion filed as Exhibit 8.2 herewith).
23.3 Consent of Coopers & Lybrand L.L.P. with respect to the Regis-
trant's financial statements.
23.4 Consent of Deloitte & Touche LLP with respect to Firefox's fi-
nancial statements.
23.5 Consent of Deloitte & Touche with respect to Firefox's finan-
cial statements.
23.6 Consent of Montgomery Securities (included in its opinion
filed as Appendix B to the Merger Agreement herewith).
23.7 Consent of Cowen & Company.
24.1 Power of Attorney (included on the signature page).
99.1 Form of proxy card to be used in soliciting the Registrant's
stockholders for its special meeting.
99.2 Form of proxy card to be used in soliciting Firefox's stock-
holders for its special meeting.
99.3 Consent of John A. Kimberley.