UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.              )

Filed by the Registrant  x

Filed by a Party other than the Registrant  o

Check the appropriate box:

x

Preliminary Proxy Statement

o

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o

Definitive Proxy Statement

o

Definitive Additional Materials

o

Soliciting Material Pursuant to §240.14a-12

 

ARTEMIS INTERNATIONAL SOLUTIONS CORPORATION

(Name of Registrant as Specified In Its Charter)

N/A

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

o

No fee required.

x

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

 

Common Stock, par value $0.001 per share, of Artemis International Solutions Corporation (“Common Stock”), and Series A Convertible Preferred Stock, par value $0.001 per share, of Artemis International Solutions Corporation (“Preferred Stock”)

 

(2)

Aggregate number of securities to which transaction applies:

 

 

10,877,087 shares of Common Stock; options to purchase 1,144,136 shares of Common Stock with exercise prices below $1.60; and 4,090,908 shares of Preferred Stock.

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

The filing fee was determined based upon the sum of: (A) 10,877,087 shares of Common Stock multiplied by $1.60 per share, (B) 1,144,136 shares of Common Stock subject to outstanding options with exercise prices below $1.60 per share, multiplied by approximately $0.196 per share (which is the difference between $1.60 and the weighted average exercise price per share), and (C) 4,090,908 shares of Preferred Stock multiplied by $2.20 per share.  In accordance with Section 14(g)(1)(A) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.000107 by the sum of the amounts derived as described in the preceding sentence.

 

(4)

Proposed maximum aggregate value of transaction:

 

 

$26,627,085.90

 

(5)

Total fee paid:

 

 

$2,849.10

o

Fee paid previously with preliminary materials.

o

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

Amount Previously Paid:

 

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

 

(3)

Filing Party:

 

 

 

 

(4)

Date Filed:

 




GRAPHIC

[               ], 2006

Dear Fellow Stockholder:

You are cordially invited to attend a Special Meeting of Stockholders (the “Special Meeting”) of Artemis International Solutions Corporation (“Artemis” or the “Company”), which will be held at the Company’s corporate headquarters located at 4041 MacArthur Boulevard, Suite 401, Newport Beach, California 92660, on [                             ], 2006, at 10:00 a.m., local time. We look forward to greeting as many of our stockholders as possible.

On March 10, 2006, our board of directors, acting through its disinterested directors, approved a merger agreement providing for the acquisition of Artemis by Trilogy, Inc. (“Trilogy”). If we complete the merger, each outstanding share of Artemis common stock (“Common Stock”) will be converted into the right to receive $1.60 in cash (“Merger Consideration”), each outstanding share of Artemis Series A convertible preferred stock (“Preferred Stock”) will be converted into the right to receive $2.20 in cash (“Liquidation Consideration”), and each option to acquire our Common Stock that is outstanding immediately prior to the effective time of the merger, whether vested or unvested, will be cancelled and converted into the right to receive in cash an amount by which $1.60 exceeds the exercise price for each share of Artemis Common Stock underlying such option.

At the Special Meeting, we will ask you to consider and vote on a proposal to approve and adopt the merger agreement and the merger. All of the members of our board of directors who have no material interest in the merger which differs from our stockholders have determined that the merger agreement and the merger, on the terms and subject to the conditions set forth in the merger agreement, are advisable and fair to, and in the best interests of, Artemis and our stockholders. ACCORDINGLY, THE DISINTERESTED MEMBERS OF OUR BOARD OF DIRECTORS, UNANIMOUSLY RECOMMEND THAT YOU VOTE “FOR” THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE MERGER. IN ADDITION, THE DISINTERESTED MEMBERS OF OUR BOARD OF DIRECTORS, UNANIMOUSLY RECOMMEND THAT YOU VOTE “FOR” THE PROPOSAL TO ADJOURN OR POSTPONE THE SPECIAL MEETING OF STOCKHOLDERS, IF NECESSARY OR APPROPRIATE, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE INSUFFICIENT VOTES AT THE TIME OF SUCH MEETING TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE MERGER.

Your vote is very important. We cannot complete the merger unless and until the merger agreement and the merger is approved and adopted by holders of a majority of our outstanding shares of Common Stock and Preferred Stock (voting as separate classes and together on an as-converted basis). Whether or not you plan to be present at the Special Meeting, please complete, sign, date and return the enclosed proxy card to ensure that your shares are represented at the Special Meeting. Stockholders owning approximately 76% of our outstanding shares of Common Stock (including our outstanding shares of Preferred Stock on an as-converted basis) as of the record date have entered into stockholder voting agreements in which they have agreed to vote their shares in favor of the approval and adoption of the merger agreement and the merger and have granted proxies to certain employees of Trilogy to vote their shares unless the stockholder voting agreements are terminated. Therefore, subject to the right under certain circumstances of the parties to the stockholder voting agreements to terminate such agreements, the merger will be approved.




IF YOU DO NOT RETURN YOUR PROXY OR INSTRUCT YOUR BROKER TO VOTE YOUR SHARES FOR EITHER OF THE PROPOSALS DESCRIBED IN THE ATTACHED PROXY STATEMENT, OR IF YOU ABSTAIN FROM VOTING ON EITHER OF THE PROPOSALS, IT WILL HAVE THE SAME EFFECT AS A VOTE AGAINST SUCH PROPOSAL.

The attached proxy statement provides detailed information about the proposed merger and related matters. We urge you to read the entire proxy statement carefully, including the annexes. You may also obtain more information about Artemis from documents that we have filed with the Securities and Exchange Commission.

Please do not send us any stock certificates at this time. If the merger is completed, we will send you detailed information as to how to return your stock certificates in order to receive your Merger Consideration and/or Liquidation Consideration for your Artemis shares.

On behalf of the Board of Directors and the employees of Artemis International Solutions Corporation, I would like to express my appreciation for your continued interest in the affairs of the Company.

Sincerely,

GRAPHIC

Patrick Ternier
President and Chief Executive Officer

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

This proxy statement is dated April [    ], 2006 and is first being mailed to stockholders on or about April [    ], 2006.




ARTEMIS INTERNATIONAL SOLUTIONS CORPORATION
4041 MACARTHUR BOULEVARD
SUITE 401
NEWPORT BEACH, CALIFORNIA 92660

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [                ], 2006

TO THE STOCKHOLDERS OF ARTEMIS INTERNATIONAL SOLUTIONS CORPORATION:

NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders (the “Special Meeting”) of Artemis International Solutions Corporation (the “Company” or “Artemis”), a Delaware corporation, will be held at the Company’s corporate headquarters located at 4041 MacArthur Boulevard, Suite 401, Newport Beach, California 92660 on [                             ], 2006, at 10:00 a.m. local time, to consider the following proposals described in the accompanying proxy statement:

1.                To consider and vote on a proposal to approve and adopt the Agreement and Plan of Merger, dated as of March 10, 2006 (the “Merger Agreement”), among Artemis, Trilogy, Inc. (“Trilogy”) and RCN Acquisition, Inc., a wholly owned subsidiary of Trilogy (“RCN”), and the merger contemplated thereby, pursuant to which each share of Artemis common stock (“Common Stock”) will be converted into the right to receive $1.60 in cash, without interest, and each share of Artemis Series A convertible preferred stock (“Preferred Stock”) will be converted into the right to receive $2.20 in cash, without interest, and each option to acquire our Common Stock that is outstanding immediately prior to the effective time of the merger, whether vested or unvested, will be cancelled and converted into the right to receive in cash an amount by which $1.60 exceeds the exercise price for each share of Artemis Common Stock underlying such option.

2.                To approve the adjournment or postponement of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of such meeting to approve and adopt the Merger Agreement and the merger.

The disinterested members of the Company’s board of directors have unanimously approved, and recommends that you vote in favor of, both of the proposals described above.

A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, which contains the Company’s consolidated financial statements, is included as Annex E to the proxy statement.

Our board of directors has fixed the close of business on [                              ], 2006 as the record date for determining stockholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. A list of such stockholders will be available for examination by any stockholder at the Special Meeting and, for any purpose germane to the Special Meeting, at the office of the Secretary of the Company, 4041 MacArthur Boulevard, Suite 401, Newport Beach, California 92660, for a period of ten days prior to the Special Meeting. The officers and directors of the Company cordially invite you to attend the Special Meeting.

Under Delaware law, holders of Artemis’ shares have the right to seek appraisal and to receive payment of the “fair cash value” of their shares upon compliance with the requirements of the Delaware General Corporation Law and in lieu of receiving the consideration provided for in the Merger Agreement. This right is explained more fully under “The Proposed Merger—Appraisal Rights” in the accompanying proxy statement. The appraisal right provisions of Delaware law are included in the proxy statement as Annex D.

If a quorum is not present at the Special Meeting, or if a quorum is present but we do not have sufficient votes to approve Proposal No. 1 described in this notice, the persons named as proxies may propose one or more adjournments of the Special Meeting to permit further solicitations of proxies. If a




quorum is present, any such adjournment will require that the votes cast in favor of the adjournment exceed the votes cast opposing the adjournment. If a quorum is not present, any such adjournment will require the affirmative vote of the holders of a majority of the shares of our (i) Preferred Stock and (ii) Common Stock combined with the shares of our Preferred Stock (the holders of Preferred Stock shall be casting their votes together with the owners of Common Stock, converting each share of Preferred Stock held into one vote for purposes of voting together with the owners of the Company’s Common Stock) represented at the Special Meeting in person or by proxy. The persons named as proxies will vote those proxies that they are entitled to vote ”FOR” the proposal described herein in favor of an adjournment of the Special Meeting and will vote those proxies that are required to be voted “AGAINST” the proposal described herein against such adjournment. If you sign and return your proxy card without indicating your vote, your shares will be voted “FOR” the approval and adoption of the Merger Agreement and the merger and “FOR” any proposal to adjourn or postpone the meeting, if necessary or appropriate to solicit additional proxies.

YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN, DATE AND PROMPTLY MAIL YOUR PROXY IN THE ENVELOPE PROVIDED FOR YOUR CONVENIENCE. YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE SPECIAL MEETING AND, IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE YOUR SHARES IN PERSON.

By Order of the Board of Directors

/s/ CHARLES SAVONI
Charles Savoni,
Secretary

Newport Beach, California
Dated: [                        ], 2006




TABLE OF CONTENTS

SUMMARY TERM SHEET

 

1

The Parties to the Merger Agreement

 

1

Effects of the Merger

 

2

Treatment of Stock Options

 

2

Payoff and Termination of Indebtedness Under the Credit Facility with Laurus Master Fund, Ltd.

 

2

Voting Agreements and Treatment of Warrants Held by Our Series A Convertible Preferred Stockholders

 

3

Conditions to the Merger

 

3

Non-Solicitation

 

4

Termination of the Merger Agreement

 

4

Fees and Expenses

 

5

THE PROXY

 

6

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

 

6

The Merger

 

6

The Special Meeting and Other Information

 

9

CAUTIONARY/SAFE HARBOR STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

12

COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION

 

14

FINANCIAL FORECASTS

 

15

SPECIAL FACTORS

 

16

Purpose and Structure of the Merger

 

16

Background of the Merger

 

16

Recommendation of Our Board of Directors; Fairness of the Merger

 

24

Opinion of Cowen & Co., LLC Regarding the Transaction

 

28

Interests of Our Directors and Executive Officers in the Proposed Merger

 

33

Interests of Trilogy Directors in the Merger

 

34

Effects of the Merger; Plans or Proposals for Artemis

 

35

Related Party Transactions

 

35

Financing of the Merger

 

38

Purpose and Reasons of RCN and the Affiliated Stockholders for the Merger

 

39

RCN and Affiliated Stockholders’ Position as to Fairness of the Merger

 

39

Advantages and Disadvantages of the Merger

 

40

The Position of the Executive Officers as to the Fairness of the Merger

 

41

Fees and Expenses of the Merger

 

43

Material United States Federal Income Tax Consequences of the Merger

 

44

Delisting and Deregistration of Artemis’ Shares

 

45

Litigation Challenging the Merger

 

46

THE SPECIAL MEETING

 

46

Date, Time and Place of the Special Meeting

 

46

Purpose

 

46

Record Date and Shares Entitled to Vote; Procedures for Voting

 

46

Quorum

 

46

Vote Required

 

47

Voting of Proxies

 

47

Revocability of Proxies

 

48

Adjournments and Postponements

 

48




 

Proxy Solicitation

 

48

THE PROPOSED MERGER

 

49

Artemis

 

49

Trilogy

 

49

RCN Acquisition

 

49

Structure of the Merger; Consideration to be Received by Our Stockholders

 

49

Conditions to the Merger

 

50

Payment of Merger Consideration, Liquidation Consideration and Surrender of Share Certificates

 

50

Appraisal Rights

 

51

APPROVAL OF THE MERGER AGREEMENT (PROPOSAL NO. 1)

 

54

ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING (PROPOSAL NO. 2)

 

54

RECOMMENDATIONS OF OUR BOARD OF DIRECTORS

 

55

THE MERGER AGREEMENT

 

55

The Merger

 

55

Certificate of Incorporation; Bylaws; Directors and Officers

 

55

Consideration to be Received By Our Stockholders

 

55

Stock Options

 

56

Our Representations and Warranties

 

56

Representations and Warranties by Trilogy and RCN Acquisition

 

57

Our Covenants

 

57

No Solicitation

 

58

Financing Matters

 

59

Employee Matters

 

59

Directors and Officers Insurance and Indemnification

 

59

Expense Reimbursement

 

60

Conditions to the Merger

 

60

Termination of the Merger Agreement

 

61

Termination Fee

 

62

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

 

63

ARTEMIS BUSINESS DESCRIPTION

 

64

Industry Overview

 

65

Our Solutions

 

66

Strategy

 

66

Products

 

66

Expansion and Strategic Alliances

 

69

Selling and Marketing

 

69

Customers

 

69

Intellectual Property

 

70

Competition

 

70

Research and Development

 

71

Services and Support

 

72

Employees

 

72

Financial Information about Geographic Areas

 

72

PROPERTIES

 

73

LEGAL PROCEEDINGS

 

73

SELECTED FINANCIAL DATA/ SUMMARIZED FINANCIAL INFORMATION

 

73

 




 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

74

Safe Harbor Statement

 

74

Overview

 

74

Critical Accounting Policies

 

74

Significant Recent Accounting Pronouncements

 

76

Results of Operations

 

77

2005 compared to 2004

 

78

2004 compared to 2003

 

81

Cash flows for the years ended December 31, 2005 and 2004

 

85

Impact of Inflation

 

87

Off-Balance Sheet Arrangements

 

87

SUPPLEMENTARY FINANCIAL DATA

 

87

Divestiture and Material Licensing Agreement

 

87

Selected Quarterly Financial Data (Unaudited)

 

88

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

89

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

89

STOCKHOLDER PROPOSALS

 

89

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

89

FINANCIAL AND OTHER INFORMATION

 

90

WHERE YOU CAN FIND MORE INFORMATION

 

90

ANNEX A—Agreement and Plan of Merger, dated as of March 10, 2006, by and among Artemis International Solutions Corporation, Trilogy, Inc. and RCN Acquisition, Inc.

 

 

ANNEX B—Form of Stockholders Agreement, dated as of March 10, 2006, by and between RCN Acquisition, Inc. and certain stockholders of Artemis International Solutions Corporation

 

 

ANNEX C—Fairness Opinion of Cowen & Co., LLC, dated March 10, 2006 

 

 

ANNEX D—Section 262 of the Delaware General Corporation Law

 

 

ANNEX E—Artemis International Solutions Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2005 filed with the SEC on March 31, 2006

 

 

ANNEX F—Artemis International Solutions Corporation Form 8-K filed with the SEC on
March 14, 2006 to report entering into the Merger Agreement (as defined herein) and certain related agreements

 

 

ANNEX G—Artemis International Solutions Corporation Form 8-K filed with the SEC on
March 15, 2006 announcing its results of operations for the quarter and year ended December 31, 2005

 

 

 




ARTEMIS INTERNATIONAL SOLUTIONS CORPORATION
4041 MACARTHUR BOULEVARD
SUITE 401
NEWPORT BEACH, CALIFORNIA 92660

PROXY STATEMENT

SPECIAL MEETING OF STOCKHOLDERS TO
BE HELD ON [           ], 2006

This proxy statement is furnished in connection with the solicitation of proxies by the board of directors of Artemis International Solutions Corporation, a Delaware corporation (referred to throughout this proxy statement as “Artemis,” the “Company,” “we,” “our” or “us”), for use at the Company’s Special Meeting of Stockholders to be held on [        ], 2006 at 10:00 a.m., local time (the “Special Meeting”), at the Company’s corporate headquarters located at 4041 MacArthur Boulevard, Suite 401, Newport Beach, California 92660 and at any adjournment thereof. This proxy statement and the accompanying proxy are being mailed to our stockholders on or about [        ], 2006.

SUMMARY TERM SHEET

The following summary highlights important information about the merger discussed in greater detail elsewhere in this proxy statement. Each item in this summary includes parenthetical references to the page(s) in other portions of this proxy statement containing a more detailed discussion of the topics presented in this summary. The following may not contain all of the information you should consider before voting on the merger. To more fully understand the merger, you should read carefully this entire proxy statement and all of its annexes, including the Agreement and Plan of Merger (the “Merger Agreement”), dated as of March 10, 2006, among Trilogy, Inc. (“Trilogy”), RCN Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of Trilogy (“RCN”), and Artemis, which is attached hereto as Annex A, before voting on whether to approve and adopt the Merger Agreement and the merger described in the Merger Agreement (the “Merger”).

The Parties to the Merger Agreement (Page 49)

·       Artemis International Solutions Corporation
4041 MacArthur Blvd., Suite 401
Newport Beach, California 92660
(949) 660-6500

Artemis is headquartered in Newport Beach, California. The Company is one of the world’s leading providers of planning and control solutions that help organizations execute strategy through effective portfolio and project management. Artemis has refined 30 years experience into a suite of solutions and packaged consulting services that address the specific needs of both private industry and the public sector including new product development, IT management, program management, fleet and asset management, outage management and detailed project management. With a global network covering 44 countries, Artemis is helping thousands of organizations to improve their business performance through better alignment of strategy, investment planning and project execution. Our Common Stock is quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “AMSI.”

1




·       Trilogy, Inc.
6011 West Courtyard Drive
Austin, TX 78730
(512) 874-3100

Trilogy, a Delaware corporation, is headquartered in Austin, Texas. Trilogy provides technology powered business services focused on the Automotive, Insurance and Consumer Electronics industries. A privately held company, Trilogy employs 500 business professionals worldwide, with offices in Bangalore, India and Hangzhou, China. Trilogy’s Versata group, also headquartered in Austin, Texas, is a leading provider of business rules, configuration and pricing management systems. Versata provides solutions for automating and simplifying the building, maintenance and ongoing evolution of large, complex, data-intensive enterprise applications. The Versata solution effectively and efficiently replaces time-intensive hand-coding efforts with simple, intuitive business rules and graphical process flow specifications.

·       RCN Acquisition, Inc.
c/o Trilogy, Inc.
6011 West Courtyard Drive
Austin, TX 78730
(512) 874-3100

RCN, a Delaware corporation, is a direct, wholly owned subsidiary of Trilogy, formed solely for the purpose of facilitating the Merger.

Effects of the Merger (Page 35)

We have entered into a Merger Agreement, dated as of March 10, 2006, with Trilogy and RCN pursuant to which RCN will merge with and into Artemis. Upon completion of the Merger, RCN will cease to exist as a separate entity and Artemis will become a wholly-owned subsidiary of Trilogy and part of Trilogy’s recently announced Versata Group. Upon the completion of the Merger, (i) holders of our Common Stock will be entitled to receive $1.60 in cash for each share that they own (including shares of our restricted Common Stock), without interest, and (ii) holders of our Preferred Stock will be entitled to receive $2.20 in cash for each share that they own, without interest.

Treatment of Stock Options (Page 56)

Upon the completion of the Merger, all options to acquire our Common Stock that are outstanding immediately prior to the effective time of the Merger, whether vested or unvested, will be cancelled and converted into the right to receive a cash payment, without interest and less applicable withholding taxes, in an amount equal to:

·       the amount by which $1.60 exceeds the exercise price for each share of Artemis Common Stock underlying such stock options multiplied by

·       the number of shares subject to such options.

All stock options, whether vested or unvested, with an exercise price per share of $1.60 or greater will be cancelled without any payment of consideration.

Payoff and Termination of Indebtedness Under the Credit Facility with Laurus Master Fund, Ltd.

Concurrent with the execution of the Merger Agreement, the Company has executed an agreement (the “Laurus Agreement”) that provides a final payout relating to, and thereby closing, the Company’s current line of credit secured from Laurus Master Fund, Ltd. (“Laurus”). By the earlier of the close of the Merger or June 16, 2006 (the “Payout Date”), the Company has agreed to pay Laurus the following

2




amounts: (i) all principal outstanding pertaining to the over-advance provided to the Company, which equals $3,000,000, plus accrued interest, (ii) all principal outstanding under the minimum borrowing note, which equals $865,237, plus accrued interest and (iii) $110,000 in exchange for the cancellation of all outstanding warrants held by Laurus (collectively, the “Payments”). The parties have agreed to execute a customary payoff letter releasing all guarantees and liens under the Laurus facility at the Payout Date and agree that notwithstanding anything to the contrary arising under the Laurus facility, the Payments constitute payment in full of all obligations now owed and hereafter arising under the Laurus facility by the Company, as of the Payout Date, whether in respect of principal, interest, or otherwise, and that all warrants to purchase any securities of the Company issued in connection with the Laurus facility shall be cancelled as of immediately prior to the Payout Date.

Voting Agreements and Treatment of Warrants Held by Our Series A Preferred Stockholders (Page [  ])

Concurrent with the execution of the Merger Agreement, Proha and certain holders of Preferred Stock have executed a stockholder voting agreement (the “Voting Agreement”) pursuant to which they have agreed to vote their shares in favor of the Merger, have granted certain Trilogy employees proxies to vote their shares and have agreed not to solicit, assist or vote for an alternative transaction, except that Proha had the right until March 31, 2006, to shop for an alternate transaction involving the Company. This shop-right expired without Proha having identified any such transaction. The Voting Agreement terminates (i) if the Merger Agreement is terminated or (ii) with respect to Proha, at Proha’s discretion, if the Company receives a superior offer. These stockholders are able to transfer their shares of the Company’s securities as long as the transferee agrees to be bound by the terms of the Voting Agreement. In addition, all of the holders of Preferred Stock with the exception of Trilogy Capital holdings Corporation (f/k/a Samuelson Investment Inc.), wholly owned by Trilogy—which is a party to the Merger Agreement—have agreed pursuant to the Voting Agreement to the cancellation of any outstanding warrants to purchase any securities of the Company issued in connection with their purchase of the Preferred Stock.

Conditions to the Merger (Page 60)

Under the terms of the Merger Agreement, before we can complete the Merger, a number of conditions must be satisfied or, if permissible, waived. These conditions include but are not limited to the following:

·       our stockholders approving and adopting the Merger Agreement and the Merger at the Special Meeting. In this regard, we must obtain the affirmative vote of the outstanding holders as of the record date for the Special Meeting of a majority of each of (i) the shares of our Preferred Stock, voting as a class by itself; and (ii) the shares of our Common Stock combined with the shares of our Preferred Stock (the holders of Preferred Stock shall be casting their votes together with the owners of Common Stock, on an as-converted basis, having one vote for each share of Preferred Stock held);

·       the absence of any order or restraint preventing the completion of the Merger or any law making the completion of the Merger illegal, or otherwise imposing material limitations on the ability of Trilogy effectively to acquire or hold the business of the Company;

·       all consents, waivers and approvals required by contracts having been obtained;

·       the representations and warranties of each party contained in the Merger Agreement (i) that are qualified or excepted by materiality or material adverse effect being true and correct in all respects on the closing date, except where the cumulative effect of all inaccuracies of such representations and warranties of a party could not reasonably be expected to have a material adverse effect on the

3




counter-party and (ii) that are not qualified or excepted by materiality or material adverse effect being true and correct in all material respects on the closing date;

·       the performance in all material respects by each party of its obligations under the Merger Agreement;

·       the absence of actions or proceedings by governmental entities that reasonably would be expected to (i) restrain enjoin, prevent, prohibit or make illegal the consummation of the merger or (ii) impose limitations on the ability of Trilogy to acquire or hold the business of the Company; and

·       the absence of any material adverse effect on Artemis.

Non-Solicitation (Page 58)

The Merger Agreement restricts our ability to solicit or engage in discussions or negotiations with a third party regarding specified transactions involving Artemis. Notwithstanding these restrictions, under certain limited circumstances required for our board of directors to comply with its fiduciary duties, our directors may respond to an unsolicited written bona fide proposal for an alternative acquisition and terminate the Merger Agreement and enter into an agreement with respect to a superior proposal after providing Trilogy a five business-day period to match or exceed the superior proposal and paying a $750,000 termination fee and under certain circumstances paying up to $500,000 of Trilogy’s expenses incurred in connection with the proposed Merger, provided that the aggregate amount paid by Artemis to Trilogy shall not exceed $750,000.

Termination of the Merger Agreement (Page 61)

The Merger Agreement may be terminated:

·       at any time by mutual written consent duly authorized by the board of directors of the Company, Trilogy and RCN;

·       by RCN or us if:

·        the Merger is not consummated by September 6, 2006, subject to certain limitations;

·        both categories of our stockholders do not approve the proposal to approve and adopt the Merger Agreement and the Merger at the Special Meeting or any adjournment or postponement of the Special Meeting. One category is comprised of the Preferred Stockholders combined with the Common Stock holders, while the second category is only the Preferred Stockholders by themselves, voting as a separate class;

·        a governmental entity has issued a final order preventing or materially altering the terms of the Merger; or

·        the other party breaches any of its representations, warranties or covenants in the Merger Agreement such that it cannot timely satisfy its closing conditions;

·       by RCN if:

·        we or any of our representatives materially breach our non-solicitation obligations or our obligation to submit the Merger Agreement and the Merger for approval and adoption by our stockholders;

·        any party (other than RCN) breaches any obligation under or terminates any Voting Agreement with respect to itself; or

4




·        our board of directors changes its recommendation regarding the Merger in a manner adverse to RCN, or recommends another acquisition proposal;

·       by us if:

·        our board of directors authorizes us to enter into a written agreement in respect of a superior proposal, subject to the payment of a $750,000 termination fee to RCN and certain other limitations.

Fees and Expenses (Page 43)

We will be obligated to pay a termination fee of $750,000 to RCN for reasons that include, but are not limited to the following:

·       if RCN terminates the Merger Agreement because our board of directors changes its recommendation regarding the Merger in a manner adverse to Trilogy or recommends another acquisition proposal;

·       if we terminate the Merger Agreement because our board of directors has authorized us to enter into a written agreement concerning a superior acquisition proposal; and

·       if RCN terminates the Merger Agreement because we materially breach our non-solicitation obligations or our obligation to submit the Merger Agreement and the Merger for approval and adoption by our stockholders, or any party (other than RCN) breaches any obligation under or terminates any Voting Agreement with respect to itself.

In addition, if the Merger Agreement is terminated by either RCN or us as a result of either of the voting categories of our stockholders failing to approve the proposal to approve and adopt the Merger Agreement and the Merger at the Special Meeting or an adjournment or postponement of the Special Meeting, or if the Merger Agreement is terminated by RCN as a result of Artemis breaching any of our representations, warranties or covenants in the Merger Agreement such that we cannot timely satisfy our closing conditions, we will be obligated to pay all documented costs and expenses incurred by Trilogy in connection with the Merger Agreement, not to exceed Five Hundred Thousand Dollars ($500,000). In no event, however, shall we be obligated to pay in the aggregate more than $750,000 to RCN with respect to termination fees, costs and expenses.

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THE PROXY

The Company’s board of directors has selected and named as proxyholders. Robert Stefanovich and Charles Savoni. Mr. Stefanovich and Mr. Savoni are both executive officers of the Company. Mr. Stefanovich is Executive Vice President and Chief Financial Officer. Mr. Savoni is Senior Vice President, General Counsel and Secretary.

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

The following discussion addresses briefly some questions that you may have regarding the Special Meeting of our stockholders and the proposed merger. These questions and answers do not, and are not intended to, address all questions that may be important to you as a stockholder of Artemis. Please refer to the more detailed information contained elsewhere in this proxy statement and the annexes to this proxy statement. In this proxy statement, unless the context clearly indicates otherwise, the terms “Artemis,” “Company” “we,” “our,” “ours” and “us” refer to Artemis International Solutions Corporation and its subsidiaries.

Q:             Why am I receiving this Proxy Statement and Proxy?

A:             As a stockholder of the Company, you are being asked to vote on the following proposals:

·       To approve and adopt the Merger Agreement and the Merger, whereby on completion of the Merger, the holders of our Common Stock would receive $1.60 per share, holders of the Company’s Preferred Stock would receive $2.20 per share and holders of options with an exercise price of less than $1.60 per share will receive $1.60 per share less the exercise price per share; and

·       to approve the adjournment or postponement of the meeting, if necessary or appropriate to solicit additional proxies if there are insufficient votes at the time of the meeting to approve and adopt the Merger Agreement and the Merger.

The Merger

Q:             What is the proposed Merger?

A:             The proposed transaction is the acquisition of Artemis by Trilogy pursuant to the Merger Agreement. In the proposed transaction, RCN will merge with and into Artemis. Upon completion of the Merger, RCN will cease to exist as a separate entity and Artemis will become a wholly-owned subsidiary of Trilogy and part of Trilogy’s recently announced Versata Group. The Merger Agreement is attached to this proxy statement as Annex A. We encourage you to read it carefully.

Q:             Why are you proposing the Merger?

A:             We are proposing the Merger because our board of directors, acting through its independent directors, has determined, in consultation with our management as well as our legal and financial advisors, and after careful consideration of various factors in support of the Merger and those weighing against it, that the Merger is advisable and fair to, and in the best interests of, Artemis and all our stockholders. A more complete description of the factors considered by the disinterested members of our board of directors is included in the section of this proxy statement entitled “Special Factors—Recommendation of Our Board of Directors; Fairness of the Merger” on page 24.

Q:             What will I receive in the Merger?

A:             Upon completion of the Merger, for each share of Artemis common stock (“Common Stock”) that you own (including shares of our restricted Common Stock) immediately prior to the Merger, you will be entitled to receive $1.60 in cash (the “Merger Consideration”), without interest. For example, if you own 100 shares of our Common Stock, you will be entitled to receive $160.00 in cash in exchange for your Artemis shares. In addition, if you hold stock options that are outstanding immediately prior

6




to the effective time of the Merger, whether vested or unvested, to acquire shares of Artemis Common Stock, upon completion of the Merger such options will be cancelled and converted into a right to receive a cash payment, without interest and less applicable withholding taxes, in an amount equal to (i) the amount by which the Merger Consideration exceeds the exercise price for each share of Artemis Common Stock underlying such options multiplied by (ii) the number of shares subject to such options, less applicable withholding taxes. Any stock options, whether vested or unvested, with a per share exercise price equal to or greater than the Merger Consideration will be cancelled without payment of any consideration. In addition, if you are a holder of Artemis Series A convertible preferred stock (“Preferred Stock”), for each share of Preferred Stock that you own, you will be entitled to receive $2.20 in cash (“Liquidation Consideration”), without interest.

Q:             What are the U.S. federal income tax consequences of the Merger to me?

A:             The receipt of cash for shares in the Merger will be a taxable event for U.S. federal income tax purposes. In general, as a result, you will recognize gain or loss equal to the difference, if any, between the amount of cash that you receive in exchange for your shares of our stock and your adjusted tax basis in those shares. Because the tax consequences of the Merger are complex and may vary depending on your particular circumstances, we recommend that you consult with your tax advisor concerning the federal (and any state, local or foreign) tax consequences to you of the Merger.

Q:             Why is the vote required to complete the Merger?

A:             In order to complete the proposed Merger, we must obtain the affirmative vote from the holders as of the record date for the Special Meeting which represent a majority of the outstanding shares of our (i) Preferred Stock and (ii) Common Stock combined with the shares of our Preferred Stock (the holders of Preferred Stock shall be casting their votes together with the owners of Common Stock, converting each share of Preferred Stock held into one vote for purposes of voting together with the owners of the Company’s Common Stock). With respect to each vote, each share of our Common Stock and Preferred Stock, as applicable, is entitled to one vote.

In order to induce Trilogy to enter into the Merger Agreement, both Proha Plc (“Proha”), Artemis’ majority stockholder, and certain holders of a majority of Artemis’ Preferred Stock, have executed Voting Agreements pursuant to which each of them has agreed to vote all shares of the Company’s Common Stock and/or Preferred Stock that each of them owns respectively “FOR” the proposal to approve and adopt the Merger Agreement and the Merger and have given certain employees of Trilogy proxies to vote their shares in such manner. Therefore, subject to certain limited rights to terminate the Voting Agreements, the merger will be approved. As of the record date for the Special Meeting, these persons who executed Voting Agreements owned shares of our stock as follows: Proha, representing 53.3% of the outstanding shares of our Common and Preferred Stock combined; Emancipation Capital LP, representing 33.3% of our Preferred Stock and 10.3% of our Common and Preferred Stock combined; Porridge, LLC, representing 11.1% of our Preferred Stock and 3.4% of our Common and Preferred Stock combined; Potomac Capital Partners, LP, representing 8.5% of our Preferred Stock and 2.6% of our Common and Preferred Stock combined; Potomac Capital International, LTD, representing 2.8% of our Preferred Stock and 0.9% of our Common and Preferred Stock combined; and Pleiades Investment Partners R, LP, representing 5.3% of our Preferred Stock and 1.7% of our Common and Preferred Stock combined. A form of the Voting Agreement entered into by such persons is attached as Annex B to this proxy statement.

Q:             Is our board of directors recommending that I vote for the Merger Agreement?

A:             Yes. Each of the disinterested members of our board of directors—David Cairns, Mike Murphy and Bengt-Ake Älgevik—has considered a number of factors and believes that the terms of the Merger Agreement are advisable, fair to and in the best interests of Artemis and all of its stockholders. These

7




disinterested members of our board of directors unanimously recommend that you vote “FOR” the approval and adoption of the Merger Agreement and the Merger.

The other members of the Artemis board of directors, as identified below, may have an interest in the Merger and for that reason did not participate in the deliberations by our board of directors regarding, and do not now comment about, the terms of the Merger. Joe Liemandt is the Chairman of the board of directors, Chief Executive Officer (“CEO”) and President of Trilogy. Trilogy is acquiring Artemis as explained above and elsewhere in this proxy statement. Pekka Pere is the CEO of Proha, and Olof Odman is the Chairman of the board of directors of Proha. Proha was provided the right under the terms of the Merger Agreement to actively solicit and shop through March 31, 2006 for an alternate transaction for the Company in which Proha would participate. This right expired without Proha having identified any such transaction.

Q:             Did our board of directors receive an opinion from an independent financial advisor in connection with the Merger?

A:             Yes. On March 10, 2006, our financial advisor, Cowen & Co., LLC (“Cowen”), formerly known as SG Cowen & Co., rendered its written opinion that, as of March 10, 2006, based upon and subject to certain assumptions, qualifications and limitations described in the Cowen opinion, the Merger Consideration ($1.60 per share) was fair, from a financial point of view, to holders of our Common Stock, other than affiliates of the Company. Cowen’s fairness opinion is attached as Annex C to this proxy statement and is described more fully under “Special Factors—Opinion of Cowen & Co., LLC Regarding The Transaction” beginning on page [ ] of this proxy statement; we urge you to read that opinion carefully and in its entirety. Cowen’s opinion was directed solely to our board of directors and addresses only the fairness from a financial point of view of the Merger Consideration as of the date of the written opinion. The Cowen opinion does not address any other aspect of the transaction and does not constitute a recommendation to any Artemis stockholder or any other person as to how to vote or act with respect to the Merger or any other matter.

Q:             Do our directors and executive officers have any special interests in the Merger?

A:             Yes. A number of our directors have interests in the Merger, as explained in the answer to the earlier question as to whether our board of directors is recommending that you vote for the Merger Agreement. Again, we note that all of the disinterested members of the Company’s board of directors are recommending you vote for the Merger Agreement.

With respect to our executive officers, you should be aware that they may have interests that are different from, or in addition to, yours. Those interests include, among others, the potential receipt of severance payments and the accelerated vesting of outstanding stock options. In addition, with respect to the executive officers and all of the Company’s directors, you should be aware that such individuals will be privy to the continuing indemnification of, and provision of directors’ and officers’ insurance coverage to, current and former directors and executive officers of Artemis after the Merger. Please see the sections of this proxy statement entitled “Special Factors—Interests of Our Directors and Executive Officers In The Proposed Merger” and “The Merger Agreement—Directors and Officers Insurance and Indemnification” on pages 33 and 59 for a further description of the special interests of our directors and executive officers in the Merger.

Q:             Am I entitled to appraisal rights in connection with the Merger?

A:             Yes. Stockholders who provide a written demand for appraisal of their shares to Artemis prior to the vote at the Special Meeting, and who do not vote their shares in favor of the Merger, are entitled to exercise appraisal rights under Section 262 of the Delaware General Corporation Law. The conditions and requirements for properly exercising appraisal rights are further explained in the section of this proxy statement entitled “The Proposed Merger—Appraisal Rights” on page [   ]. In addition,

8




Section 262 of the Delaware General Corporation Law is included in this proxy statement as Annex D. If you wish to exercise appraisal rights, you are urged to read Annex D in its entirety.

Q:             Should I send in my stock certificates now?

A:             No. Shortly after the Merger is completed, if you are a holder of the Company’s Common Stock or Preferred Stock, you will receive a letter of transmittal with instructions informing you how to send your stock certificates to the paying agent in order to receive payment. DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY.

Q:             What will I need to do in order to receive the consideration I will be entitled to with respect to my stock options?

A:             All outstanding stock options under the Company’s option plans with an exercise price below the Merger Consideration shall be converted into the right to receive the value between the exercise price and the Merger Consideration, whether vested or unvested. Outstanding options with an exercise price equal to or greater than the Merger Consideration will receive no payment and shall be cancelled, whether vested or unvested.

The terms of each of the Company’s option plans have been amended to provide that the Company assumes you agree to the “cashless exercise” of all of your “in-the-money” options (both terms, as identified below), upon completion of the Merger, unless you provide the Company timely written notice that you either do not elect to exercise your outstanding, in-the-money options at all or that you do not elect to exercise your outstanding, in-the-money options using a “cashless exercise.” (The form of such written notice will be provided to you and explained further in a separate letter that the Company will be sending to you prior to the Special Meeting.) If you elect to provide such written notice, you will need to provide the Company a check for the total amount of the exercise. “Cashless exercise” means the exercise and automatic sale of a portion of the option shares held to pay for the exercise of the remainder of the option, and any withholdings applicable thereto. “In-the-money-option” means an option with a grant-date exercise price below the Merger Consideration.

If the Company does not receive the written notice (as explained above) from you, the Company will (i) assume that you have elected to perform a cashless exercise of your in-the-money stock options; (ii) effect such cashless exercise upon the completion of the Merger; and (iii) exchange the stock acquired through option exercise for the Merger Consideration. The Company will also assume that you authorize all necessary withholdings. On or as soon as practicable following the completion of the Merger, you will receive a check in an amount determined using the following calculation—number of shares realized on exercise multiplied by the Merger Consideration and reduced by the exercise price and any applicable tax or other withholding.

The Special Meeting and Other Information

Q:             What are the date, time and place of the Special Meeting?

A:             The Special Meeting will be held at the Company’s corporate headquarters located at 4041 MacArthur Boulevard, Suite 401, Newport Beach, California 92660, on [           ], 2006, at 10:00 a.m., local time.

Q:             What matters will I be voting on at the Special Meeting?

A:             You will vote on the following proposals:

·       To approve and adopt the Merger Agreement and the Merger, whereby on completion of the Merger, holders of our Common Stock would receive the Merger Consideration ($1.60 per share), holders of the Company’s Preferred Stock would receive the Liquidation Consideration ($2.20 per share) and holders of options with an exercise price of less than $1.60 per share will receive $1.60 per share less the exercise price per share; and

9




·       to approve the adjournment or postponement of the meeting, if necessary or appropriate to solicit additional proxies if there are insufficient votes at the time of the meeting to approve and adopt the Merger Agreement and the Merger.

Q:             How does Artemis’ board of directors recommend that I vote on the proposals?

A:             As follows:

·       “FOR” the proposal to approve and adopt the Merger Agreement and the Merger, whereby on completion of the Merger, holders of our Common Stock would receive the Merger Consideration ($1.60 per share), holders of the Company’s Preferred Stock would receive the Liquidation Consideration ($2.20 per share) and holders of options with an exercise price of less than $1.60 per share will receive $1.60 per share less the exercise price per share; and

·       “FOR” the proposal to adjourn or postpone the meeting, if necessary or appropriate to solicit additional proxies.

Q:             Who is entitled to vote at the Special Meeting?

A:             Two different categories of voters are entitled to vote at the Special Meeting.

·       All holders of Common Stock of record as of the close of business on [                ], 2006, which we refer to as “the record date,” as well as all holders of Preferred Stock as of the record date, will be entitled to notice of, and to vote at, the Special Meeting. These two categories of voters will be combined into one group in voting on the two ballot measure proposals. The holders of Preferred Stock will be treated as if they converted each share of Preferred Stock into one share of Common Stock with one vote per share for purposes of voting together with the owners of Common Stock. On the record date, approximately 10,877,087 shares of Common Stock, held by approximately 700 stockholders of record (excluding beneficial owners and any shares held in street name or by nominees), together with 4,090,908 shares of Preferred Stock, held by seven stockholders of record, were outstanding and entitled to vote on the two ballot measure proposals.

·       All holders of the Preferred Stock as of the record date will be voting a second time—as a group by itself, separate and apart from the holders of Common Stock—on the first ballot measure proposal, in approving and adopting the Merger Agreement and the Merger. On the record date, 4,090,908 shares of Preferred Stock, held by seven stockholders of record, were outstanding and entitled to vote a second time on the first ballot measure proposal, in approving and adopting the Merger Agreement and the Merger.

No matter which type of stockholder you are, you may vote all shares of Artemis stock that you owned as of the record date. You are entitled to one vote per share of Common Stock and Preferred Stock that you hold.

Q:             What do I need to do now?

A:             We urge you to read this proxy statement carefully, including its annexes, consider how the Merger would affect you as a stockholder and then vote or provide voting instructions as described below.

Q:             How do I vote?

A:             If you hold a stock certificate in your name for Artemis’ stock, you are the owner of record of the shares evidenced by that certificate. If you are a stockholder of record, you may attend the Special Meeting and vote in person. Alternatively, you may vote by proxy via mail, by marking, signing, dating and mailing each proxy card and returning it in the envelope provided.

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Q:             If my broker holds my Common Stock shares in “street name,” will my broker vote my shares for me?

A:             If you hold shares of Common Stock in the name of a broker or financial institution, you are a beneficial owner, and the broker or financial institution holding your shares is the record holder of your shares. This is often referred to as holding stock in “street name.” If your shares of Common Stock are held in street name, you must follow the voting directions given by the broker or financial institution regarding how to instruct the broker or financial institution to vote your shares. Without those instructions, your shares will not be voted, which will have the same effect as voting against the Merger. If your shares are held in street name and you wish to attend and vote at the Special Meeting in person, you must bring an executed power of attorney or proxy in your name that has been signed by the record holder of your Artemis shares. Please contact your broker or financial institution for this information.

Q:             What should I do if I receive more than one set of voting materials?

A:             You may receive more than one set of proxy materials, including multiple copies of this proxy statement and multiple proxy or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares of Common Stock. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. In addition, if you are a holder of both Preferred Stock and Common Stock, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive.

Q:             What if I want to change my vote after I have voted?

A:             You may revoke your proxy or change your vote at any time before the final vote at the Special Meeting or any adjournment or postponement of the Special Meeting. If you are the owner of record, you may do this by:

·       Giving written notice of revocation to the Corporate Secretary, Artemis International Solutions Corporation, 4041 MacArthur Boulevard, Suite 401, Newport Beach, California 92660;

·       Signing another valid proxy bearing a later date; or

·       Voting in person at the Special Meeting.

If you hold stock in street name, you must contact your broker or financial institution for information on how to revoke your proxy or change your vote.

Q:             What happens if I do not send in my proxy, if I do not instruct my broker to vote my shares or if I abstain from voting?

A:             If you do not send in your proxy, if you do not instruct your broker to vote your shares, or if you abstain from voting, it will have the same effect as a vote against the approval and adoption of the Merger Agreement and the Merger.

Q:             How are votes counted?

A:             For the proposal relating to the approval and adoption of the Merger Agreement and the Merger, as well as for the proposal to adjourn or postpone the meeting if necessary or appropriate to solicit additional proxies, you may vote “FOR,” “AGAINST” or “ABSTAIN.”

If you sign and return your proxy card without indicating your vote, your shares will be voted “FOR” the approval and adoption of the Merger Agreement and the Merger and “FOR” any proposal to adjourn or postpone the meeting, if necessary or appropriate to solicit additional proxies.

A broker non-vote generally occurs when a broker, bank or other nominee holding Common Stock shares on your behalf does not vote on a proposal because the nominee has not received your voting

11




instructions and lacks discretionary power to vote the shares. Broker non-votes and abstentions will not count as votes cast on a proposal, but will count for the purpose of determining whether a quorum is present at the meeting. As a result, because approval and adoption of the Merger Agreement and the Merger requires the affirmative vote of a majority of the outstanding shares of our Common Stock combined with the outstanding shares of our Preferred Stock, broker non-votes and abstentions will have the same effect as a vote “AGAINST” the approval and adoption of the Merger Agreement and the Merger. Broker non-votes and abstentions will not count as votes cast on the proposal to adjourn or postpone the meeting, if necessary or appropriate, to solicit additional proxies. Accordingly, broker non-votes and abstentions have no effect on any proposal to adjourn or postpone the meeting, if necessary or appropriate, to solicit additional proxies if a quorum is present at the Special Meeting. However, because adjournment of a stockholder meeting in the absence of a quorum requires the affirming vote of a majority of shares present in person or by proxy, a broker non-vote or an abstention in the absence of a quorum will have the same effect as a vote “AGAINST” any proposal to adjourn or postpone the meeting.

Q:             Who will bear the cost of this solicitation?

A:             We will pay the cost of this solicitation, which will be made by mail. We will, on request, reimburse stockholders who are brokers, banks or other nominees for their reasonable expenses in forwarding proxy materials to the beneficial owners of the shares they hold of record.

Q:             Where can I find more information?

A:             We file periodic reports and other information with the Securities and Exchange Commission (the “SEC”). You may read and copy this information at the SEC’s public reference facilities. Please call the SEC at 1-800-SEC-0330 for information about these facilities. This information is also available on the Internet site maintained by the SEC at http://www.sec.gov. For a more detailed description of the information available about Artemis, see the section of this proxy statement entitled “Where You Can Find More Information” on page 90.

Q:             Whom should I call if I have questions or want additional copies of documents?

A:             If you have any questions about the proposed Merger or this proxy statement, or if you would like additional copies of this proxy statement or the proxy card, you should call (949) 660-6500.

CAUTIONARY/SAFE HARBOR STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement, and the documents to which we refer you in this proxy statement, contain forward-looking statements based on certain estimates and assumptions. Forward-looking statements include information concerning the expected completion and timing of the Merger and other information relating to the Merger. There are forward-looking statements throughout this proxy statement, including under the headings “Summary Term Sheet,” “The Proposed Merger,” “Special Factors—Opinion of Cowen & Co., LLC Regarding the Transaction” and in statements containing the words “believes,” “plans,” “expects,” “anticipates,” “intends,” “estimates” or other similar expressions. For each of these statements, we invoke the protection of the safe harbor for forward-looking statements afforded by the Private Securities Litigation Reform Act of 1995. You should be aware that forward-looking statements involve various known and unknown risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on the business or operations of Artemis. These forward-looking statements speak only as of the date on which the statements were made and, except as may be required by applicable law, we undertake no obligation to update or revise any forward-looking statements made in this proxy statement or elsewhere as a result of new information, future events or otherwise.

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In addition to other factors and matters contained or incorporated by reference in this document, we believe the following uncertainties and risk factors could cause actual results and/or the anticipated timing of the Merger to differ materially from those discussed in the forward-looking statements:

·       the satisfaction of the conditions to consummate the Merger, including the receipt of the required stockholder or regulatory approvals;

·       the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;

·       the failure of the Merger to close for any other reason;

·       the amount of the costs, fees, expenses and charges related to the Merger;

·       the occurrence of a material adverse effect on the business, operations, assets, liabilities or results of operations of Artemis, taken as a whole, including as a result of one or a combination of any of the following:

·        our reliance on significant relationships with a small number of customers, and the loss of any of those customers or significant reductions in their purchases of our products;

·        changes in our relationships with vendors and other sources of materials, parts and supplies, including adverse changes in their financial viability;

·        delays in our receipt of materials, parts and supplies due to work stoppages or other causes of delay in connection with either the manufacture or shipment of such items;

·        our ability to successfully develop and market our products in a volatile, competitive industry characterized by rapidly changing prices, technologies and customer demand;

·        relationships with companies in the electronic, computing and communications industry;

·        price erosion due to competition;

·        risks associated with having significant operations located in foreign countries;

·        risks associated with the sale of our products in foreign countries;

·        changes in key management personnel;

·        changes in government or regulatory requirements;

·        litigation that may have an adverse effect on our financial results or reputation;

·        intellectual property infringement claims that might be costly to resolve;

·        the protection of our intellectual property and the costs of such protection;

·        current political and general economic conditions or changes in such conditions;

·        terrorist activities in the U.S. or abroad; and

·        political, social, economic or other events resulting in the short- or long-term disruption in business at our facilities or offices; and

·       the risks, uncertainties and other factors set forth in our reports and documents filed with the SEC (which should be read in conjunction with this proxy statement; see “Where You Can Find More Information” on page 90).

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COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION

Our Common Stock is quoted on the OTCBB administered by NASDAQ. From April 4, 2000 until June 28, 2001, our Common Stock was listed on the NASDAQ National Market under the symbol “OPUS.” Since June 29, 2001, our Common Stock has been quoted on the OTCBB, whereby effective November 25, 2001, the trading symbol was changed to “AISC.” Subsequent to the Company’s one for twenty-five reverse stock split on February 7, 2003, the trading symbol was changed to “AMSI.” All information regarding our Common Stock, stock options, warrants and related per share amounts has been restated within this proxy statement to reflect the February 7, 2003 reverse stock split.

Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (commonly referred to as the “penny stock rules”), impose sales practice and disclosure requirements on certain broker-dealers who engage in certain transactions involving a “penny stock.” Subject to certain exceptions, a penny stock generally includes any non-NASDAQ equity security that has a market price of less than $5.00 per share. The closing market price of our Common Stock on the OTCBB during the fourteen months ended February 28, 2006 has ranged between a high of $3.87 and a low of $0.90 per share, and our Common Stock is thus deemed to be penny stock for purposes of the Exchange Act. The additional sales practice and disclosure requirements imposed upon broker-dealers may discourage them from effecting transactions in our Common Stock, which could severely impair the liquidity of our stock in the secondary market.

At March 17, 2006, the number of stockholders of record was approximately 700 (excluding beneficial owners and any shares held in street name or by nominees). The following table sets forth the quarterly high and low sales prices based on bid quotations per share, as retroactively adjusted for the aforementioned reverse stock split.

 

 

Artemis
International
Solutions Corp

 

 

 

High

 

Low

 

YEAR ENDED DECEMBER 31, 2005

 

 

 

 

 

First Quarter

 

$ 3.10

 

$ 2.55

 

Second Quarter

 

3.25

 

2.40

 

Third Quarter

 

3.00

 

1.80

 

Fourth Quarter

 

2.10

 

0.83

 

YEAR ENDED DECEMBER 31, 2004

 

 

 

 

 

First Quarter

 

2.00

 

1.35

 

Second Quarter

 

3.15

 

1.35

 

Third Quarter

 

2.50

 

1.90

 

Fourth Quarter

 

3.20

 

1.90

 

 

The closing price for our Common Stock was:

·       $1.35 on March 9, 2006, the last trading day prior to the date we entered into the Merger Agreement; and

·       $    .     on April     , 2006, the last trading day before the date of this proxy statement.

The above over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

Dividend Policy

We do not anticipate paying cash dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and the expansion of our business. Any determination to pay

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cash dividends in the future will be at the discretion of our board of directors and will be dependent upon our financial condition, operating results, capital requirements, general business conditions, restrictions imposed by financing arrangements, legal and regulatory restrictions on the payment of dividends and any other factors that our board of directors deems relevant.

In August, 2003, the Company obtained a revolving credit facility with Laurus. Under the Security Agreement executed in connection with the revolving credit facility, the Company may not directly or indirectly declare, pay or make any dividend or distribution on any class of its stock, except for indebtedness subordinated to Laurus.

On June 16, 2004, the Company completed a private placement of $9.0 million of convertible Preferred Stock. So long as at least 30% of the Preferred Stock is outstanding, the Company cannot, directly or indirectly, redeem, declare or pay any cash dividend or other distribution on the Common Stock without the prior express written consent of the holders of at least a majority of the Preferred Stock.

FINANCIAL FORECASTS

Our Financial Forecasts

As a matter of policy, we do not publicize forecasts or projections of future performance or results of operations. However, management prepared the financial forecasts for the years ending December 31, 2006 and 2007 (which we refer to in this section as “Financial Forecasts”) set forth below in good faith and in the ordinary course of our business for use by us in our business. The Financial Forecasts were not prepared with a view towards public disclosure or compliance with any published rules/regulations of the SEC, the guidelines established by the American Institute of Certified Public Accountants for Prospective Financial Information or accounting principles generally accepted in the United States of America (“GAAP”). Our independent registered public accounting firm has not examined or compiled the Financial Forecasts or expressed any form of assurance with respect to the Financial Forecasts and, accordingly, assume no responsibility for them. The Financial Forecasts are included below solely for the purpose of giving our stockholders access to the same non-public information that was provided to our special committee, our board of directors, Cowen, Trilogy and all other bidders.

The Financial Forecasts with respect to fiscal years 2006 and 2007 are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those statements and should be read with caution. The Financial Forecasts are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and recent developments. While presented with numerical specificity, the Financial Forecasts are based upon a variety of estimates and hypothetical assumptions made by our management. Some or all of the assumptions may not be realized, and they are inherently subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond our control. Accordingly, there can be no assurance that the assumptions made in preparing the Financial Forecasts will prove accurate, and actual results may materially differ. In addition, the Financial Forecasts do not take into account any of the transactions contemplated by the Merger Agreement, including the Merger and Merger-related expenses and fees, which may also cause actual results to materially differ.

15




Because of the reasons described above, the inclusion of the Financial Forecasts in this proxy statement should not be regarded as an indication that the Financial Forecasts represent an accurate prediction of future events, and they should not be relied on as such. No one has made, or makes, any representation to any stockholder regarding the information contained in the Financial Forecasts and, except as required by applicable securities laws, we do not intend to update or otherwise revise the Financial Forecasts to reflect circumstances existing after the date prepared or to reflect the occurrence of future events even if any or all of the assumptions are shown to be in error.

ARTEMIS INTERNATIONAL SOLUTIONS CORPORATION
Consolidated Financial Highlights

 

 

Historical Financial Data
Years Ended December 31,

 

Financial Forecasts
Years Ending
December 31,

 

 

 

2001

 

2002

 

2003

 

2004

 

2005

 

2006

 

2007

 

Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

$ 15,105

 

$ 15,070

 

$ 13,286

 

$ 13,055

 

$ 11,487

 

$ 14,650

 

$ 17,900

 

Support

 

15,512

 

15,690

 

16,568

 

17,186

 

17,248

 

16,415

 

16,876

 

Services

 

37,029

 

37,904

 

27,437

 

22,204

 

18,630

 

18,716

 

19,182

 

 

 

67,646

 

68,664

 

57,291

 

52,445

 

47,365

 

49,781

 

53,958

 

Cost of revenue

 

33,097

 

32,710

 

26,029

 

23,490

 

20,410

 

19,801

 

19,667

 

% Margin

 

48.9

%

47.6

%

45.4

%

44.8

%

43.1

%

39.8

%

36.4

%

Gross margin

 

34,549

 

35,954

 

31,262

 

28,955

 

26,955

 

29,980

 

34,290

 

% Margin

 

51.1

%

52.4

%

54.6

%

55.2

%

56.9

%

60.2

%

63.6

%

Operating expenses

 

101,032

 

39,700

 

39,354

 

38,508

 

31,603

 

25,866

 

25,216

 

% Margin

 

149.4

%

57.8

%

68.7

%

73.4

%

66.7

%

52.0

%

46.7

%

Operating income (loss)

 

(66,483

)

(3,746

)

(8,092

)

(9,553

)

$ (4,648

)

$ 4,115

 

$ 9,074

 

% Margin

 

-98.3%

 

-5.5%

 

-14.1%

 

-18.2%

 

-9.8%

 

8.3

%

16.8

%

 

SPECIAL FACTORS

Purpose and Structure of the Merger

We entered into the Merger Agreement, which contemplates the acquisition of us by Trilogy, to permit our stockholders to realize a significant premium over historical market prices for our shares. The transaction has been structured as a Merger to facilitate completion of the transaction in an efficient manner as part of a single-step acquisition. Structuring the transaction as a Merger provides our stockholders the opportunity to vote on the transaction, and the Merger will be completed only if holders of a majority of our outstanding shares, where the holders of our Common Stock are voting together with holders of our Preferred Stock as a combined class of voters, while holders of our Preferred Stock are voting as a separate class, vote to adopt the Merger Agreement. Holders of a majority of the Common Stock and Preferred Stock have executed the Voting Agreements pursuant to which they have agreed to vote their shares in favor of the merger and have granted certain Trilogy employees proxies to vote their shares, subject to termination of the Voting Agreements.

Background of the Merger

Since the inception of Artemis in 2001 as a publicly traded company, we have incurred substantial operating and net losses, as well as (except for calendar 2002 and 2005) negative operating cash flows. As a result, the independent auditor’s reports accompanying our consolidated financial statements starting with our Annual Report on Form 10-K for the year ended December 31, 2001 have contained an explanation that our financial statements have been prepared assuming that we will continue as a going concern. That is, we have been at risk in our ability to continue operating as a going concern for some time, nearly always

16




being subject to our ability to raise working capital, streamline our operations and increase revenues. For substantial periods of this time (prior to the public announcement of the proposed Merger with RCN), our shares have traded at price levels below the Merger price of $1.60 per share.

Prior to late 2004, our board of directors was hopeful that we could significantly increase our market value, and thus the return to our investors, through our operating results. Our board, while recognizing that the sale of Artemis at the right time and under the right conditions could be beneficial to our stockholders, had deferred pursuing a sale because of the inherent uncertainty as to the outcome of the process of soliciting bidders as well as the potential disruption that process could cause and its potential for diverting the time and attention of senior management. By late 2004, however, our board became increasingly concerned with the continued going concern risk, the Company’s cash position, and the continuing need to raise operating capital. Our board recognized that pursuing certain options in raising capital could significantly dilute the ownership of our current stockholders, including those holding our Common Stock and our Preferred Stock.

On January 7, 2005, our board of directors unanimously approved the creation of a special committee, consisting of David Cairns, Joe Liemandt and Pekka Pere, which was charged with exploring strategic alternatives including but not limited to raising additional capital or pursuing a sale, and which would identify possible financial advisors that could assist the Company in exploring such alternatives. On January 17, 2005, the special committee convened and established its operating procedures. The special committee identified various investment banks that would be interviewed for the advisory role. In early February, the special committee met with various advisors confidentially and solicited their views on strategy.

The special committee recommended to our full board of directors at a board meeting held on February 17, 2005 that the Company engage in a process to explore an outright sale, and that the board of directors hire Cowen as its financial advisor. The special committee was concerned that raising capital at that time and waiting to sell the Company outright at a later date, was too risky. The special committee cautioned that such a delay would leave little room for operational under-performance, and also questioned the Company’s ability to raise sufficient levels of financing without significantly diluting the then current holders of our stock. In addition, the committee expressed concern that the market in which the Company operates would become increasingly competitive and/or that the multiples on valuations for outright sales, which recently were being achieved, would begin to deteriorate. The special committee also recognized that the new Sarbanes-Oxley requirements that had become effective for all public companies on July 30, 2002, and the significant amount of new SEC regulations being adopted under that statute, were likely to require significant increases in our ongoing expenses (including legal and accounting fees) of remaining a publicly-traded company.

At a meeting of the board of directors on February 17, 2005, our board accepted the recommendation of the special committee and concluded that the alternatives the board had been evaluating, other than the outright sale of Artemis, were not likely to meaningfully enhance long-term stockholder value. The other alternatives that had been explored presented too much risk in achieving increased institutional interest in our stock, improved analyst coverage and/or increased trading volume and price of our stock in the long-term. Cowen was then retained by the board to assist the Company in identifying and contacting potential acquirors of Artemis, and to assist the Company in determining the level of interest in such a transaction.

During April 2005, Cowen began contacting potential acquirors on behalf of the Company. Through July 2005, thirty-five strategic parties and thirteen financial sponsors were contacted on behalf of the Company. Of the thirty-five strategic parties initially contacted, three expressed interest in Artemis and executed confidentiality agreements, nine other parties were still reviewing the acquisition opportunity and had not yet responded as to whether they were interested, and 23 companies had expressed no interest in acquiring Artemis. Of the thirteen financial sponsers initially contacted, six parties were still reviewing the acquisition opportunity and had not yet responded as to whether they were interested, four parties were

17




still reviewing the opportunity but had executed confidentiality agreements, and three parties had expressed no interest in acquiring Artemis.

Our board met again on August 2, 2005 to deliberate further with respect to strategic alternatives, and the board agreed that the Company should continue to explore an outright sale of the Company. A “virtual data room” was created by which interested parties could gain access via the Internet on a strictly confidential basis, in order to begin their respective due diligence reviews of the Company. This data room was accessible by late August, 2005. In August, management conducted a series of conference calls with interested parties. At the same time, Cowen continued to contact parties that were determined might be interested in pursuing the transaction.

As of September 7, 2005, thirty-six strategic parties and thirty-three financial sponsors were contacted on behalf of the company. Three of the potential strategic partners that had participated in conference calls with our management were contacted, but none of the strategic partners contacted submitted an indication of interest. Of the thirty-three financial sponsors, sixteen of them had participated in conference calls with our management, and eleven of the financial sponsors submitted an indication of interest, all of which had executed confidentiality agreements.

Our management then worked with Cowen in identifying four of the eleven financial sponsors that had submitted an indication of interest in early September to remain as potential acquirors of Artemis as part of the sale process. The top four sponsors indicating the highest ranges of enterprise value for Artemis were identified, with the following ranges of implied price per share of our Common Stock: (i) $3.32-$3.88; (ii) $3.04-$3.60; (iii) $2.46-$2.75; and (iv) $2.16-$2.75. (In each indication of interest, any price per share to be paid to holders of our Common Stock at a value of $2.21 or higher would also apply to holders of our Preferred Stock under the rights they hold.) These four sponsors were invited to conduct additional due diligence and meet with our management.

During the week of September 19, 2005, representatives of each of these four financial sponsors spent one full day respectively in person with Patrick Ternier, our President and Chief Executive Officer, and Robert Stefanovich, our Executive Vice President and Chief Financial Officer, as well as with a representative of Cowen, for the purpose of engaging in additional diligence, as part of the sale process.

Mr. Ternier reported the progress of the sale process to our board in a meeting of our board of directors on September 27, 2005. The board instructed management to request the four remaining financial sponsors to submit revised bids for the Company as soon as practicable, given the needs of the sponsors in conducting additional diligence. The financial sponsors were contacted and October 12, 2005 was set as the deadline to submit revised bids to acquire the Company. During the week of October 12, 2005, management conducted conference calls with all four financial sponsors to provide them with an overview of the third quarter results, which were materially worse than results previously presented by management.

On October 17, 2005, our board of directors met to consider the revised proposals submitted by the four remaining financial sponsors. The two sponsors which had submitted the lowest ranges in early September elected not to submit a revised proposal. The other two remaining financial sponsors submitted substantially reduced bids. The previous top bidder submitted an “at market” offer, a price per share (Common Stock) of $2.00. The number two bidder from early September now had submitted the highest offer, with an implied price per share (Common Stock) of $2.54. The withdrawal of the two lowest bidders and the reduced bids of the other two were due to the revenue shortfall for the third quarter of 2005, as compared to projected revenue.

In light of the two sponsors dropping out of the process, the board determined that two other financial sponsors that had previously submitted lower indications of interest in early September would now be considered potential alternate bidders: both financial sponsors had indicated they could move quickly in submitting a revised bid should circumstances change. The board directed the Company’s chairman of the

18




board of directors, Pekka Pere, to meet with the remaining financial sponsors, and to oversee and participate in further negotiations in an attempt to secure a higher bid.

Mr. Pere proceeded to meet in person later during the week of October 17, 2005, with the two top remaining financial sponsors, as well as with one of the alternate financial sponsors. The alternate financial sponsor informed Mr. Pere that it would not submit a new bid. Neither of the two remaining financial sponsors was willing to increase its reduced bid, due to the Company’s revenue shortfall for the third quarter of 2005.

Our board of directors held a meeting on October 24, 2005, during which Mr. Pere advised the board of his discussions with the financial sponsors. After deliberation regarding the situation, the board instructed management and Cowen to negotiate on behalf of the Company with the top bidder of the remaining two financial sponsors to obtain the best possible deal.

Our management and a representative of Cowen negotiated with the top bidder, in an effort to obtain an increased purchase price in selling Artemis. On November 1 and 2, 2005, Messrs. Ternier and Stefanovich met in person with representatives of the top bidding financial sponsor, including a representative of the sponsor’s bank. Messrs. Ternier and Stefanovich reviewed in detail with the representatives of the sponsor multiple financial scenarios that we would be facing in the upcoming months. The sponsor integrated those possible performance outcomes into its various modeling scenarios. In this regard, the financial sponsor was informed of the risks associated in acquiring Artemis. Mr. Ternier then engaged in a number of telephonic meetings with the financial sponsor the following week (week of November 7, 2005). During this time, the top bidder had retained outside counsel that began to negotiate with Artemis regarding the legal documents that would encompass the sales transaction. In addition, the top finalist continued its due diligence process.

At the meeting of our board of directors on December 5, 2005, Cowen reported that during the week of November 21, 2005, the top financial sponsor communicated it was lowering its bid to $1.50 per share of Common Stock. The financial sponsor had concluded that in order to maximize the valuation of Artemis, the sponsor would need to pair the Company with another operating company, meaning the sponsor would have to incur the expense of acquiring a second operating company. The bid also included an offer to buy all the shares of our Preferred Stock at a price of $2.20 per share, equal to the “liquidation preference” of the Preferred Stock. The liquidation preference of the Preferred Stock is a right of the holders of Preferred Stock (contained in the certificate of incorporation of the Company) to receive at least $2.20 per share in the event of a change in control of the Company regardless if the amount paid per share of Common Stock is less than that amount. All subsequent bids under $2.20 per share for the Common Stock included purchasing the Preferred Stock at $2.20 per share.

At the meeting of our board of directors on December 5, 2005, our board received an update regarding the sale process from management and Cowen. During the meeting of our board of directors, our outside legal counsel, Kirkpatrick & Lockhart Nicholson Graham, LLP (which we refer to in this proxy statement as Kirkpatrick & Lockhart), discussed the board’s fiduciary duties with respect to a potential sale of the Company. The board directed our management and Cowen to continue the sale process and attempt to obtain a higher price in selling the Company.

On December 14, 2005, our board of directors held a meeting to discuss and deliberate regarding any further developments in the sale process. The board received an update regarding the sale process from management and Cowen. No new bids had been submitted by any parties, despite continuing contact with financial sponsors from the original contact list. During this time, the previously identified current top bidder continued its due diligence process. Mr. Pere asked whether the then current top bidder would be willing to allow our majority stockholder, Proha, to participate in a merger transaction (sale) as far as retaining an ownership interest in Artemis. The then current top bidder had previously indicated it would be comfortable allowing Proha to participate at a certain level of ownership in Artemis as part of the

19




merger. Our Kirkpatrick & Lockhart attorneys explained to our board members that if Proha was indeed interested in participating in any such merger, the Artemis board members who are associated with Proha—Mr. Pere, who serves as the CEO of Proha, and Olof Odman, who serves as Proha’s Chairman of its board of directors—would have to recuse themselves from any Artemis board deliberations pertaining to an offer involving Proha’s participation. Messrs. Pere and Odman excused themselves from the meeting and the disinterested members of the Artemis board of directors discussed the proposal. The disinterested members of the board directed our management and Cowen to continue to pursue the sale process, including the potential participation of Proha.

From December 14 through December 23, 2005, the current high bidder had several discussions with management of the Company and representatives of Cowen. The bidder agreed to change the terms of the merger agreement to allow Proha to retain a percentage of ownership in Artemis. On December 23, 2005, the bidder orally indicated that it might be able to increase its bid to $1.58 per share (Common Stock). However, the sponsor had communicated that it would not be in a position to finalize the merger documents until some time in January due to vacation schedules coupled with the year end holidays.

Our board of directors held its next meeting on December 29, 2005. After a brief update from management and Cowen, Messrs. Pere and Odman exited the Artemis board meeting, as advised by our Kirkpatrick & Lockhart attorneys. The disinterested members of the Artemis board continued with the meeting. They deliberated on the question of whether Artemis should continue negotiating with the current high bidder. The disinterested board members unanimously concluded that proceeding with the sale process at that valuation with the then current top bidder was the best available option for Artemis at that point, considering the risks associated with the continued operation as a publicly traded company (with exposure to receiving another audit report which included a paragraph expressing substantial doubt about our ability to continue as a “going concern”).

On January 11, 2006, the high bidder communicated a new offer of $1.30 per share of Common Stock, as a result of its continued due diligence and valuation of the Company. During this same time period, Artemis and the financial sponsor continued to negotiate the terms and conditions of the merger agreement form, as well as other related legal documents. The financial sponsor also was engaged with our majority stockholder, Proha, in negotiating a voting agreement relating to the merger agreement. One of the terms at issue in both the voting agreement and the merger agreement pertained to whether Proha would be permitted to solicit and negotiate other proposals after the execution of a definitive merger agreement. The offer as currently structured did not permit such solicitation or negotiations. In the meantime, management of Artemis and representatives of Cowen continued informal discussions with the alternate financial sponsor that had completed its due diligence in late December. Management of Artemis and representatives of Cowen were also engaged in discussions with two other financial sponsors from the group originally contacted. However, neither had submitted or indicated that they would submit a formal bid.

Our board of directors held a meeting on January 17, 2006, which was adjourned and continued on January 18, 2006. The chairman of the board presented preliminary terms for an alternative transaction. Messrs. Pere and Odman then excused themselves from the Artemis board meeting. The disinterested members of the Artemis board continued with the meeting. The board considered the $1.30 price per share offer from the top financial sponsor, as well as the informal suggestions of a much lower price from the other financial sponsor that had completed its due diligence. The disinterested members of the Artemis board discussed and weighed the possibility that the then current top financial sponsor, with the bid price of $1.30 per share, might withdraw its offer if the Company failed to accept it within a matter of days. The disinterested members of the board concluded that management and Cowen should keep working to obtain a higher purchase bid, as well as the ability for our majority stockholder to continue shopping for a superior proposal after the execution of a definitive merger agreement.

20




On January 24, 2006, the then current high bidder submitted a revised offer letter. The financial sponsor presented two alternative options as part of the revised bid: (i) an increase in the purchase price per share (Common Stock) to $1.39; or (ii) retaining the purchase price per share at the $1.30 value, but allowing Proha, as our majority stockholder, to shop for a superior transaction after the signing of a definitive merger agreement. The financial sponsor indicated in the formal offer letter that the sponsor was prepared to execute a definitive merger agreement on or prior to January 27, 2006.

On January 26, 2006, the then current high bidder again submitted a revised offer letter, nearly identical to the previous letter, but this time noting that the financial sponsor was prepared to execute the legal documents encompassing the merger (sale) on or prior to January 30, 2006. Our board of directors convened a meeting on January 27, 2006. The board of directors was informed that the financial sponsor had communicated that the Proha shop provision applying to the pricing alternative of $1.30 per share would be good for a twenty-one day period after acceptance of the offer. Our disinterested board members asked Cowen to continue negotiating on behalf of the Company with the financial sponsor to expand the shopping period and reduce the $925,000 termination fee.

One of the original top eleven financial sponsors from early September that had recently re-entered the sale process then joined the meeting to discuss that sponsor’s renewed interest in Artemis. That sponsor indicated an apparent interest at the $1.50 per share (Common Stock) level, but had not yet formally submitted such an offer. That sponsor proceeded to present its viewpoints on the Company, and the parties engaged in a thorough discourse as to a possible merger. The sponsor communicated it was very interested in pursuing a transaction, and committed to finalizing its due diligence process, within a three-week period.

Cowen then reported to the board that it had just completed a number of telephonic communications (during the board meeting) with the then current high bidder. The top bidding financial sponsor had agreed to increase the 21-day shop provision to approximately five weeks from the date the definitive merger documents are signed. However, the termination fee would remain at $925,000. The board adjourned, but continued its meeting on January 29, 2006. After a brief update, Messrs. Pere and Odman exited the Artemis board meeting.

The disinterested members of the Artemis board continued with the meeting. They deliberated on the question of whether Artemis should accept either or both of the pricing alternatives offered by the top financial sponsor, especially in light of the potential competing offer. The disinterested members determined to continue to pursue both pricing alternatives, given that Proha as the majority stockholder would have to approve one of the two alternatives, and the Artemis board did not know which alternative, if either, the Proha board would accept. In addition, the board determined to continue pursuing the potential competing offer, understanding that with an open solicitation/negotiation period, even executing a definitive merger agreement would not necessarily preclude the competing offer. The disinterested members directed management and Cowen to continue its discussions with these two financial sponsors.

On January 31, 2006, Proha informed the Company that its board had agreed to support the pricing alternative of $1.30 per share (Common Stock), where Proha would have the right to shop for a superior proposal for a period of about five weeks once the definitive merger documents were signed. Artemis promptly informed the top financial sponsor of the Proha board’s support in that regard, and management, the Kirkpatrick & Lockhart lawyers and Cowen attempted to finalize the definitive merger agreement.

The top financial sponsor and Artemis immediately began to conclude negotiations of and finalize the legal documents encompassing the merger. After a number of days, the primary issue that remained open was the language that would govern Proha’s ability to shop the deal for the five-week period. Proha and the financial sponsor had difficulty reaching agreement on that issue, which effectively precluded those parties from reaching final agreement that would otherwise be necessary for Artemis and the financial sponsor to finalize negotiations and execute definitive documents.

21




On February 7, 2006, our board of directors convened a meeting and received an update from management, Cowen and our Kirkpatrick & Lockhart attorneys as to the progress of the negotiations. By the end of the meeting, our board and advisors had identified a potential compromise on the primary open issue. Our board then directed management and Cowen to broach the compromise with the financial sponsor in an effort to finalize the negotiations.

On February 8, 2006, Trilogy submitted an offer regarding an acquisition. Trilogy offered to buy all shares of Common Stock at $1.50 per share and all shares of Preferred Stock at $2.20 per share, and would provide Proha with a right to shop for a superior proposal for a thirty-five day period after definitive documents were signed. Trilogy expressed confidence that it could complete its due diligence process within one week. On February 9, 2006, our board of directors convened to discuss the offer. Our Kirkpatrick & Lockhart attorneys advised that Joe Liemandt should exit the meeting, prior to the Artemis board deliberating on the Trilogy offer. Mr. Liemandt serves as a director of the Artemis board, and also serves as the Chairman of the board of directors, CEO and President of Trilogy, which wholly owns Trilogy Capital Holdings Corporation (f/k/a Samuelson Investment Inc.), a holder of Preferred Stock of Artemis. The Proha representatives and Mr. Liemandt then exited the meeting prior to any deliberations by the disinterested members of the Artemis board on the Trilogy offer.

The disinterested members of the Artemis board then directed management and Cowen to (i) go back to Trilogy in an effort to obtain a lower termination fee and finalize negotiations and (ii) go back to the previous high bidder—the top financial sponsor—to discern if the sponsor would increase its previous offer, and top the offer from Trilogy. Cowen reported to the board that the two financial sponsors which had recently re-entered the sale process were still interested in the Company. The board directed management and Cowen to continue in its discussions with those two sponsors, in an effort to obtain a formal bid higher than the then current bid from Trilogy.

During the next week, Trilogy completed nearly all of its due diligence on the Company. In addition, Trilogy and Artemis negotiated terms pertaining to the legal documents that would encompass the merger. On February 16, 2006, the Company retained Fredrick M. Joseph as an independent consultant. Mr. Joseph is a former employee of Cowen who was extensively involved in the proposed transaction.

On February 17, 2006, Trilogy submitted a new offer, including: (i) an increase in the per share (Common Stock) value, from $1.50 to $1.60; (ii) a reduction in the termination fee, from $925,000 to $500,000; (iii) the elimination of the Proha shop-right provision; and (iv) an expiration time of later that evening, midnight Eastern time.

Also on February 17, 2006, the Company received a letter of intent by which one of the two financial sponsors that had re-entered the sale process submitted an indication of interest at the level of $1.50 per share (Common Stock), with a proposed structure that would allow Proha to retain its ownership interest in Artemis. That letter also included a provision by which the sponsor was demanding to be reimbursed for certain due diligence costs, and indicated that the period required to complete due diligence would be thirty days.

On February 17, 2006, our board convened a meeting. The disinterested Artemis board members agreed that the Artemis board should pursue the latest Trilogy offer. The disinterested members then asked Mr. Joseph to (i) approach the Proha board representatives in an effort to have Proha disclose the specific terms by which it would be amenable to an offer from Trilogy; and (ii) concurrently approach Trilogy in an effort to have Trilogy agree to extending the time frame by which its current offer was to expire.

On February 19, 2006, the board received a revised letter of intent from the financial sponsor that had submitted a letter of intent on February 17, 2006 at the $1.50 per share value (Common Stock). This revised letter increased the value from $1.50 to $1.60. The revised letter retained the terms by which the

22




sponsor was demanding to be reimbursed for certain due diligence costs, and indicated that the period required to complete due diligence would be thirty days. The letter also specified that the offer would expire as of 5:00 p.m. Pacific time on February 20, 2006.

On February 20, 2006, Trilogy revised its offer, increasing the per share value to $1.70 (Common Stock). The other core terms remained the same: (i) a termination fee of $500,000; and (ii) no Proha shop-right provision. The new Trilogy offer would remain open through February 22, 2006, expiring at 6:00 p.m. Eastern time.

The board commenced a meeting on February 20, 2006, with Mr. Liemandt not participating. The disinterested Artemis board members determined to continue to pursue the latest Trilogy offer of $1.70 per share (Common Stock). The board members also asked Mr. Joseph and Cowen to approach the financial sponsor with a current bid of $1.60 per share, in an attempt to obtain a purchase price that would top Trilogy’s then current offer of $1.70, and to determine whether that sponsor would be willing to commit to completing its due diligence in a shorter time period. Later that day, the financial sponsor communicated that it was not interested in increasing its offer of $1.60, nor was it willing to shorten the period of time it had indicated would be required to complete its diligence process.

On February 22, 2006, Trilogy submitted a new offer, by which two alternative values to buy out our holders of Common Stock were presented as options to us as part of the revised bid: (i) maintaining the purchase price per share of $1.70; or (ii) offering a purchase price per share of $1.60, but allowing Proha to shop for a superior proposal, with such right to expire on March 17, 2006. The offer at the $1.70 per share value included a termination fee of $500,000, while the alternative at the $1.60 per share value with the shop-right provision included a termination fee of $750,000. This dual offer would remain open through the end of the day on February 23, 2006.

Our board convened next on February 23, 2006. Messrs. Pere and Liemandt did not attend the meeting. The disinterested Artemis board members were interested in pursuing both of Trilogy’s pricing alternatives. The disinterested members of the Artemis board asked management and Cowen to confer with Trilogy in an attempt both to extend the expiration date of its then current offer until such time that the Proha board could convene the following week, and decide how they wished to proceed.

On March 2, 2006, the disinterested members of the Artemis board met to discuss the status of the sale process. Mr. Joseph and Cowen informed the disinterested members that Trilogy was willing to re-submit an offer consistent with the structure of its previous offer, focusing on and offering the pricing alternative at the $1.60 per share value (Common Stock) and including a Proha shop-right provision, but extending the shop right from March 17, 2006 to March 31, 2006. The disinterested board members asked Mr. Joseph and Cowen to convey the request to Trilogy to re-submit the described offer, allowing sufficient time for the Proha board to convene and consider any such new offer.

On March 3, 2006, Trilogy submitted the offer: (i) retaining the purchase price per share at the $1.60 value (Common Stock), (ii) allowing Proha, as our majority stockholder, to shop for a superior proposal, with such right to extend through March 31, 2006; and (iii) retaining the termination fee at the $750,000 level. This offer was to remain open until the close of business on March 7, 2006.

Our board convened on March 7, 2006. Mr. Liemandt did not attend the meeting. The Proha board communicated to the Artemis board that Proha would accept Trilogy’s most recent offer. The Artemis board scheduled its next meeting for March 9, 2006.

During the course of the next two days, Trilogy and the Company attempted to finalize the few remaining issues regarding the legal documents encompassing the Merger. In addition, Proha and Trilogy worked on the voting agreement that would need to be executed contemporaneous with the Merger Agreement. Trilogy was insisting on extending the payout date in closing the Laurus credit line, as the

23




payout date at that point had been set as April 30, 2006. Artemis would have to secure Laurus’ agreement to extend that payout date before an agreement in principle could be finalized.

Our board convened a meeting on March 9, 2006. Messrs. Pere and Liemandt were not in attendance. Our Kirkpatrick & Lockhart attorneys presented a presentation to the board addressing various issues pertaining to the proposed Merger. Our board adjourned the meeting that day in order for management and the Company’s advisors to continue to work toward completing all of the necessary steps to finalize the merger agreement, and scheduled to continue the board meeting the following day, March 10, 2006. After the meeting closed on March 9, 2006, and before the board continued its meeting on March 10, 2006, Laurus agreed to extend the payout date as described above, with Trilogy accepting the extended date of June 16, 2006. In addition, the holders of Preferred Stock had signed off on the required voting agreements. All of the remaining legal issues had been resolved upon commencement of the Artemis board meeting of March 10, 2006.

On March 10, 2006, the Company’s board continued it meeting from the previous day. Messrs. Pere and Liemandt were not in attendance. Members of management reviewed the proposed transaction with the disinterested members of the board, including the reasons it supported the transaction. Representatives of Cowen then presented a summary of its financial analyses related to the consideration to be received by the holders of Common Stock. Cowen then delivered its oral opinion, subsequently confirmed in writing that, as of March 10, 2006, based upon and subject to certain assumptions, qualifications, limitations and factors described in the Cowen opinion, the $1.60 in cash per share to be received by holders of our Common Stock pursuant to the Merger Agreement was fair, from a financial point of view, to the holders of our Common Stock, other than affiliates of the Company. Upon conclusion of the Cowen presentation, our board engaged management and the Cowen representatives in a thorough discourse, asking a number of questions. After thorough discussion and deliberation, our board’s disinterested members unanimously approved the Merger Agreement with Trilogy. The Merger Agreement was then duly executed by the parties or March 10, 2006.

Recommendation of Our Board of Directors; Fairness of the Merger

Three of our six directors are fully independent as defined in NASDAQ Marketplace Rule 4350. They are not employed by Artemis and have no direct or indirect interest in the Merger that is different from the interests of our stockholders generally, except for certain director indemnification rights and related insurance coverage after the Merger. Joseph Liemandt, Pekka Pere and Olof Odman are non-independent directors. Other than by virtue of unique go-shop and voting rights held by Proha, Mr. Pere, CEO and President of Proha, and Mr. Odman, Chairman of the board of directors of Proha, have no direct or indirect interest in the Merger that is different from the interests of our stockholders generally, except for certain director indemnification rights and related insurance coverage after the Merger. Mr. Pere and Mr. Odman took part in the due diligence conducted by Trilogy/RCN as well as by various other bidders that expressed interest in Artemis, but these two board members did not participate in any negotiations with Trilogy regarding any of the terms contained in the Merger Agreement (Proha’s counsel did negotiate limited matters involving Proha with Trilogy during the preliminary negotiations). Because Mr. Pere and Mr. Odman were not independent directors and had the possibility of an ongoing interest by virtue of Proha’s unique rights that differ from those held by other stockholders of the Company, they did not participate in the vote of our board of directors on the Merger Agreement. Mr. Liemandt, Chairman of the board of directors, CEO and President of Trilogy, did not take part in the due diligence conducted by Trilogy/RCN and did not participate in any negotiations with Trilogy regarding any of the terms contained in the Merger Agreement (he did communicate with the Trilogy management involved in the negotiations), but did take part in the due diligence conducted by various other bidders that expressed interest in Artemis prior to Trilogy making its offers. Because Mr. Liemandt was not an independent

24




director and anticipated having an ongoing equity interest in the post-Merger entity as well as employment with such entity, he did not participate in the vote of our board of directors on the Merger Agreement.

At a meeting of our board of directors held on March 10, 2006, our board of directors, acting through its independent directors:

·       determined that the Merger Agreement and the Merger are advisable, fair to, and in the best interests of, all our stockholders;

·       approved the Merger Agreement; and

·       resolved to recommend that our stockholders vote to adopt the Merger Agreement.

In making the determinations and recommendation set forth above, our board of directors, acting through its independent directors, considered the following material positive factors:

·       our board of directors’ knowledge of our business, assets, financial condition and results of operations, our competitive position, the nature of our business and the industry in which we compete;

·       our efforts to maximize stockholder value, which included our board of directors’ evaluation of a range of alternatives other than the sale of Artemis prior to the solicitation of written bids from those parties that showed interest (see the section of this proxy statement entitled “Special Factors—Background of the Merger”);

·       the fact that the Merger Consideration is all cash, which provides certainty of value to our stockholders;

·       the financial presentation of Cowen, including its opinion dated March 10, 2006, to our board of directors that, as of that date and subject to the assumptions, qualifications and limitations set forth in its written opinion that was concurrently delivered to us, the Merger price of $1.60 per share of Common Stock was fair, from a financial point of view, to our holders of Common Stock, other than affiliates of Artemis (see the section of this proxy statement entitled “Special Factors—Opinion of Cowen & Co., LLC Regarding the Transaction,” as well as the full text of the Cowen opinion contained in Annex C, for the assumptions, qualifications and limitations set forth therein, as well as the presentation made by Cowen to our board of directors in connection with Cowen’s opinion);

·       the fact that, under the terms of the Merger Agreement, our board of directors would be entitled, when required by its fiduciary duties, to consider unsolicited bona fide alternative proposals that present a reasonable likelihood of resulting in a superior proposal, and would be entitled to terminate the Merger Agreement in order to accept a proposal that our board of directors found to be superior, as well as the termination fee provisions of the Merger Agreement, which Trilogy required as an inducement to enter into the Merger Agreement and which our board concluded would not preclude a third party from making a superior proposal;

·       the fact that approval by holders of a majority of our outstanding shares, both with respect to holders of our Common Stock combined with holders of our Preferred Stock, as well as our Preferred Stockholders voting as a separate class, is a requirement for the consummation of the Merger; and

·       the fact that our controlling stockholder has a limited right to solicit competing proposals.

25




Our board of directors, acting through its independent directors, also considered potentially negative factors in its deliberations concerning the Merger, including:

·       we would cease to be a public company, and our current stockholders would no longer participate in any potential future growth;

·       we would be unable to solicit competing proposals under the terms of the Merger Agreement and would be required to pay RCN a termination fee if the Merger Agreement would be terminated under certain circumstances, including if we would terminate the Merger Agreement to accept a superior proposal;

·       gains from all cash transactions would be are generally taxable to our stockholders for federal income tax purposes; and

·       the possibility of disruption to our operations following the announcement of the Merger, and the resulting effect on us if the Merger did not close.

Our board of directors, acting through its independent directors, concluded that the potentially negative factors associated with the Merger were substantially outweighed by the potential benefits of the Merger.

Our board of directors does not believe that our net book value (which is negative), liquidation value or going concern value are relevant considerations in determining the fairness of the Merger to the unaffiliated stockholders. Our board of directors believes that:

·       our net book value, which is an accounting concept, has no correlation to the fair value of our shares in the context of a sale of Artemis;

·       selling our business as an ongoing operation to Trilogy as part of the Merger will realize greater value for the unaffiliated stockholders that is more certain and more immediate than the value, if any, that would be realized in an orderly liquidation of our business, after the satisfaction of our outstanding liabilities; and

·       to the extent that our going concern value is reflected in the public market price of our stock, the per share consideration to be received by holders of our Common Stock in the Merger represents a premium (see the table on page 32 of this proxy statement) to our going concern value that, absent the Merger, the public marketplace is unlikely to sustain and/or fully reflect in the market price of our Common Stock in the foreseeable future. As indicated by the tables on pages 14 and 32 of this proxy statement, the market price of our Common Stock had been generally trending down since the second quarter of calendar 2005. For the two months ended February 29, 2006, the closing market price of our Common Stock exceeded $1.50 per share only once. To the extent that our going concern value is measurable by any other criteria, our board of directors believes that the most meaningful criteria for Artemis is the value placed on the ongoing operation of our business by a willing buyer in an arm’s length transaction such as the Merger, which our board of directors believes is evidenced by the $1.60 per share (Common Stock) Merger price negotiated with Trilogy.

Our board of directors was fully aware of and considered possible conflicts of interest of the executive officers. See the section of this proxy statement entitled “Special Factors—Interest of Our Directors and Executive Officers in the Proposed Merger.” The fact that three of our six directors are fully independent, with no interest in the completion of a sale transaction that is different from the interests of our public stockholders generally, and that, other than Proha’s unique go-shop and voting rights, Mr. Pere and Mr. Odman are in the same position and have the same interests as our public stockholders, permitted our board, acting through its disinterested directors, to represent effectively the interests of all our stockholders.

26




Our board of directors believes the Merger is procedurally fair for the following reasons:

·       the procedures and processes followed in conducting the transaction, including the following:

              three of our six directors are independent (as defined above), are not employed by us, and have no direct or indirect interest in the Merger that is different from the interests of our stockholders generally, except that Trilogy has agreed that we will continue certain director indemnification rights and related insurance coverage after the Merger;

              during the period from February 8, 2006, through March 10, 2006, the date on which our board of directors, acting through its disinterested directors, approved the Merger Agreement, our board of directors met eight times to consider, evaluate and supervise the manner in which the negotiations leading to the Merger Agreement were being conducted, and our board of directors received advice from our legal and financial advisors throughout this process;

              the terms of the Merger Agreement were determined through extensive arms-length negotiations between our board of directors, acting through its disinterested directors, management, our independent consultant and our legal and financial advisors, on the one hand, and Trilogy and its advisors, on the other hand; and

              in satisfaction of a condition precedent to the effectiveness of the Merger Agreement, we received an opinion from Cowen, our independent financial advisor, that, as of the date our board of directors, acting through its disinterested directors, approved the Merger Agreement, the $1.60 per share of Common Stock in cash offered by Trilogy was fair, from a financial point of view, to our holders of Common Stock, other than affiliates of Artemis (see the section of this proxy statement entitled “Special Factors—Opinion of Cowen & Co., LLC Regarding the Transaction” for a discussion of the Cowen opinion, including its assumptions, qualifications and limitations);

·       an extensive process, lasting almost a year, of soliciting acquisition proposals from qualified parties and making available to those parties that made credible bids extensive due diligence information regarding Artemis and conducting a bidding process designed to allow numerous parties to be engaged in the bidding in order to promote a competitive process and elicit the most favorable bid for Artemis (see the section of this proxy statement entitled “Special Factors—Background of the Merger”); and

·       holders of our shares who do not vote in favor of the Merger will have the right to demand judicial appraisal of their shares under Delaware law.

The preceding discussion of the factors considered by our board of directors is not intended to be exhaustive, but does set forth the material factors considered by our board of directors. Our board of directors reached its collective conclusion to approve the Merger Agreement and the Merger in light of the various factors described above and other factors that our board of directors believed to be appropriate. In view of the wide variety of factors considered in connection with the evaluation of the Merger and the complexity of these matters, our board of directors found it impracticable, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered or determine that any one factor was of particular importance in reaching its determination that the Merger Agreement and the Merger are advisable, fair to, and in the best interests of, all our stockholders. Rather, our board of directors viewed its recommendations as being based upon its judgment, in light of the totality of the information presented and considered. In considering the factors discussed above, individual directors may have given different weights to different factors.

27




Our board of directors believes that the Merger Agreement and the Merger are advisable, fair to, and in the best interests of, all our stockholders. By the unanimous vote of our independent directors, our board of directors recommends that you vote FOR the adoption of the Merger Agreement. Our board of directors also recommends that you vote FOR the approval of any adjournment of the Special Meeting, if necessary, to solicit additional proxies in favor of the Merger proposal or otherwise to satisfy the conditions contained in the Merger Agreement to complete the Merger.

Opinion of Cowen & Co., LLC Regarding the Transaction

Pursuant to an engagement letter dated March 23, 2005, as amended on December 22, 2005, and February 23, 2006, Artemis retained Cowen to act as financial advisor in connection with a proposed transaction involving a possible sale of the Company.

On March 10, 2006, Cowen rendered its oral opinion to the Artemis board, subsequently confirmed in writing as of the same date, to the effect that and subject to the various assumptions, qualifications and limitations set forth therein, as of March 10, 2006, the consideration provided for in the Merger Agreement was fair, from a financial point of view, to the unaffiliated holders of outstanding shares of Artemis Common Stock.

The full text of the written opinion of Cowen, dated March 10, 2006, is attached as Annex C and is incorporated into this proxy statement by reference. Holders of Artemis Common Stock are urged to read the opinion in its entirety for the assumptions made, procedures followed, other matters considered and limits of the review by Cowen. The summary of the written opinion of Cowen set forth herein is qualified in its entirety by reference to the full text of such opinion. Cowen’s opinion was prepared for and addressed to the Artemis board and is directed only to the fairness, from a financial point of view, of the Merger Consideration provided for in the Merger Agreement, and does not constitute an opinion as to the merits of the transaction or a recommendation to any stockholder as to how to vote on the proposed transaction. The consideration to be received in the transaction was determined through negotiations between Artemis and Trilogy and not pursuant to recommendations of Cowen.

In arriving at its opinion, Cowen reviewed and considered such financial and other matters as it deemed relevant, including, among other things:

·       a draft of the Merger Agreement dated March 10, 2006;

·       certain publicly available financial and other information for Artemis and certain other relevant financial and operating data furnished to Cowen by Artemis management;

·       discussions Cowen had with certain members of the management of Artemis concerning the historical and current business operations, financial condition and prospects of the Company and such other matters Cowen deemed relevant;

·       certain operating results and the reported price and trading histories of the shares of Artemis Common Stock as compared to operating results and the reported price and trading histories of certain publicly traded companies Cowen deemed relevant;

·       certain financial terms of the transaction as compared to the financial terms of certain selected business combinations Cowen deemed relevant; and

·       such other information, financial studies, analyses, investigations and such other factors that Cowen deemed relevant for the purposes of its opinion.

In addition, Cowen considered the prospects of Artemis in the absence of the transaction, including, but not limited to, the amount owed on the over-advance of Artemis’ revolving line of credit with Laurus and the need for additional financing. Cowen also considered the duration, extent and results of the process undertaken by Artemis in pursuit of a possible sale transaction.

28




In conducting its review and arriving at its opinion, Cowen, with our consent, assumed and relied upon, without independent investigation, the accuracy and completeness of all financial and other information provided to it by Artemis or which was publicly available. Cowen did not undertake any responsibility for the accuracy, completeness or reasonableness of, or independently to verify, this information. In addition, Cowen did not conduct any physical inspection of the properties or facilities of Artemis. Cowen further relied upon the assurance of management of Artemis that they were unaware of any facts that would make the information provided to Cowen incomplete or misleading in any respect.

Cowen did not make or obtain any independent evaluations, valuations or appraisals of the assets or liabilities (contingent or otherwise) of Artemis, nor was Cowen furnished with these materials. With respect to all legal matters relating to Artemis, Cowen relied on the advice of legal counsel to Artemis. Cowen expressed no opinion with respect to any legal matters. Cowen’s services to Artemis in connection with the transaction were comprised of rendering an opinion, from a financial point of view, of the Merger Consideration provided for in the Merger Agreement. Cowen’s opinion was necessarily based upon economic and market conditions and other circumstances as they existed and could be evaluated by Cowen on the date of its opinion. Although subsequent developments may affect Cowen’s opinion, Cowen does not have any obligation to update, revise or reaffirm its opinion and Cowen expressly disclaims any responsibility to do so.

In rendering its opinion, Cowen assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the Merger Agreement are true and correct, that each party would perform all of the covenants and agreements required to be performed by it under the Merger Agreement and that all conditions to the consummation of the transaction would be satisfied without waiver thereof. Cowen assumed that the final form of the Merger Agreement would be substantially similar to the last draft received by Cowen prior to rendering its opinion. Cowen also assumed that all governmental, regulatory and other consents and approvals contemplated by the Merger Agreement would be obtained and that, in the course of obtaining any such consents or approvals, no restrictions would be imposed or waivers made that would have an adverse effect on the contemplated benefits of the transaction.

Cowen’s opinion does not constitute a recommendation to any stockholder as to how the stockholder should vote on the proposed transaction. Cowen’s opinion does not imply any conclusion as to the likely trading range for Artemis Common Stock following public disclosure of the proposed transaction or otherwise, which may vary depending on numerous factors that generally influence the price of securities. Cowen’s opinion is limited to the fairness, from a financial point of view, of the Merger Consideration provided for in the Merger Agreement. Cowen expresses no opinion as to the underlying business reasons that may support the decision of the Artemis board to approve, or Artemis’ decision to consummate, the transaction.

The following is a summary of the principal financial analyses performed by Cowen to arrive at its opinion. Some of the summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data set forth in the tables without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses. Cowen performed certain procedures, including each of the financial analyses described below, and reviewed with the management of Artemis the assumptions on which such analyses were based and other factors, including the historical financial results of Artemis. No limitations were imposed by the Artemis board with respect to the investigations made or procedures followed by Cowen in rendering its opinion.

29




Analysis of Selected Publicly Traded Companies.   To provide contextual data and comparative market information, Cowen compared selected historical operating and financial data and ratios for Artemis to the corresponding financial data and ratios of certain other companies, referred to as the Selected Companies, whose securities are publicly traded and which Cowen believes have operating, market valuation and trading valuations similar to what might be expected of Artemis. These companies were:

·       I-Many, Inc.

·       Magic Software Enterprises Ltd.

·       Kana Software, Inc.

·       Vitria Technology, Inc.

·       NetManage, Inc.

·       BroadVision, Inc.

·       Motive, Inc.

·       Selectica, Inc.

·       Trintech Group plc

The data and ratios included the market capitalization of Common Stock plus total debt less cash and equivalents (“Enterprise Value”) of the Selected Companies as multiples of latest reported twelve month revenues (“LTM revenues”) and calendar year 2005 estimated revenues.

The following table presents, for the periods indicated, the multiples implied by the ratio of Enterprise Value to LTM revenues and calendar year 2005 estimated revenues. The information in the table is based on the closing price of Artemis Common Stock on March 9, 2006.

 

 

 

 

 

 

 

 

 

 

Multiple Implied by
consideration to be
received in the 

 

 

 

Selected Company Multiples

 

Artemis/Trilogy 

 

 

 

Low

 

Mean

 

Median

 

High

 

transaction

 

Enterprise Value as a ratio of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LTM Revenues

 

0.3x

 

 

0.7x

 

 

 

0.8x

 

 

 

1.8x

 

 

 

0.6x

 

 

CY 2005E Revenues

 

0.3x

 

 

0.7x

 

 

 

0.8x

 

 

 

1.8x

 

 

 

0.6x

 

 

 

Although the Selected Companies were used for comparison purposes, none of those companies is directly comparable to Artemis. Accordingly, an analysis of the results of such a comparison is not purely mathematical, but instead involves complex considerations and judgments concerning differences in historical and projected financial and operating characteristics of the Selected Companies and other factors that could affect the public trading value of the Selected Companies or Artemis to which they were compared.

Analysis of Selected Transactions.   Cowen reviewed the financial terms, to the extent publicly available, of nine transactions (the “Precedent Transactions”), involving the acquisition of companies in the software industry, which were announced or completed since January 1, 2003. These transactions were (listed as acquiror/target):

·       Saba Software, Inc./Centra Software, Inc.

·       Syntellect Inc. (Enghouse Systems Limited)/Apropos Technology, Inc.

·       SSA Global Technologies, Inc./E.piphany Inc.

30




·       Golden Gate Private Equity Inc./Blue Martini Software, Inc.

·       Art Technology Group, Inc./Primus Knowledge Solutions, Inc.

·       chinadotcom corporation/Pivotal Corporation

·       Jaguar Technology Holdings, LLC/Firepond, Inc.

·       SSA Global Technologies, Inc./EXE Technologies, Inc.

·       Witness Systems, Inc./Eyretel plc

Cowen reviewed the Enterprise Value paid in the Precedent Transactions as a multiple of LTM revenues.

The following table presents, for the periods indicated, the multiples implied by the ratio of Enterprise Value to LTM revenues. The information in the table is based on the closing stock price of Artemis Common Stock on March 9, 2006.

 

 

 

 

 

 

 

 

 

 

Multiple Implied by
consideration to be
received in the

 

 

 

Multiples for Precedent Transactions

 

Artemis/Trilogy

 

 

 

Low

 

Mean

 

Median

 

High

 

transaction

 

Enterprise Value as a ratio of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LTM Revenues

 

0.3x

 

 

0.8x

 

 

 

0.7x

 

 

 

1.2x

 

 

 

0.6x

 

 

 

Although the Precedent Transactions were used for comparison purposes, none of those transactions is directly comparable to the Artemis/Trilogy transaction, and none of the companies in those transactions is directly comparable to Artemis. Accordingly, an analysis of the results of such a comparison is not purely mathematical, but instead involves complex considerations and judgments concerning differences in historical and projected financial and operating characteristics of the companies involved and other factors that could affect the acquisition value of such companies or Artemis to which they were compared.

Analysis of Premiums Paid in Selected Transactions.   Cowen reviewed the premiums of the transaction prices over the trading prices one trading day prior to the announcement date of three different sets of Selected Transactions:

·       63 acquisition transactions in the software industry greater than $20 million announced since January 1, 2004 (the “Software Industry Transactions”);

·       15 transactions in the software industry between $20 million and $100 million ( the “Small Cap Software Industry Transactions”), which are a subset of the Software Industry Transactions; and

·       the 9 Precedent Transactions.

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The following table presents the premiums of the transaction prices over the trading prices one trading day prior to the announcement date for the Software Industry Transactions, the Small Cap Software Industry Transactions and the Precedent Transactions, and the premiums implied for Artemis, based on the consideration provided for in the Merger Agreement. The information in the table is based on the closing price of Artemis Common Stock on March 9, 2006.

 

 

 

Premium
Implied by
consideration
to be

 

 

 

Premiums / (Discount) Paid for:

 

received in
the Artemis/

 

 

 

Software Industry Transactions

 

Small Cap Software
Industry Transactions

 

Precedent Transactions

 

Trilogy
transaction

 

 

 

Low

 

Median

 

Mean

 

High

 

Low

 

Median

 

Mean

 

High

 

Low

 

Median

 

Mean

 

High

 

consideration

 

Premiums / (Discount) Paid to Stock Price:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-day prior to announcement

 

(5

)%

27

%

33

%

115

%

(3

)%

29

%

32

%

77

%

(8

)%

18

%

17

%

63

%

19

 

 

Historical Stock Trading Analysis.   Cowen analyzed the closing prices of Artemis Common Stock over various periods beginning March 10, 2005 and ending March 9, 2006. The table below illustrates the historical closing stock prices for those periods, and the premium or discount implied by the offer price in the Artemis/Trilogy transaction.

 

 

Stock Price

 

Premium (Discount)
Implied by Offer Price

 

Avg. Price for the Six Months Prior

 

 

$

1.64

 

 

 

(3

)%

 

Avg. Price for the Three Months Prior

 

 

1.36

 

 

 

18

%

 

Stock Price Three Months Prior

 

 

1.60

 

 

 

0

%

 

Avg. Price for the One Month Prior

 

 

1.34

 

 

 

19

%

 

Stock Price One Month Prior

 

 

1.40

 

 

 

14

%

 

Low (latest twelve months)

 

 

0.90

 

 

 

78

%

 

High (latest twelve months)

 

 

3.87

 

 

 

(59

)%

 

March 9, 2006

 

 

1.35

 

 

 

19

%

 

 

Discounted Cash Flow Analysis.   Cowen did not conduct a discounted cash flow analysis in forming its opinion. Cowen believes that such an analysis would not be meaningful to this transaction because Artemis has not reached full-year profitability on the basis of earnings before interest and taxes in the past four years and has not performed according to its projections. The utility of a discounted cash flow analysis depends on the reliability of projected financial performance; thus a discounted cash flow analysis would have relatively low utility for purposes of valuation of Artemis. Additionally, Cowen believes that its other financial analyses included in this proxy statement, including its analyses of multiples for Selected Companies, multiples for Precedent Transactions, premiums paid in Precedent Transactions, and historical stock trading are more appropriate valuation methodologies for Artemis.

The summary set forth above does not purport to be a complete description of all the analyses performed by Cowen. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. Cowen did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, notwithstanding the separate factors summarized above, Cowen believes, and has advised the Artemis board of directors, that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, could create an incomplete view of the process underlying its opinion. In performing its analyses, Cowen made numerous

32




assumptions with respect to industry performance, business and economic conditions and other matters, many of which are beyond the control of Artemis. These analyses performed by Cowen are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value of businesses do not purport to be appraisals or to reflect the prices at which businesses or securities may actually be sold. Accordingly, such analyses and estimates are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their advisors. The analyses supplied by Cowen and its opinion were among several factors taken into consideration by the Artemis board of directors in making its decision to enter into the Merger Agreement and should not be considered as exclusively determinative of such decision.

Cowen was selected by the Artemis board to render an opinion to the Artemis board of directors because Cowen is a nationally recognized investment banking firm and because, as part of its investment banking business, Cowen is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. Cowen is providing financial services for Artemis for which it will receive customary fees. Cowen and its affiliates in the ordinary course of business have from time to time provided, and in the future may continue to provide, commercial and investment banking services to Artemis, including serving as a financial advisor on potential acquisitions and as an underwriter on equity offerings, and have received and may in the future receive fees for rendering such services.

Pursuant to the Cowen engagement letter, if the transaction is consummated, Cowen will be entitled to receive a transaction fee. Artemis has also agreed to pay a fee to Cowen for rendering its opinion, a portion of which fee shall be credited against any transaction fee paid. Additionally, Artemis has agreed to reimburse Cowen for its out-of-pocket expenses, including attorneys’ fees, and has agreed to indemnify Cowen against certain liabilities, including liabilities under the federal securities laws. The terms of the fee arrangement with Cowen, which are customary for transactions of this nature, were negotiated at arm’s length between Artemis and Cowen, and the board of directors of Artemis was aware of the arrangement, including the fact that a significant portion of the fee payable to Cowen is contingent upon the completion of the transaction.

Interests of Our Directors and Executive Officers in the Proposed Merger

In considering the recommendation of our board of directors that Artemis stockholders vote in favor of adoption of the Merger Agreement, you should be aware that some of our directors and executive officers may have interests in the Merger that may be different from, or in addition to, their interests as stockholders of Artemis and may create potential conflicts of interest. These interests are described below.

Equity Ownership in Artemis

Our directors, executive officers and entities affiliated with them beneficially own, in the aggregate, approximately 63% of the outstanding shares of our Common Stock and Preferred Stock, combined, as of February 28, 2006. These directors, executive officers and entities affiliated with them will receive the same cash consideration for their shares as all other stockholders of Artemis; however, neither Trilogy’s subsidiary that owns our stock nor Mr. Liemandt will be receiving cash for their shares.

In addition, our directors and executive officers hold, in the aggregate, stock options to acquire 627,560 shares of our Common Stock as of February 28, 2006. The Merger Agreement provides that, immediately prior to the Merger, we will cash out all options, whether or not then exercisable, at a price equal to the excess, if any, of the Merger Consideration over the per share exercise price of each option. Accordingly, our directors and executive officers will receive the same cash consideration for their stock options as all of our other option holders.

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Based upon the issued shares and outstanding options to purchase shares beneficially owned by our directors and executive officers (which includes shares not owned directly by such directors and executive officers), the following are the anticipated proceeds for our directors and executive officers from the Merger:

Name of Director or
Executive Officer

 

 

 

Merger
Proceeds

 

Charles F. Savoni

 

$

6,825

 

David Cairns

 

2,175

 

Michael Murphy

 

525

 

Olof Odman

 

1,050

 

Patrick Ternier

 

62,860

 

Robert Stefanovich

 

37,000

 

 

For further information regarding the beneficial ownership of Artemis securities by our directors and executive officers, see the section of this proxy statement entitled “Voting Securities and Principal Holders Thereof.”

Employment with the Surviving Corporation

No agreements with the executive officers of the Company have been entered into by Trilogy or any of its affiliates. The executive officers’ current base annual salaries are: $275,000 for Mr. Ternier, $200,000 for Mr. Stefanovich and $164,300 for Mr. Savoni. The consummation of the Merger will constitute a “Change-of-Control” under the Employment Agreements for Messrs. Ternier, Stefanovich and Savoni. Upon either termination without cause, or a Resignation for Good Reason, as defined under the respective Employment Agreements for these three individuals, following a Change-of-Control, (i) Mr. Ternier is entitled to receive 12 months of severance pay over 12 months, bonus and immediate vesting of his outstanding stock options, (ii) Mr. Stefanovich is entitled to receive 12 months of severance pay over 12 months; bonus and medical benefits and immediate vesting of his outstanding stock options, and (iii) Mr. Savoni is entitled to receive 9 months of severance pay in a lump sum, bonus and immediate vesting of his outstanding stock options. It is anticipated that the current benefits afforded to the executive officers, including healthcare allowances, will remain in effect through the closing of the Merger.

Directors and Officers Indemnification and Insurance

Trilogy has agreed that it will cause Artemis as the surviving corporation in the Merger to indemnify and hold harmless our current and former directors and officers to the fullest extent permitted by law, both prior to and after completion of the Merger. Trilogy has also agreed that the governing documents of the surviving corporation will, for a period of at least six years from the completion of the Merger, retain the indemnification provisions contained in our existing certificate of incorporation and bylaws. Artemis, as the surviving corporation, is also required to maintain with respect to acts or omissions occurring prior to the effective time, until the fourth anniversary of the completion of the Merger, directors’ and officers’ liability insurance policies that are at least as favorable as the Company’s current policies, subject to an aggregate maximum cost of $450,000.

Interest of Trilogy Directors in the Merger

As previously noted, Mr. Liemandt is a director of Artemis and is Chairman of the Board, President and Chief Executive Officer of Trilogy. Charles Frumberg is a Trilogy director and is the managing member of Emancipation Capital, LLC which is the general partner of Emancipation Capital, LP which owns approximately 33.3% of the Preferred Stock and 10.1% of the Common Stock and Preferred Stock,

34




on a combined basis. Emancipation Capital, LP has executed a Voting Agreement to vote in favor of the merger. Mr. Frumberg was employed as Co-Head of Equities at Cowen from 1998-2002.

Effects of the Merger; Plans Or Proposals For Artemis

Following the Merger, our shares will no longer be quoted on the OTCBB administered by NASDAQ. The registration of our shares under the federal securities laws will be terminated upon application to the SEC after the Merger. Therefore, we will no longer be required to file periodic reports with the SEC after the Merger.

In the Merger, RCN will merge into Artemis and Artemis will survive the Merger, becoming a wholly owned subsidiary of Trilogy. Except for Trilogy, no current stockholders of Artemis are expected to have an equity interest in Artemis or Trilogy immediately following the Merger and, accordingly, will no longer have the opportunity to participate in the earnings (if any) and growth of Artemis or to vote on corporate matters. Similarly, our stockholders will no longer bear the risk of losses generated by Artemis’ operations or decline in the value of its outstanding capital shares.

Trilogy has informed us that, after the Merger, it will continue to evaluate and review Artemis and its assets, corporate structure, capitalization, operations, properties, management, personnel and policies to determine what changes, if any, that it deems necessary to maximize its investment in Artemis. Except as otherwise described in this proxy statement, to our knowledge, neither Trilogy nor any of its stockholders has any current plans or proposals that would result in an extraordinary corporate transaction involving Artemis, such as a reorganization or liquidation of the Company, any purchase, sale or transfer of a material amount of the Company’s assets, or any other material change in the Company’s corporate structure or business.

For U.S. federal income tax purposes, no gain or loss will be recognized by Artemis as a result of the Merger. The tax year of Artemis will close as a result of the Merger, and Artemis will thereafter be treated as a member of a new consolidated group with Trilogy as the parent Company.

Related Party Transactions

During the fourth quarter of 2003, the Company engaged Bengt-Ake Algevik to perform certain business consultancy functions for which he received consideration, including reimbursement of travel and other expenses, of approximately $200,000. Mr. Algevik completed his assignment in May 2004 and was appointed a director of the Company effective June 16, 2004.

At December 31, 2005, 2004 and 2003, the Company had no receivables due from Proha, which upon factoring in the Common Stock conversion rights of the Preferred Stock owns approximately 53% of the Company’s outstanding Common Stock, assuming conversion of all outstanding shares of our Preferred Stock. At December 31, 2005, 2004 and 2003, the Company had payables to Proha of $0.5 million, $0.4 million and $0.3 million, respectively.

On March 1, 2004, the Company’s wholly-owned subsidiary in Finland, Artemis Finland Oy (“Artemis Finland”), entered into a loan agreement with a financial institution in the amount of approximately $3.1 million. The loan was originally due on March 1, 2006 and accrues interest at 0.5 percentage points above the 3-month Euribor rate per annum, which is payable on a quarterly basis. The loan was secured by cash collateral provided by Proha equal to the loan amount and a security interest in all of Artemis Finland’s property and assets. Artemis and Proha executed a letter of commitment, whereby Proha agreed to provide the Company sufficient advance notice of its intent to demand the return of its collateral from the financial institution to give the Company a minimum of 90 days to provide additional collateral, if necessary, or repay the loan. On October 11, 2004, the Company received a notification from Proha declaring its intent to demand the return of the $3.1 million provided to the financial institution as collateral. Under this notification, the Company was required to repay the loan by January 10, 2005. On

35




January 11, 2005, Artemis Finland and Proha informed the financial institution to use the cash collateral provided by Proha as the method by which Artemis Finland shall be deemed to have pre-paid the loan in full. Contemporaneously, Artemis Finland entered into a Payment Schedule Agreement (“Payment Agreement”) with Proha, whereby Proha effectively replaced the financial institution as the creditor and Artemis Finland agreed to pay Proha 2.5 million Euros in three installments (1.25 million Euros by January 17, 2005, 625,000 Euros by February 27, 2005 and 625,000 Euros by March 31, 2005). The Company paid the first two installments on their due dates and the final installment of approximately $0.8 million was paid on April 1, 2005.

There are several related party agreements in place between Proha or its subsidiaries and investees and Artemis Finland as described further below:

·       Artemis Finland shares office space with Proha, for which Proha charges Artemis Finland a share of its office-related costs (“Office Allocation Charge”), such as rent, utilities, telecommunication costs, office maintenance and certain other business costs based on headcount. The Office Allocation Charge was $424,000, $431,000 and $341,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

·       Accountor Oy, a provider of accounting and payroll services, which was owned by Proha (80.1%) and Artemis (19.9%) through November 2002 until its sale to an unrelated party, is providing certain bookkeeping, payroll and reporting services (“Service Charge”) to Artemis Finland. The Service Charge was zero for the years ended December 31, 2005 and 2004, and approximated $80,000 for the year ended December 31, 2003.

·       Intellisoft Oy, an application service provider, which is owned by Proha (80.1%) and Artemis (19.9%), is providing certain application hosting and other services to Artemis Finland and its customers (“ASP Services Fee”). The ASP Services Fee approximated $0, $116,000 and $254,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

·       Datamar Oy, a subsidiary of Proha (90%), is providing certain project management and programming services to Artemis Finland (“Management Programming Fee”). The Management Programming Fee charged to Artemis Finland approximated $158,000, $173,000 and $229,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

·       Tesnet Group Oy (formerly Intellitest International Oy), a company partially owned by Proha (35%), provides certain software testing services to Artemis Finland (“Testing Services”). These Testing Services approximated $122,000, $175,000 and $225,000 for the years ended December 31, 2005, 2004 and 2003, respectively. This relationship was terminated as of December 31, 2005.

·       Artemis Finland is a distributor of software products provided by Safran Software Solutions AS (“Safran”), a Norwegian company wholly owned by Proha. The royalty paid by Artemis Finland to Safran approximated $41,000, $29,000 and $47,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

·       Artemis Finland has provided certain software development services to ProCountor International Oy (“ProCountor”), a company majority owned by Proha (63%). Artemis Finland has charged approximately $4,000, $0 and $0 to ProCountor for such software development services for the years ended December 31, 2005, 2004 and 2003, respectively. ProCountor has provided certain software development services to Artemis Finland and charged a fee for use of a web-based travel and expense claims program of $4,000, $20,000 and $11,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

On August 12, 2005, the Company’s wholly owned subsidiary in Japan, Artemis International KK (“Artemis Japan”), entered into a loan agreement with a financial institution in the amount of approximately $2.1 million (or 233 million Yen), of which $1.7 million was outstanding at December 31,

36




2005. The loan bears interest at 1.95% per annum and is due in monthly installments through July 31, 2008. The proceeds from the loan were used to acquire certain intellectual property rights from the Company’s wholly owned subsidiary in the United Kingdom (the “UK”).

The Company maintains equity holdings in certain joint ventures, which are accounted for under the equity method, with the exception of Metier Scandinavia AS (Norway), Metier Plancom BV(Netherlands) and DA Management Solutions(Finland), which are accounted for under the cost method. The Company records its equity interest in net losses first to the investment balance, then against loans or advances.

In September 2000, Artemis International France Sarl (“Artemis France”) entered into a joint venture agreement (the “Agreement”) with the Canadian company Changepoint Corporation (“Changepoint”) and established the joint venture, Changepoint France Sarl (“Changepoint France”). Artemis France and Changepoint owned 40% and 60% of Changepoint France, respectively. The Agreement provided for a put and call option for Artemis France to sell and Changepoint to purchase the 40% interest held by Artemis France under certain conditions. The Company exercised its put option to sell its 40% interest in Changepoint France. In May 2004, Compuware Corporation acquired privately held Changepoint.

An issue arose regarding the Company exercising the put option described above, which the parties settled in March of 2005 (the “Settlement”). Pursuant to the Settlement, the Company received $829,000 (including VAT of $136,000) and $557,000  (including VAT of $92,000) in cash in March and April of 2005, respectively, representing the nominal value of the shares held by Artemis France in the joint venture, stockholder loans and other receivables owed to the Company. As a result of the Settlement, the Company recognized a pretax gain of $756,000 reported under the caption “Other (income), net” in its 2005 consolidated statement of operations.

The following directors and executive officers received option grants from Artemis on the date indicated and for the number of shares of our Common Stock and exercise prices indicated below:

NAME

 

 

 

NUMBER OF
SECURITIES
UNDERLYING
OPTIONS
GRANTED (#)

 

DATE

 

EXERCISE
PRICE PER
SHARE ($/SH)

 

Bengt-Ake Algevik

 

 

15,000

 

 

6/16/04

 

 

1.95

 

 

Bengt-Ake Algevik

 

 

7,500

 

 

6/16/05

 

 

3.87

 

 

David Cairns

 

 

15,000

 

 

11/30/04

 

 

1.95

 

 

David Cairns

 

 

3,500

 

 

11/30/04

 

 

1.95

 

 

David Cairns

 

 

3,500

 

 

11/30/04

 

 

1.95

 

 

David Cairns

 

 

7,500

 

 

11/30/05

 

 

1.45

 

 

David Cairns

 

 

3,500

 

 

11/30/05

 

 

1.45

 

 

David Cairns

 

 

3,500

 

 

11/30/05

 

 

1.45

 

 

Joseph Liemandt

 

 

15,000

 

 

6/16/04

 

 

1.95

 

 

Joseph Liemandt

 

 

3,500

 

 

6/16/04

 

 

1.95

 

 

Joseph Liemandt

 

 

3,500

 

 

9/10/04

 

 

2.05

 

 

Joseph Liemandt

 

 

7,500

 

 

6/16/05

 

 

3.87

 

 

Joseph Liemandt

 

 

3,500

 

 

6/16/05

 

 

3.87

 

 

Joseph Liemandt

 

 

3,500

 

 

9/12/05

 

 

2.40

 

 

37




 

Mike Murphy

 

 

15,000

 

 

2/24/04

 

 

1.65

 

 

Mike Murphy

 

 

3,500

 

 

2/24/04

 

 

1.65

 

 

Mike Murphy

 

 

3,500

 

 

9/10/04

 

 

2.05

 

 

Mike Murphy

 

 

3,500

 

 

2/24/05

 

 

2.70

 

 

Mike Murphy

 

 

7,500

 

 

3/17/05

 

 

2.70

 

 

Mike Murphy

 

 

3,500

 

 

9/12/05

 

 

2.40

 

 

Mike Murphy

 

 

3,500

 

 

2/24/06

 

 

1.45

 

 

Olof Odman

 

 

480

 

 

7/31/01

 

 

2.00

 

 

Olof Odman

 

 

7,500

 

 

2/24/04

 

 

1.65

 

 

Olof Odman

 

 

3,500

 

 

2/24/04

 

 

1.65

 

 

Olof Odman

 

 

3,500

 

 

2/24/04

 

 

1.65

 

 

Olof Odman

 

 

3,500

 

 

6/16/04

 

 

1.95

 

 

Olof Odman

 

 

7,500

 

 

2/17/05

 

 

2.95

 

 

Olof Odman

 

 

3,500

 

 

2/24/05

 

 

2.70

 

 

Olof Odman

 

 

3,500

 

 

2/24/05

 

 

2.70

 

 

Olof Odman

 

 

3,500

 

 

6/16/05

 

 

3.87

 

 

Olof Odman

 

 

7,500

 

 

7/11/05

 

 

2.99

 

 

Olof Odman

 

 

3,500

 

 

2/24/06

 

 

1.45

 

 

Olof Odman

 

 

3,500

 

 

2/24/06

 

 

1.45

 

 

Pekka Pere

 

 

480

 

 

7/31/01

 

 

2.00

 

 

Pekka Pere

 

 

7,500

 

 

2/24/04

 

 

1.65

 

 

Pekka Pere

 

 

7,500

 

 

2/17/05

 

 

2.95

 

 

Pekka Pere

 

 

7,500

 

 

7/11/05

 

 

2.99

 

 

Charles Savoni

 

 

2,800

 

 

4/11/02

 

 

1.25

 

 

Charles Savoni

 

 

4,200

 

 

10/1/02

 

 

1.25

 

 

Charles Savoni

 

 

8,750

 

 

4/15/04

 

 

1.35

 

 

Charles Savoni

 

 

8,750

 

 

4/15/04

 

 

1.35

 

 

Robert Stefanovich

 

 

20,000

 

 

10/1/02

 

 

1.25

 

 

Robert Stefanovich

 

 

120,000

 

 

4/15/04

 

 

1.35

 

 

Patrick Ternier

 

 

3,600

 

 

1/17/02

 

 

1.50

 

 

Patrick Ternier

 

 

30,446

 

 

4/15/04

 

 

1.35

 

 

Patrick Ternier

 

 

219,554

 

 

4/15/04

 

 

1.35

 

 

TOTAL:

 

 

627,560

 

 

 

 

 

 

 

 

 

All stock options listed above have provisions accelerating the vesting in the event of a change in control.

Financing of the Merger

Trilogy intends to finance the Merger through use of its cash reserves. As of the date of this proxy statement, Trilogy represents and warrants that it has sufficient cash and cash equivalents to consummate the Merger. Because Trilogy has sufficient funds to finance the Merger, the Merger is not conditioned on any third party financing arrangements. The expenditure for payment of the Merger Consideration estimated by Trilogy will be reduced by the amount related to shares whose owners seek appraisal rights under Delaware law.

38




Purpose and Reasons of RCN and the Affiliated Stockholders for the Merger

The purpose of the Merger Agreement and the Merger for RCN and the affiliated holders of Artemis shares, which include Trilogy, Trilogy Capital Holdings Corporation and Joseph A. Liemandt (collectively, the “Affiliated Stockholders”), is to allow the Affiliated Stockholders to acquire ownership of all of our outstanding equity. The Merger will allow them to participate in 100% of our future earnings (if any) and growth once our Common Stock ceases to be publicly traded. Public company status imposes a number of limitations on us and our management in conducting operations. The Merger will allow the Affiliated Stockholders greater operating flexibility and will allow management to concentrate on long-term growth rather than the short-term, quarter-to-quarter performance often emphasized by the public markets. The Merger will also enable the Affiliated Stockholders to use in our operations those funds that would otherwise be expended in complying with requirements applicable to public companies.

RCN and the Affiliated Stockholders’ Position as to Fairness of the Merger

The rules of the Securities and Exchange Commission (the “SEC”) require RCN and the Affiliated Stockholders to express their belief as to the fairness of the Merger to our unaffiliated stockholders. The Affiliated Stockholders did not seek, from any other source, an evaluation of the fairness of the Merger to Artemis’ unaffiliated stockholders. Because Mr. Liemandt serves as both a director on our board and as Chairman of the board of directors, CEO and President of Trilogy, Inc. (which wholly owns Trilogy Capital Holdings Corporation, a holder of our Common Stock and our Preferred Stock), he did not participate in the deliberations of our board of directors regarding the Merger. However, Mr. Liemandt was aware of and in fact received substantially the same information on which our board based its decision regarding the Merger. As a result, RCN and the Affiliated Stockholders considered the factors described above under the heading “Special Factors—Recommendation of our Board of Directors; Fairness of the Merger,” other than those factors regarding Cowen and its involvement including the factors regarding the substantive and procedural fairness of the Merger.

In addition to those factors considered by our board, RCN and the Affiliated Stockholders also considered the following factors, which in isolation may weigh against a determination that the Merger is both substantively and procedurally fair:

·       the Merger Agreement was not structured so that approval of at least a majority of unaffiliated security holders is required to approve the Merger; and

·       pursuant to a Voting Agreement, holders of approximately 76% of our outstanding shares of Common Stock (including our outstanding shares of Preferred Stock on an as-converted basis) have agreed to vote in favor of the Merger, although the voting provisions of such Voting Agreement terminate upon termination of the Merger Agreement.

RCN and the Affiliated Stockholders believe that the Merger is procedurally fair to Artemis’ unaffiliated stockholders notwithstanding that it was not structured to require the approval of at least a majority of unaffiliated stockholders because our board of directors retained Cowen as an independent financial advisor conducted an extensive process in soliciting interest in Artemis, vigorously negotiated on behalf of the unaffiliated stockholders and ultimately approved the Merger by the unanimous vote of the disinterested members of our board of directors.

RCN and the Affiliated Stockholders considered all of the foregoing factors, positive and negative, as a whole, in making their determination that the proposed Merger is fair to Artemis’ unaffiliated stockholders. Based on their beliefs regarding these factors and the reasonableness of the conclusions and analysis of our board of directors, RCN and the Affiliated Stockholders adopted the conclusions and analysis of the board of directors and believe that the Merger is fair to our unaffiliated stockholders. This belief, however, should not be construed as a recommendation to such stockholders as to how they should vote on the Merger.

39




Because of the variety of factors considered, RCN and the Affiliated Stockholders did not find it practicable to quantify or otherwise assign weights to, and did not make specific assessments of, the individual factors considered in reaching their determination. This determination was made after an evaluation of all the factors considered in the aggregate. As Artemis is a going concern, RCN and the Affiliated Stockholders did not believe that our net book value (which is negative) would accurately reflect the value of Artemis because it did not take into account goodwill and other intangible assets, nor does it measure the Company’s future prospects as a going concern. Similarly, RCN and the Affiliated Stockholders believed the liquidation value was an inappropriate measure, given that Artemis is not going out of business or selling all or substantially all of its assets.

RCN and the Affiliated Stockholders considered their own analysis  of the going concern value of Artemis. Although RCN and the Affiliated Stockholders were not provided with Cowen’s conclusions and analysis at the time of RCN’s offer, RCN and the Affiliated Stockholders expressly agree with Cowen’s conclusions and analysis, set forth on pages 28 through 33 of this proxy statement, concerning the going concern value of Artemis as of March 10, 2006, the date the Merger Agreement was signed.

Advantages and Disadvantages of the Merger

The Merger will present certain potential advantages and disadvantages to RCN, the Affiliated Stockholders and our unaffiliated stockholders.

RCN and the Affiliated Stockholders

If the Merger is consummated, the possible advantages to RCN and the Affiliated Stockholders include the following:

·       Information concerning us and our operations, financial results and directors and executive officers will no longer be available to competitors.

·       Our management will be able to focus on our operations and will not be required to spend considerable time and resources preparing the information regarding financial results and other matters that are required to be reported to the public and the SEC.

·       The administrative, legal, accounting and other costs and fees, as well as the potential liability, associated with operating as a public company will be eliminated.

·       The Affiliated Stockholders will be the sole beneficiaries of any future earnings or increase in enterprise value.

·       As the Affiliated Stockholders will not receive the Merger Consideration or Liquidation Consideration, the Merger will not be a taxable event to them for federal income tax purposes.

·       Our management will be able to focus on long-term growth as opposed to short-term earnings or loss per common share.

If the Merger is consummated, the possible disadvantages to RCN and the Affiliated Stockholders include the following:

·       There will be no public market for our shares of Common Stock, and the Affiliated Stockholders will be unable to dispose of their shares at a readily ascertainable price.

·       The Affiliated Stockholders will bear the sole burden of any future losses or decrease in enterprise value.

·       We may have reduced access to capital to finance growth, meet working capital requirements or acquire other businesses, since the public equity markets will not be available to us.

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Unaffiliated Stockholders

If the Merger is consummated, the possible advantages to our unaffiliated stockholders include the following:

·       The Merger Consideration represents a premium of (i) 18.5% over the closing price of our Common Stock on March 10, 2006, the last trading day prior to public announcement of our entering into the Merger Agreement and (ii) 16.4%, 17.9% and 9.5% over the average of the closing prices during the 30, 60 and 90 trading days, respectively, prior to public announcement of our entry into the Merger Agreement.

·       The Merger Consideration consists entirely of cash, which provides greater assurance of stockholder value and eliminates any uncertainties in valuing the Merger Consideration to be received by stockholders.

·       The Merger will enable the stockholders to dispose of their shares of Common Stock at a price our board of directors has determined to be a fair price, notwithstanding the fact that our Common Stock has generally experienced low trading volumes and limited liquidity.

·       The stockholders will be able to sell their shares without paying the usual transaction costs associated with open market sales.

·       The stockholders will not have to bear the risk of any future losses or decrease in enterprise value.

If the Merger is consummated, the possible disadvantages to our unaffiliated stockholders include the following:

·       The stockholders will not participate in any future earnings or increase in enterprise value.

·       Receipt of the Merger Consideration will be a taxable transaction for federal income tax purposes.

·       The Merger Consideration of $1.60 per share of our Common Stock could, at the effective time of the Merger, be less than the market price of our Common Stock. Stockholders may wish to watch for future changes in the market price of our Common Stock.

·       The stockholders will not have the opportunity to benefit from any potential future sale, Merger or other significant transaction.

The Position of the Executive Officers as to the Fairness of the Merger

The executive officers believe that the Merger is substantively and procedurally fair to the unaffiliated holders of Artemis shares. However, none of the executive officers has performed, or engaged a financial advisor to perform, any valuation analysis for the purpose of assessing the fairness of the Merger to the unaffiliated holders of Artemis shares. Moreover, none of the executive officers participated in the deliberations of our board of directors related to the Merger or the Merger Agreement.

Each of the executive officers individually believes that the Merger is substantively fair to the unaffiliated holders of Artemis shares based on the following factors:

·       the executive officers’ understanding of Artemis’ business, assets, financial condition and results of operations, its competitive position, the nature of its business and the industry in which it competes;

·       the efforts of Artemis’ board of directors, acting through its disinterested directors, to maximize stockholder value, which included our board of directors’ evaluation of a range of alternatives other than the sale of Artemis prior to the solicitation of written bids from those parties that showed interest;

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·       the fact that the Merger Consideration is all cash, which provides certainty of value to the holders of Artemis Common Stock;

·       the fact that Artemis’ board of directors received a written opinion from Cowen dated March 10, 2006, stating that as of that date and subject to the assumptions, qualifications and limitations set forth in the opinion, the Merger price of $1.60 per share of Common Stock was fair, from a financial point of view, to holders of Artemis Common Stock, other than affiliates of Artemis;

·       the terms of the Merger Agreement include the ability of Artemis’ board of directors, in the exercise of its fiduciary duties, to consider unsolicited bona fide alternative proposals which present a reasonable likelihood of resulting in a superior proposal;

·       the fact that approval by holders of a majority of outstanding shares is a requirement for the consummation of the Merger; and

·       the fact that the controlling stockholder had a limited right to solicit competing proposals.

In considering the fairness of the Merger to Artemis’ unaffiliated stockholders, the executive officers did not obtain a separate valuation of the assets of Artemis to determine a liquidation value for the Company. The executive officers considered Artemis to be a viable going concern, and did not consider the liquidation value as a relevant valuation methodology. In addition, the executive officers did not consider the book value of Artemis (which is negative) to be material to their conclusion regarding the fairness of the Merger because it is their view that book value does not accurately reflect the value of Artemis in light of the nature of its business and its assets.

Each of the executive officers believes that the Merger is procedurally fair to the unaffiliated holders of Artemis shares based on the following factors:

·       the procedures and processes followed by Artemis’ board of directors, acting through its disinterested directors, in conducting the transaction, including the following:

              The fact that three of the six directors are independent, are not employed by Artemis, and have no direct or indirect interest in the Merger that is different from the interests of Artemis’ stockholders generally, except that Trilogy has agreed that Artemis will continue certain director indemnification rights and related liability insurance after the Merger, and these independent directors unanimously approved the Merger Agreement;

              during the period from February 7, 2006 through March 10, 2006, the date on which the board of directors, acting through its disinterested directors, approved the Merger Agreement, the board of directors met nine times to consider, evaluate and supervise the manner in which the negotiations leading to the Merger Agreement were being conducted, and the board of directors received advice from legal and financial advisors to Artemis throughout this process;

              the terms of the Merger Agreement were determined through extensive arms-length negotiations between the board of directors, acting through its disinterested directors, management, our financial consultant and the legal and financial advisors to Artemis, on the one hand, and Trilogy and its advisors, on the other hand, with Mr. Liemandt, Mr. Pere and Mr. Odman not participating in any of the negotiations either on behalf of Artemis or Trilogy; and

              in satisfaction of a condition precedent to the effectiveness of the Merger Agreement, the board of directors received an opinion from Cowen, their independent financial advisor, that, as of the date the board of directors, acting through its disinterested directors, approved the Merger Agreement, the $1.60 per share of Common Stock in cash offered by

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Trilogy was fair, from a financial point of view, to Artemis’ holders of Common Stock, other than affiliates of Artemis;

·       the extensive process, lasting almost a year and conducted by an independent financial advisor, of soliciting acquisition proposals from qualified parties and making available to those parties that made credible bids extensive due diligence information regarding Artemis and conducting a bidding process designed to elicit the most favorable bid for Artemis;

·       holders of Artemis’ shares who do not vote in favor of the Merger will have the right to demand judicial appraisal of their shares under Delaware law.

The executive officers believe that the Merger is procedurally fair despite the fact that the terms of the Merger Agreement do not require the approval of at least a majority of the unaffiliated Artemis stockholders, and that the board of directors, acting through its disinterested directors, did not retain an independent representative to act solely on behalf of the unaffiliated Artemis stockholders for the purpose of evaluating the proposed terms of the Merger Agreement.

Based on the above-listed factors, each of the executive officers believes that the Merger, the Merger Agreement and the related transactions are fair to Artemis’ unaffiliated stockholders. None of the executive officers believes that it is possible to assign specific relative weights to the foregoing factors in reaching his opinion as to the procedural fairness of the Merger, the Merger Agreement and the related transactions. In making this determination, each of the executive officers took into account the negative factor that unaffiliated stockholders would no longer participate in any potential future growth of Artemis.

The executive officers have interests in the Merger transaction not shared by other stockholders of Artemis. These interests are described above under the heading “Interests of Our Directors and Officers in the Proposed Merger.”  No executive officer makes any recommendation as to how any stockholder of Artemis should vote on the Merger Agreement.

Fees and Expenses of the Merger

The estimated fees and expenses of the Company in connection with the Merger are as follows:

Financial Advisor Fees and Expenses

 

$

[        ]

 

Legal, Accounting and Other Professional Fees

 

[        ]

 

Printing, Proxy Solicitation and Mailing Costs

 

[        ]

 

Financing Fees

 

[        ]

 

Filing Fees

 

[        ]

 

Paying Agent Fees

 

[        ]

 

Miscellaneous

 

[        ]

 

Total:

 

[        ]

 

 

The Merger Agreement provides that Artemis, Trilogy and RCN will each pay all costs and expenses incurred by it in connection with the Merger Agreement and the Merger. The estimate for legal fees set forth in the table above does not include any amounts attributable to any future litigation challenging the Merger. None of these costs or expenses will reduce either the Merger Consideration or Liquidation Consideration to be received by our stockholders in the Merger.

We will be obligated to pay RCN $750,000 under certain circumstances in which the Merger Agreement is terminated. For a description of this termination fee, see the section of this proxy statement entitled “The Merger Agreement—Termination Fee.” Under other circumstances, we will be obligated to pay RCN up to $500,000 of its documented costs and expenses. For a description of the expense reimbursement obligation, see the section of the proxy statement entitled “The Merger Agreement—Expense Reimbursement.”

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Material United States Federal Income Tax Consequences of the Merger

The following is a discussion of material U.S. federal income tax consequences of the Merger that are generally applicable to our stockholders that exchange their shares for cash in the Merger. This discussion is based on the Internal Revenue Code of 1986, as amended (“Code”), applicable current and proposed U.S. Treasury Regulations, administrative rulings, and judicial decisions, each as in effect on the date of this proxy statement. These income tax laws, Treasury Regulations, and the interpretations reflected in administrative rulings and judicial decisions may change at any time, possibly on a retroactive basis. No ruling from the Internal Revenue Service has been or will be requested in connection with the Merger.

This discussion assumes that our stockholders hold their shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all aspects of U.S. federal income tax that may be relevant in light of a stockholder’s particular circumstances, or that may apply if a holder is subject to special treatment under the U.S. federal income tax laws (including, for example, insurance companies, dealers in securities or foreign currencies, traders in securities who elect the mark-to-market method of accounting for their securities, holders subject to the alternative minimum tax, tax-exempt organizations, financial institutions, mutual funds, controlled foreign corporations, passive foreign investment companies, certain expatriates, corporations that accumulate earnings to avoid U.S. federal income tax, stockholders who hold our shares as part of a hedge, straddle, constructive sale or conversion transaction or stockholders who acquired their shares through the exercise of employee stock options). In addition, this discussion does not address any tax considerations under state, local or non-U.S. laws or U.S. federal laws other than those pertaining to the U.S. federal income tax. Holders of our shares are urged to consult their own tax advisor to determine the particular tax consequences applicable to them, including the application and effect of any state, local or non-U.S. income and other tax laws, of the receipt of cash in exchange for their shares pursuant to the Merger.

As used herein, the term “U.S. holder” means a beneficial owner of our shares that is for U.S. federal income tax purposes (i) a citizen or individual resident of the United States; (ii) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any political subdivision thereof; (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) a trust if (1) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has validly made an election to be treated as a U.S. person under applicable Treasury Regulations.

As used herein, the term “non-U.S. holder” means a person (other than a partnership) that is not a U.S. holder.

The U.S. federal income tax consequences of the Merger to a partner in a partnership holding our shares will depend on the status of the partner and the activities of the partnership. Partners in a partnership holding our shares should consult their own tax advisor.

U.S. Holders

The receipt of cash in exchange for shares pursuant to the Merger or upon exercise of appraisal rights will be a taxable event for federal income tax purposes. A U.S. holder generally will recognize capital gain or loss in an amount equal to the difference, if any, between the amount of cash received and the holder’s adjusted tax basis in the shares surrendered. If the holding period of the shares surrendered is greater than one year upon the completion of the Merger, the gain or loss will be long-term capital gain or loss. The deductibility of a capital loss recognized on the exchange is subject to limitations under the Code. Certain U.S. holders, including individuals, are eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. If a U.S. holder acquired blocks of shares at different times and different prices, such holder must calculate its gain or loss and determine its adjusted tax basis and holding period separately with respect to each block of shares.

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A U.S. holder of shares may be subject to information reporting on cash received unless an exemption applies. Back-up withholding may also apply, unless the U.S. holder provides proof of an applicable exemption or a correct taxpayer identification number, and otherwise complies with the applicable requirements of the back-up withholding rules. Back-up withholding is not an additional tax and any amounts withheld under the back-up withholding rules may be refunded or credited against a U.S. holder’s U.S. federal income tax liability, if any, provided that such holder furnishes the required information to the Internal Revenue Service in a timely manner. Each U.S. holder should consult its own tax advisor as to the qualifications for exemption from back-up withholding and the procedures for obtaining such exemption.

Non-U.S. Holders

Any gain realized on the receipt of cash in exchange for Artemis shares pursuant to the Merger or upon exercise of appraisal rights by a non-U.S. holder generally will not be subject to U.S. federal income tax or withholding tax unless, (i) the gain is effectively connected with a U.S. trade or business (or, if an applicable income tax treaty so provides, is attributable to a permanent establishment or a fixed base maintained by such non-U.S. holder), in which case the non-U.S. holder generally will be taxed like a U.S. holder (as discussed above under “U.S. Holders”), (ii) the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable year of the Merger and certain other conditions are met, or (iii) we are or have been a “United States real property holding corporation” and the non-U.S. holder owned more than 5% of our shares at any time during the five years preceding the Merger.

An individual non-U.S. holder described in (i) above will be subject to tax on his or her net gain under regular graduated U.S. federal income tax rates. An individual non-U.S. holder described in (ii) above will be subject to a flat 30% tax on the gain, which may be offset by U.S. source capital losses, even though the individual is not considered a resident of the United States. If a non-U.S. holder that is a foreign corporation falls under (i) above, it will be subject to tax on its net gain in the same manner as if it were a U.S. person as defined under the Code and, in addition, may be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty.

We do not believe that we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes.

Information reporting and, depending on the circumstances, backup withholding will apply to cash received unless the non-U.S. holder certifies under penalties of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to believe that the holder is in fact a United States person as defined under the Code) or such holder otherwise establishes an exemption. Each non-U.S. holder should complete, sign and return to the paying agent a certification of foreign status on the applicable Form W-8 in order to provide the information and certification necessary to avoid backup withholding, unless an applicable exemption exists and is proved in a manner satisfactory to the paying agent. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be refunded or credited against a non-U.S. holder’s U.S. federal income tax liability, if any, provided that such holder furnishes the required information to the Internal Revenue Service in a timely manner. Non-U.S. holders should consult their own tax advisor as to the qualifications for exemption from backup withholding and the procedures for obtaining such exemption.

Delisting and Deregistration of Artemis’ Shares

If the Merger is completed, our shares will no longer be quoted on the OTCBB administered by NASDAQ and will be deregistered under the federal securities laws. As a result, all of the Company’s Exchange Act reporting responsibilities can be discontinued. In addition, the Company intends to

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withdraw its effective registration statements as to the shares of our Common Stock registered thereby that have not been sold into the public market by their beneficial owners.

Litigation Challenging the Merger

None.

THE SPECIAL MEETING

Date, Time and Place

The Special Meeting will be held on [              ], 2006, at 10:00 a.m., local time, at the Company’s corporate headquarters located at 4041 MacArthur Boulevard, Suite 401, Newport Beach, California 92660.

Purpose

At the Special Meeting, our stockholders as of the close of business on [              ], 2006 will consider and vote on a proposal to approve and adopt the Agreement and Plan of Merger, dated as of March 10, 2006, among Artemis, Trilogy and RCN, referred to in this proxy statement as the Merger Agreement, and the Merger contemplated thereby. Our stockholders must approve and adopt the Merger Agreement and the Merger in order for the Merger to occur. If our stockholders fail to do so, the Merger will not occur. A copy of the Merger Agreement is attached to this proxy statement as Annex A. This proxy statement and the enclosed form of proxy are first being mailed to our stockholders on or about [              ], 2006.

We do not expect that any matters other than (i) the approval and adoption of the Merger Agreement and the Merger and (ii) the adjournment or postponement of the Special Meeting, if necessary or appropriate to solicit additional proxies if there are insufficient votes at the time of the meeting to approve and adopt the Merger Agreement and the Merger will be brought before the Special Meeting.

Record Date and Shares Entitled To Vote; Procedures For Voting

Our board of directors has fixed the close of business on [              ], 2006 as the record date for determining the holders of shares of our Common Stock and Preferred Stock who are entitled to notice of, and to vote at, the Special Meeting. A stockholders’ list will be available at our principal executive office for inspection by any stockholder entitled to vote at the Special Meeting, beginning 10 business days before the date of the Special Meeting and continuing through the Special Meeting. As of the record date, (i) 10,877,087 shares of our Common Stock and (ii) 4,090,908 shares of our Preferred Stock were issued and outstanding. You are entitled to one vote for each share of our Common Stock and/or Preferred Stock that you hold as of the record date.

If you are a record holder of shares of our stock on the record date, you may vote those shares in person at the Special Meeting or by proxy as described below in the section of this proxy statement entitled “The Special Meeting—Voting of Proxies.”  If your shares of our stock are held in “street name,” that is through a broker or other financial institution, you must follow the instructions provided by the broker or other financial institution regarding how to instruct it to vote those shares.

Quorum

The presence, in person or by proxy, of shares of our Common Stock and Preferred Stock representing a majority of all outstanding shares of our stock as of the record date will constitute a quorum for the transaction of business at the Special Meeting. A quorum is necessary to hold the Special Meeting. Any shares of our stock held in treasury by Artemis or by any of our subsidiaries are not considered to be outstanding for purposes of determining a quorum. Once a share is represented at the Special Meeting, it will be counted for the purpose of determining a quorum at the Special Meeting and any postponement or

46




adjournment thereof. However, if a new record date is set for the adjourned meeting, a new quorum will have to be established.

Vote Required

We cannot complete the Merger unless the holders of a majority of the shares of our (i) Preferred Stock and (ii) Common Stock combined with the shares of our Preferred Stock outstanding as of the record date vote “FOR” the proposal to adopt and approve the Merger Agreement and the Merger. In order for your shares of Artemis stock to be included in the vote, if you are a stockholder of record, you must return the enclosed proxy card by mail or vote in person at the Special Meeting.

If your shares are held in “street name” by your broker, bank or other nominee, you should instruct your nominee how to vote your shares using the instructions provided by your broker, bank or other nominee. If you have not received these voting instructions or require further information regarding these voting instructions, contact your broker, bank or other nominee and it can give you directions on how to vote your shares. Nominees that hold shares in “street name” for customers may not exercise their voting discretion with respect to the approval of non-routine matters such as the Merger proposal, and thus, absent specific instructions from the beneficial owner of the shares, brokers, banks and other nominees are not empowered to vote those shares in connection with the adoption of the Merger Agreement (i.e., “broker non-votes”). Abstentions and broker non-votes, if any, will be treated as shares that are present and entitled to vote at the Special Meeting for purposes of determining whether a quorum exists. Because adoption of the Merger Agreement requires the affirmative vote of the holders of a majority of the shares of our (i) Preferred Stock and (ii) Common Stock combined with the shares of our Preferred Stock outstanding as of the record date, failures to vote, abstentions and broker non-votes, if any, will have the same effect as votes “AGAINST” adoption of the Merger Agreement.

In order to induce Trilogy to enter into the Merger Agreement, Proha, Artemis’ majority stockholder, and certain holders of a majority of Artemis’ Preferred Stock, have executed Voting Agreements pursuant to which each of them has agreed to vote all shares of the Company’s Common Stock and/or Preferred Stock that each of them owns “FOR” the proposal to approve and adopt the Merger Agreement and the Merger and have granted proxies to certain Trilogy employees to vote their shares in such manner. Therefore, subject to the limited rights of termination of the Voting Agreement, the Merger will be approved. As of the record date for the Special Meeting, these persons who executed stockholder voting agreements owned shares of our stock as follows:  Proha, representing approximately 53.3% of the outstanding shares of our Common and Preferred Stock combined; Emancipation Capital LP, representing approximately 33.3% of our Preferred Stock and approximately 10.3% of our Common and Preferred Stock combined; Porridge, LLC, representing approximately 11.1% of our Preferred Stock and approximately 3.4% of our Common and Preferred Stock combined; Potomac Capital Partners, LP, representing approximately 8.5% of our Preferred Stock and approximately 2.6% of our Common and Preferred Stock combined; Potomac Capital International, LTD, representing approximately 2.8% of our Preferred Stock and approximately 0.9% of our Common and Preferred Stock combined; and Pleiades Investment Partners R, LP, representing approximately 5.3% of our Preferred Stock and approximately 1.7% of our Common and Preferred Stock combined. A form of the stockholder Voting Agreement entered into by such persons is attached as Annex B to this proxy statement.

Voting of Proxies

If you return a signed proxy card by mail, your shares will be voted at the Special Meeting as you indicate on your proxy card or by such other method. If no instructions are indicated on your proxy card, your shares will be voted “FOR” the approval and adoption of the Merger Agreement and the Merger and, if necessary, “FOR” the approval of the adjournment of the Special Meeting to solicit additional proxies.

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Revocability of Proxies

You may revoke your proxy or change your vote at any time before the final vote at the Special Meeting. If you are the owner of record, you may do this by:

(1)         giving written notice of revocation to the Corporate Secretary, Artemis International Solutions Corporation, 4041 MacArthur Boulevard, Suite 401, Newport Beach, California 92660;

(2)         signing another valid proxy bearing a later date; or

(3)         voting in person at the Special Meeting. Attendance at the Special Meeting will not by itself constitute revocation of a proxy.

If you have instructed your broker, bank or other nominee to vote your shares, the above-described options for revoking your proxy do not apply and instead you must follow the directions provided by your nominee to change these instructions.

Adjournments and Postponements

Although it is not currently expected, the Special Meeting may be adjourned or postponed for the purpose of soliciting additional proxies. Any adjournment may be made without notice, other than by an announcement made at the Special Meeting. If a quorum is not present at the Special Meeting, or a quorum is present but we do not have sufficient votes to approve Proposal No. 1 described in this proxy statement, the persons named as proxies may propose one or more adjournments of the Special Meeting to permit further solicitation of proxies. If a quorum is present, any such adjournment will require that the votes cast in favor of the adjournment exceed the votes cast opposing the adjournment. If a quorum is not present, any such adjournment will require the affirmative vote of the holders of a majority of our Common Stock represented at the Special Meeting in person or by proxy. Any signed proxies received by Artemis will be voted in favor of an adjournment in these circumstances, although a proxy voted “AGAINST” adoption of the Merger Agreement will not be voted in favor of an adjournment for the purpose of soliciting additional proxies. Any adjournment or postponement of the Special Meeting for the purpose of soliciting additional proxies will allow our stockholders who have already sent in their proxies to revoke them at any time prior to their use at the Special Meeting as adjourned or postponed.

A broker non-vote generally occurs when a broker, bank or other nominee holding shares on your behalf does not vote on a proposal because the nominee has not received your voting instructions and lacks discretionary power to vote the shares on a matter or matters. Broker non-votes and abstentions will not count as votes cast on a proposal, but will count for the purpose of determining whether a quorum is present at the meeting. Accordingly, because adjournment of a stockholder meeting, once a quorum is present, requires more votes cast in favor of an adjournment than against, broker non-votes and abstentions have no effect on any proposal to adjourn or postpone the meeting, if necessary or appropriate, to solicit additional proxies if a quorum is present at the Special Meeting. However, because adjournment of a stockholder meeting in the absence of a quorum requires a vote of a majority of shares present in person or by proxy, a broker non-vote or an abstention in the absence of a quorum will have the same effect as a vote “AGAINST” any proposal to adjourn or postpone the meeting.

Proxy Solicitation

This proxy solicitation is being made on behalf of our board of directors. We will solicit proxies principally by mail. Upon request, we will reimburse brokers, dealers, banks or similar entities acting as nominees for their reasonable expenses incurred in forwarding copies of the proxy materials to the beneficial owners of the shares of our Common Stock they hold of record.

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THE PROPOSED MERGER

Artemis International Solutions Corporation
4041 MacArthur Blvd., Suite 401
Newport Beach, California 92660
(949) 660-6500

Artemis, a Delaware corporation, is headquartered in Newport Beach, California. The Company is one of the world’s leading providers of planning and control solutions that help organizations execute strategy through effective portfolio and project management. Artemis has refined 30 years experience into a suite of solutions and packaged consulting services that address the specific needs of both industry and public sector including, new product development, IT management, program management, fleet and asset management, outage management and detailed project management. With a global network covering 44 countries, Artemis is helping thousands of organizations to improve their business performance through better alignment of strategy, investment planning and project execution. Our Common Stock is quoted on the OTCBB under the symbol “AMSI.”  The Annual Report on Form 10-K for the fiscal year ended December 31, 2005 is included in this proxy statement as Annex E.

Trilogy, Inc.
6011 West Courtyard Drive
Austin, TX 78730
(512) 874-3100

Trilogy, a Delaware corporation, is headquartered in Austin, Texas. Trilogy provides technology powered business services. Trilogy business services are focused on the Automotive, Insurance and Consumer Electronics industries. A privately held company, Trilogy employs 500 business professionals worldwide, with offices in Bangalore, India and Hangzhou, China. Trilogy’s Versata group, headquartered in Austin, Texas, is a leading provider of business rules, configuration and pricing management systems. Versata provides solutions for automating and simplifying the building, maintenance and ongoing evolution of large, complex, data-intensive enterprise applications. The Versata solution effectively and efficiently replaces time-intensive hand-coding efforts with simple, intuitive business rules and graphical process flow specifications.

RCN Acquisition, Inc.
6011 West Courtyard Drive
Austin, TX 78730
(512) 874-3100

RCN, a Delaware corporation, is a direct, wholly owned subsidiary of Trilogy, formed solely for the purpose of facilitating the Merger.

Structure of the Merger; Consideration to be Received by Our Stockholders

In the Merger, RCN will be merged with and into Artemis, and Artemis will be the surviving corporation in the Merger. Upon completion of the Merger, Artemis will be a wholly owned subsidiary of Trilogy. Other than Trilogy and its affiliates, no other current Artemis stockholders are expected to have any equity interest in RCN or Artemis immediately after the Merger. Our shares will no longer be publicly traded after the Merger. The registration of our shares and our reporting obligations under the federal securities laws will be terminated after the Merger upon application to the SEC.

At the effective time of the Merger, each of our outstanding shares, other than shares held by Trilogy or its subsidiaries, held in our treasury, or held by stockholders who properly exercise appraisal rights under Delaware law, will be converted into the right to receive the Merger Consideration, without interest.

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At the effective time of the Merger, outstanding options to acquire our shares granted under our various stock option plans, shall be cancelled and in consideration of such cancellation, shall entitle their holder to the right to receive the excess, if any, of $1.60 per share over the per share exercise price of the applicable option, less any applicable withholding taxes.

Conditions to the Merger

The Merger is conditioned on the adoption of the Merger Agreement by our stockholders, which requires the affirmative vote of the holders of a majority of the shares of our (i) Preferred Stock and (ii) Common Stock combined with the shares of our Preferred Stock outstanding as of the record date.

The completion of the Merger is also subject to a number of other conditions that are set forth in the Merger Agreement. These conditions include the absence of any law or order of any governmental authority that prohibits the completion of the Merger, the receipt of all necessary consents and approvals, and the satisfaction by Trilogy and us of all of our respective obligations under the Merger Agreement. For a more complete description of these conditions, see the section of this proxy statement entitled “The Merger Agreement—Conditions to the Merger.”

Other than compliance with applicable SEC requirements, we do not anticipate that any regulatory actions or approvals will be necessary to complete the Merger.

If our stockholders adopt the Merger Agreement and the other conditions to the Merger are satisfied or waived, we expect that the Merger will be completed as soon as practicable after the Special Meeting. Although we hope to complete the Merger prior to September 6, 2006, the date after which either party to the Merger Agreement may terminate the Merger Agreement, we cannot assure you that the Merger will be completed at that time.

Payment of Merger Consideration, Liquidation Consideration and Surrender of Share Certificates

Please do not return your share certificates with the enclosed proxy. You should not forward your share certificates to the paying agent until you have received a letter of transmittal after the completion of the Merger.

We will engage a paying agent for purposes of making the cash payments to our stockholders provided by the Merger Agreement. At the closing, Trilogy will deposit, or cause to be deposited, with the paying agent cash in an aggregate amount necessary to pay the Merger Consideration to our holders of Common Stock and the Liquidation Consideration to our holders of Preferred Stock. The paying agent will use these funds for the sole purpose of paying the Merger Consideration and Liquidation Consideration to our stockholders. The paying agent will, in accordance with irrevocable instructions, deliver to you the Merger Consideration and/or Liquidation Consideration, as applicable, to which you are entitled according to the procedure summarized below. Trilogy and the surviving corporation shall pay all fees and expenses of the paying agent in connection with the distribution of the Merger Consideration and the Liquidation Consideration.

As soon as reasonably practicable after the effective time of the Merger, the surviving corporation will instruct the paying agent to mail you a letter of transmittal and instructions advising you of the effectiveness of the Merger and the procedure for surrendering your share certificates to the paying agent in exchange for the Merger Consideration and/or the Liquidation Consideration. Upon the surrender of your share certificates to the paying agent for cancellation, together with a letter of transmittal duly executed and completed in accordance with its instructions and any other items specified by the letter of transmittal, the paying agent will pay you the Merger Consideration and/or the Liquidation Consideration, as appropriate, to which you are entitled and your share certificates will be cancelled. No interest will be paid on the Merger Consideration and/or the Liquidation Consideration.

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If your share certificates have been lost, mutilated or destroyed, you may instead deliver to the paying agent an affidavit and, if required by the surviving corporation after the Merger, an indemnity bond in form and substance, and with surety reasonably satisfactory to the surviving corporation.

If the Merger Consideration and/or the Liquidation Consideration, or any portion of it, is to be paid to a person other than you, it will be a condition to the payment of the Merger Consideration and/or the Liquidation Consideration that your share certificates be properly endorsed or otherwise in proper form for transfer and that you pay to the paying agent any transfer or other taxes required by reason of the transfer or establish to the satisfaction of the surviving corporation that the taxes have been paid or are not required to be paid.

As of the effective time of the Merger, you will cease to have any rights as a stockholder of Artemis, except for the right to surrender your share certificates, according to the procedure described above, in exchange for payment of the Merger Consideration and/or the Liquidation Consideration, without interest, or, if you properly exercise appraisal rights, the right to receive the appraised “fair value” for your shares in cash under Delaware law. See the section of this proxy statement entitled “The Proposed Merger—Appraisal Rights.” As of the effective time of the Merger, the stock ledger with respect to our shares will be closed and no further registration of transfers of our shares will be made.

After one year following the effective time of the Merger, the paying agent will, on demand, deliver to the surviving corporation all cash that has not yet been distributed in payment of the Merger Consideration, plus any accrued interest, and the paying agent’s duties will terminate. Thereafter, you may surrender your share certificates to the surviving corporation and receive the Merger Consideration and/or the Liquidation Consideration to which you are entitled, without interest. However, you will have no greater rights against the surviving corporation than may be accorded to general creditors of the surviving corporation under applicable law. None of the surviving corporation, Trilogy or RCN will be liable to you for any Merger Consideration and/or the Liquidation Consideration delivered to a public official under any applicable abandoned property, escheat or similar law.

Appraisal Rights

Under Section 262 of the Delaware General Corporation Law (which we refer to in this proxy statement as Section 262), if you provide a written demand for appraisal of your shares prior to the Special Meeting of stockholders and do not vote your outstanding shares in favor of adoption of the Merger Agreement, you will be entitled to seek appraisal and elect to have the “fair value” of your shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with a fair rate of interest, if any, judicially determined by the Delaware Court of Chancery and paid to you in cash.

The following discussion is not a complete statement of the law pertaining to appraisal rights under the Delaware General Corporation Law and is qualified in its entirety by the full text of Section 262, a copy of which is included in this proxy statement as Annex D. All references in Section 262 and in this summary to a “stockholder” are to the record holder of the shares as to which appraisal rights are asserted. If you have a beneficial interest in our shares held of record in the name of another person, such as a broker or nominee, you must act promptly to cause the record holder to follow properly the steps summarized below and in a timely manner to perfect your appraisal rights.

Under Section 262, where a merger agreement is to be submitted for adoption at a meeting of stockholders, as in the case of the Special Meeting of our stockholders described in this proxy statement, a corporation, not less than 20 days prior to the meeting, must notify each of its stockholders on the record date entitled to appraisal rights that appraisal rights are available, and must include in the notice a copy of Section 262. This proxy statement is that notice to you, and a copy of Section 262 is included in this proxy statement as Annex D. If you wish to exercise your appraisal rights or to preserve the right to do so, you

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should review carefully Section 262 and seek advice of legal counsel, since failure to comply fully with the procedures of that Section will result in the loss of appraisal rights.

If you wish to exercise the right to dissent from the Merger and demand appraisal under Section 262, you must satisfy each of the following conditions:

·       You must deliver to us a written demand for appraisal of your shares before the vote on adoption of the Merger Agreement at the Special Meeting, which demand will be sufficient if it reasonably informs us of your identity and that you intend to demand the appraisal of your shares;

·       You must not vote in favor of adoption of the Merger Agreement. Because a proxy that does not contain voting instructions will, unless revoked, be voted in favor of the Merger Agreement, if you vote by proxy and wish to exercise appraisal rights, you must vote against adoption of the Merger Agreement or abstain from voting on adoption of the Merger Agreement; and

·       You must continuously hold your shares from the date of making a written demand through the effective time of the Merger. If you are the record holder of shares on the date the written demand for appraisal is made but thereafter transfer these shares prior to the effective time of the Merger, you will lose any right to appraisal in respect of the shares.

Neither voting in person or by proxy against, abstaining from voting on or failing to vote on the proposal to adopt the Merger Agreement will constitute a written demand for appraisal within the meaning of Section 262. The written demand for appraisal must be in addition to and separate from any such proxy or vote.

Only a holder of record of shares issued and outstanding immediately prior to the effective time of the Merger is entitled to assert appraisal rights for the shares registered in that holder’s name. A demand for appraisal should be executed by or on behalf of the stockholder of record, fully and correctly, as that stockholder’s name appears on the stock certificates, should specify the stockholder’s name and mailing address, the number of shares owned and that the stockholder intends thereby to demand appraisal of the stockholder’s shares.

If your shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a written demand should be made in that capacity. If your shares are owned of record by more than one person as in a joint tenancy or tenancy in common, the demand should be executed by or on behalf of all owners. An authorized agent, including one or more joint owners, may execute a demand for appraisal on behalf of a stockholder; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, the agent is acting as agent for the owner or owners.

A record holder such as a broker who holds shares as nominee for several beneficial owners may exercise appraisal rights with respect to the shares held for one or more beneficial owners while not exercising those rights with respect to the shares held for other beneficial owners; in that case, the written demand should set forth the number of shares as to which appraisal is sought, and where no number of shares is expressly mentioned, the demand will be presumed to cover all of our shares held in the name of the record owner. If you hold your shares in brokerage accounts or other nominee forms and wish to exercise appraisal rights, you are urged to consult with your broker to determine the appropriate procedures for the making of a demand for appraisal by the nominee.

A stockholder who elects to exercise appraisal rights under Section 262 should mail or deliver a written demand to Artemis International Solutions Corporation, 4041 MacArthur Blvd., Suite 401, Newport Beach, CA, 92660, Attention: Corporate Secretary.

Within ten days after the completion of the merger, the surviving corporation must send a notice as to the effectiveness of the merger to each former Artemis stockholder who has made a written demand for

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appraisal in accordance with Section 262 and who has not voted in favor of adoption of the Merger Agreement. Within 120 calendar days after completion of the merger, but not thereafter, either Artemis or any holder of dissenting shares who has complied with the requirements of Section 262 may file a petition in the Delaware Court of Chancery (the “Court”) demanding a determination of the fair value of all shares held by dissenting stockholders. We are under no obligation to and have no present intent to file a petition for appraisal, and you should not assume that we will file a petition or that we will initiate any negotiations with respect to the fair value of the shares. Accordingly, if you desire to have your shares appraised, you should initiate any petitions necessary for the perfection of your appraisal rights within the time periods and in the manner prescribed in Section 262.

Within 120 days after completion of the Merger, any stockholder who has complied with the provisions of Section 262 to that point in time will be entitled to receive from us, upon written request, a statement setting forth the aggregate number of shares not voted in favor of adoption of the Merger Agreement and with respect to which demands for appraisal have been received and the aggregate number of holders of the shares. We must mail this statement to the stockholder within 10 days of receipt of a request.

A stockholder timely filing a petition for appraisal with the Court must deliver a copy to Artemis, as the surviving corporation in the Merger, which will then be obligated within 20 days to provide the Court with a duly verified list containing the names and addresses of all stockholders who have demanded appraisal of their shares. After notice to the stockholders, the Court is empowered to conduct a hearing on the petition to determine which stockholders are entitled to appraisal rights. The Court may require stockholders who have demanded an appraisal of their shares and who hold stock represented by certificates to submit their certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings, and if any stockholder fails to comply with the requirement, the Court may dismiss the proceedings as to that stockholder.

After determining the stockholders entitled to an appraisal, the Court will appraise the “fair value” of their shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. The costs of the action may be determined by the Court and taxed upon the parties as the Court deems equitable. Upon application of a holder of dissenting shares, the Court may also order that all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including reasonable attorneys’ fees and the fees and expenses of experts, be charged pro rata against the value of all of the shares entitled to appraisal.

If you consider seeking appraisal, you should be aware that the fair value of your shares as determined under Section 262 could be more than, the same as or less than the Merger Consideration you would receive under the Merger Agreement if you did not seek appraisal of your shares. You should also be aware that investment banking opinions are not opinions as to fair value under Section 262.

In determining “fair value,” the Court is required to take into account all relevant factors. In Weinberger v. UOP, Inc. the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating 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 and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” 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 could be ascertained as of the date of the merger which throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a

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“narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation.

In Weinberger, the Delaware Supreme Court construed Section 262 to mean 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.”

Any stockholder who has demanded an appraisal in compliance with Section 262 will not, after the completion of the Merger, be entitled to vote the shares subject to this demand for any purpose or to receive payment of dividends or other distributions on those shares (except dividends or other distributions payable to holders of record of shares as of a record date prior to the completion of the Merger).

If any stockholder who demands appraisal of shares under Section 262 fails to perfect, or effectively withdraws or loses, the right to appraisal, the stockholder’s shares will be converted into the right to receive the Merger Consideration in cash in accordance with the Merger Agreement, without interest. A stockholder will fail to perfect, or effectively lose or withdraw, the right to appraisal if no petition for appraisal is filed within 120 calendar days after the completion of the Merger. A stockholder may withdraw a demand for appraisal by delivering to us a written withdrawal of the demand for appraisal and acceptance of the Merger Consideration, except that any such attempt to withdraw made more than 60 calendar days after the completion of the Merger will require the written approval of the continuing corporation. Once a petition for appraisal has been filed, the appraisal proceeding may not be dismissed as to any stockholder, absent approval of the Court.

To the extent that there are any inconsistencies between the foregoing summary and Section 262, Section 262 shall control.

APPROVAL OF THE MERGER AGREEMENT
(PROPOSAL NO. 1)

We are asking our stockholders to approve and adopt the Merger Agreement, dated as of March 10, 2006, among Artemis, Trilogy and RCN, a wholly owned subsidiary of Trilogy, and the Merger contemplated thereby, pursuant to which each share of Common Stock will be converted into the right to receive $1.60 in cash, without interest,,each share of Preferred Stock will be converted into the right to receive $2.20 in cash, without interest, and and each option with an exercise price of less than $1.60 per share will be converted into the right to receive $1.60 per share less the exercise price per share, without interest and less applicable withholding taxes.

In order to complete the proposed Merger, we must obtain the affirmative vote from the outstanding holders as of the record date for the Special Meeting which represent a majority of the shares of our (i) Preferred Stock and (ii) Common Stock combined with the shares of our Preferred Stock (the holders of Preferred Stock shall be casting their votes together with the owners of Common Stock, converting each preferred share held into one vote for purposes of voting together with the owners of the Company’s Common Stock). With respect to each vote, each share of our Common Stock and Preferred Stock, as applicable, is entitled to one vote.

ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING
(PROPOSAL NO. 2)

We may ask our stockholders to vote on a proposal to adjourn or postpone the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to approve and adopt the Merger Agreement and the Merger.

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RECOMMENDATIONS OF OUR BOARD OF DIRECTORS

Our board of directors believes that the Merger Agreement and the Merger are advisable, fair to, and in the best interests of, our stockholders. By the unanimous vote of our independent directors, our board of directors recommends that you vote FOR the adoption of the Merger Agreement. Our board of directors also recommends that you vote FOR the approval of any adjournment of the Special Meeting, if necessary, to solicit additional proxies in favor of the Merger proposal or otherwise to satisfy the conditions contained in the Merger Agreement to complete the Merger.

THE MERGER AGREEMENT

The following summary of the material terms of the Merger Agreement is qualified in its entirety by reference to the complete text of the Merger Agreement, which is included in this proxy statement as Annex A, exclusive of the schedules to the Merger Agreement, and is incorporated herein by reference. You are encouraged to read the Merger Agreement in its entirety.

The Merger

The Merger Agreement provides for the Merger of RCN with and into Artemis. Artemis will be the surviving corporation in the Merger and will become a wholly owned subsidiary of Trilogy. All of the shares of our (i) Common Stock, other than shares held by Trilogy or its subsidiaries, in our treasury, or held by stockholders who properly exercise appraisal rights under Delaware law, will be converted into the right to receive $1.60 per share in cash, without interest, (ii) Preferred Stock, other than shares held by Trilogy or its subsidiaries, in our treasury, or held by stockholders who properly exercise appraisal rights under Delaware law, will be converted into the right to receive $2.20 per share in cash, without interest, and (iii) each option with an exercise price of less than $1.60 per share will receive $1.60—less the exercise price per share, without interest and less any applicable withholding taxes. Each share of Common Stock and of Preferred Stock that is converted in the Merger automatically will be cancelled. After the effective time of the Merger, the holders of our shares of Common Stock and Preferred Stock will cease to have any rights in such shares other than statutory appraisal rights and the right to receive the applicable Merger Consideration and/or Liquidation Consideration upon surrender of their respective share certificates.

Certificate of Incorporation; Bylaws; Directors and Officers

As a result of the Merger, the certificate of incorporation of the surviving corporation will be amended and restated as set forth in the Merger Agreement. Also as a result of the Merger, the bylaws of Artemis as the surviving corporation will be amended and restated to read the same as the bylaws of RCN, as in effect immediately prior to the effective time, except that the name of the Company shall be “Artemis International Solutions Corporation.” The directors and officers of RCN immediately prior to the effective time of the Merger will become the directors and officers of Artemis, as the surviving corporation in the Merger.

Consideration To Be Received By Our Stockholders

At the effective time of the Merger, each of our outstanding shares of (i) Common Stock, other than shares held by Trilogy or its subsidiaries or in our treasury, or held by stockholders who properly exercise appraisal rights under Delaware law, will be converted into the right to receive $1.60 per share in cash, without interest and (ii) Preferred Stock other than shares held by Trilogy or its subsidiaries or in our treasury, or held by stockholders who properly exercise appraisal rights under Delaware law, will be converted into the right to receive $2.20 per share in cash, without interest.

Each common share of RCN outstanding at the effective time of the Merger will become one fully paid and non-assessable common share of Artemis, as the surviving corporation in the Merger.

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Stock Options

All of the outstanding options granted under our various stock option plans to acquire shares of our Common Stock will be cancelled at the effective time of the Merger, whether or not the options are then exercisable. In exchange for such cancellation, option holders will receive with respect to each option a payment equal to the amount, if any, by which the Merger Consideration of $1.60 per share exceeds the exercise price applicable to the option, multiplied by the number of shares subject to the option. After the effective time of the Merger, option holders will have no further rights in the options that were cancelled and the surviving corporation will have no options to purchase shares outstanding.

Our Representations and Warranties

We have made customary representations and warranties to Trilogy and RCN in the Merger Agreement. These representations and warranties relate to, and in some instances include exceptions regarding:

·       the organization, qualification and capital structure of Artemis;

·       our power and authority to enter into the Merger Agreement and complete the Merger, and the validity, binding effect and enforceability of the Merger Agreement against us; the absence of any conflict between our entering into the Merger Agreement or completing the Merger and our governing documents, agreements or other obligations;

·       the consents and approvals of governmental authorities and other parties that are required in connection with the Merger Agreement and the Merger;

·       our compliance with our obligation to make periodic filings with the SEC and the compliance of such filings with applicable law;

·       the absence of any material changes or developments with respect to the Company;

·       the absence of any litigation against us;

·       the accuracy of the information in this proxy statement or that we have supplied for use in connection with the Schedule 13E-3 that we filed with the SEC relating to the going-private aspect of the proposed Merger;

·       the absence of any breaches or violations under any of our governing documents or our contracts with third parties, and the validity and enforceability of such contracts;

·       our compliance with applicable tax laws and our filing of all required tax returns;

·       our compliance with the terms of our employee benefit plans and applicable law in the operation of our employee benefit plans;

·       our compliance with all applicable labor laws, and the absence of any litigation against us by our current or former employees;

·       our compliance with all applicable environmental laws;

·       the existence of valid leases with respect to the properties, rights and assets that we lease;

·       our valid ownership of, or right to use, the intellectual property rights that we use in our business;

·       the validity of our insurance policies;

·       the absence of any transactions with affiliates, except as otherwise disclosed;

·       the vote of our stockholders that is required to adopt the Merger Agreement and the recommendation of our disinterested board of directors;

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·       the receipt by us of an opinion from Cowen to the effect that the Merger Consideration is fair from a financial point of view to our stockholders, except affiliates of Artemis; and

·       the inapplicability of the Delaware business combination statute to the Merger Agreement or the Merger.

Representations and Warranties By Trilogy and RCN

Trilogy and RCN have made customary representations and warranties to us in the Merger Agreement. These representations and warranties relate to:

·       the organization and qualification of Trilogy and RCN;

·       the power and authority of Trilogy and RCN to enter into the Merger Agreement and complete the Merger, and the validity, binding effect and enforceability of the Merger Agreement against them, and the absence of any conflict between Trilogy and RCN entering into the Merger Agreement or completing the Merger and their governing documents, agreements or other obligations;

·       the consents and approvals of governmental authorities and other parties that are required in connection with the Merger Agreement and the Merger;

·       the accuracy of the information supplied by Trilogy and RCN for inclusion in this proxy statement and the Schedule 13E-3 (relating to the going-private aspect of the Merger) that we filed with the SEC regarding the proposed Merger; and

·       the availability to Trilogy and RCN of sufficient funds to complete the Merger.

Our Covenants

During the period from the date of the Merger Agreement until the effective time of the Merger or the earlier termination of the Merger Agreement, except as expressly permitted by the Merger Agreement or to the extent that RCN otherwise consents in writing, we have agreed to:

·       conduct our business in the ordinary course consistent with past practice;

·       use commercially reasonable efforts to preserve intact our present business organization, reputation and relationships, comply with all relevant laws and orders of all governmental or regulatory authorities;

·       pay our debts, liabilities and Taxes when due and pay or perform our other obligations when due;

·       use commercially reasonable efforts to preserve substantially intact our business organization, keep available the services of our present employees, preserve our assets and properties and preserve our relationships with governmental authorities, customers, suppliers and other persons; and

·       confer on a regular basis with Trilogy regarding our business and operations and matters relevant to the Merger and promptly advise Trilogy of any changes or event which could reasonably be expected to have a material adverse effect on the Company.

We have also agreed that during the aforementioned period, except as expressly permitted by the Merger Agreement or to the extent that Trilogy otherwise consents in writing, we will not do any of the following:

·       amend our certificate of incorporation or our bylaws;

·       issue, deliver or sell any capital shares or any securities convertible into capital shares except in accordance with our stock option plans or our rights plan;

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·       declare, set aside or pay any dividends on any of our capital shares;

·       split, combine or reclassify any of our capital shares or issue or authorize any securities in substitution for any of our capital shares;

·       incur any indebtedness for borrowed money except in the ordinary course of business and pursuant to our existing credit facility;

·       adopt a plan of liquidation, Merger, consolidation, restructuring, recapitalization or reorganization;

·       redeem, repurchase or otherwise acquire any of our capital shares except in connection with our stock option plans;

·       acquire any business or assets other than inventory or other assets to be used or sold in the ordinary course of our business, consistent with past practice;

·       sell, lease or encumber any of our assets or properties other than sales of inventory in the ordinary course of our business consistent with past practice;

·       make any tax election or settle or compromise any material income tax liability other than as required by law;

·       except for the vesting of all unvested options pursuant to the Merger Agreement, enter into, adopt, amend or terminate any of our employee benefit plans, agreements or policies, pay any benefits not required by existing compensation arrangements, increase the compensation of any of our directors or officers, or increase the compensation or benefits of any non-officer employee except for normal increases in the ordinary course of our business consistent with past practice;

·       enter into any contract or amend or modify any existing contracts, or enter into any new transaction with any of our affiliates outside of the ordinary course of our business and inconsistent with past practice or not on an arm’s length basis;

·       authorize or make any capital expenditures, except as reasonably deemed necessary to replace or repair property following the unanticipated loss or damage of such property in an aggregate amount not to exceed $100,000;

·       settle or compromise any material litigation that is pending or threatened;

·       enter into any contracts or agreements with Proha or any of its affiliates or enter into a contract or agreement granting any third party “most favored nation” price protection or similar provisions;

·       Propose or consent to any material change in the pricing of our products; or

·       take any action that could reasonably be expected to materially impair or delay the consummation of the Merger.

No Solicitation

The Merger Agreement provides that neither we nor our directors, officers, employees, advisors, agents or representatives may, directly or indirectly:

·       initiate, solicit or encourage any inquiries or the making by any third party of any proposal (including any proposal or offer to any of our stockholders) relating to an alternative acquisition proposal (which includes any Merger, consolidation or other business combination involving us and any acquisition of greater than 10% of the assets or securities of the Company); or

·       engage in any negotiations or discussions with, or provide any confidential information to, any third party relating to an alternative acquisition proposal.

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In addition, we agreed to cease any existing discussions or negotiations with any parties with respect to any of the foregoing. However, our board of directors is not prohibited from furnishing information to (but only pursuant to a confidentiality agreement having terms and conditions that are no less favorable than the terms and conditions of the confidentiality agreement between Trilogy and us) or entering into discussions or negotiations with any third party who makes an unsolicited alternative acquisition proposal and our board of directors, acting though its disinterested directors, determines in good faith (after consulting with Artemis’ legal counsel and our outside financial advisor), that the alternative acquisition proposal is or presents a reasonable likelihood of resulting in a proposal that provides greater value to our stockholders, is supported by fully committed financing and did not result from a breach of any of the provisions of the Merger Agreement described in this section.

Our board of directors is also not prohibited from taking and disclosing to our stockholders a position required under the federal securities laws with regard to an alternative acquisition proposal, or making any disclosure to our stockholders, if in its good faith judgment (after receiving advice from the Company’s outside legal counsel) there is a reasonable basis to believe that such disclosure is required by law.

Our board of directors may not withdraw or modify in any manner adverse to Trilogy the approval or recommendation of the Merger Agreement or the Merger or propose publicly to approve or recommend an alternative acquisition proposal unless our board of directors, acting through its disinterested directors, determines in its good faith judgment (after consulting with the Company’s outside legal counsel) that there is a reasonable basis to conclude that the failure to take such action would result in a breach of our board of directors’ fiduciary duties under applicable law.

We are required to promptly notify RCN if we receive any alternative acquisition proposal, or any request for information relating to Artemis by any third party that has made an alternative acquisition proposal, or any amendment to a previously disclosed alternative acquisition proposal, and are required to keep RCN fully informed on a current basis of the status and details of any such request. We may not enter into any agreement or arrangement or make any recommendation to our stockholders (other than as required by law) with respect to any alternative acquisition proposal for five business days after delivery of notice to Trilogy of our intention to enter into such an agreement or arrangement with another party or to make such a recommendation to our stockholders. During such five-day period, we must negotiate exclusively in good faith with RCN to make such adjustments in the terms and conditions of the Merger Agreement as would enable us to proceed with the Merger Agreement. Any such adjustments to the terms and conditions of the Merger Agreement are at the discretion of the parties.

Financing Matters

Trilogy and RCN have available sufficient funds to provide both for the payment of the Merger Consideration, Liquidation Consideration, the payment for the options with an exercise price less than $1.60 and all fees and expenses required to be paid by Trilogy and RCN related to the Merger.

Employee Matters

Trilogy has agreed that following completion of the Merger until the last day of the calendar year in which the Merger occurs, it will maintain our existing (i) United States employee benefit plans (other than equity-based compensation plans) and (ii) foreign employee benefit plans (other than equity-based compensation plans).

Directors and Officers Indemnification and Insurance

Trilogy has agreed that it will, and it will cause Artemis as the surviving corporation in the Merger to, indemnify and hold harmless our current and former directors and officers to the fullest extent permitted by law with regard both prior to or after the completion of the Merger. Trilogy has also agreed that the

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governing documents of the surviving corporation will, for a period of at least six years from the completion of the Merger, retain the indemnification provisions contained in our existing certificate of incorporation and bylaws. Trilogy is also required to maintain with respect to acts or omissions occurring prior to the effective time, until the fourth anniversary of the completion of the Merger, directors’ and officers’ liability insurance policies at least as favorable as the Company’s current policies, up to an aggregate cost not greater than $450,000.

Expense Reimbursement

Artemis is not reimbursing those legal expenses incurred by its executive officers in order to enable the Company to perform its own obligations under the Merger Agreement (such as the preparation of this proxy statement and the related Schedule 13E-3), as determined by our board of directors. In addition, Artemis is not reimbursing those expenses incurred in connection with the negotiation of the individual arrangements of its executive officers for post-merger employment and equity participation.

If the Merger Agreement is terminated under any of the following circumstances, we will be required to pay RCN all documented costs and expenses incurred by RCN and its majority indirect shareholder in connection with the Merger Agreement and the transactions contemplated thereby, provided that in no event shall the amount payable under this provision exceed $500,000.00, provided further that the aggregate amount of fees payable by Artemis to Trilogy or its affiliates shall not exceed $750,000.00;

·       terminated by RCN because the approval of our stockholders is not obtained after a duly held vote; or

·       terminated by RCN due to a material breach of any representation, warranty, covenant or agreement in the Merger Agreement on the part of the Company and such breach is not cured within 30 days of notice of such breach.

Conditions to the Merger

The obligation of us, Trilogy and RCN to complete the Merger is subject to the satisfaction of the following conditions:

·       the adoption of the Merger Agreement by the holders of a majority of our outstanding shares of (i) Common Stock (including the Preferred Stock on an as-converted basis) and (ii) Preferred Stock; and

·       the absence of any law or order of any governmental authority that prohibits the completion of the Merger.

The obligation of Trilogy and RCN to consummate the Merger is subject to the satisfaction of the following additional conditions:

·       our representations and warranties in the Merger Agreement must be true and correct in all material respects as of the closing date;

·       we must have performed in all material respects our agreements and covenants under the Merger Agreement;

·       we must have obtained all consents or approvals required in connection with the consummation of the Merger in form and substance satisfactory to Trilogy and RCN;

·       the Company and Proha must have entered into an agreement with regard to certain arrangements between the parties, and this agreement, as well as the agreement between the Company and Laurus, the voting agreements and the stockholder letter agreement, shall be in full force and effect;

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·       Trilogy must have received certificates duly executed by the chief financial officer of the Company with regard to certain matters related to net indebtedness and cash and cash equivalents of the Company;

·       Trilogy must have received duly executed releases from resigning officers and directors, as well as duly executed proprietary information and inventions assignment agreements from certain employees of the Company; and

·       there must not be in effect any judgment, order or decree of or any law enacted by any governmental authority which imposes material limitations on the ability of Trilogy or its affiliates to complete the Merger or operate our business after the Merger.

Our obligation to consummate the Merger is subject to satisfaction of the following additional conditions:

·       the representations and warranties of Trilogy and RCN in the Merger Agreement must be true and correct in all material respects as of the closing date;

·       each of Trilogy and RCN must have performed in all material respects its agreements and covenants under the Merger Agreement; and

·       the Company shall have received a certificate signed on behalf of Trilogy and RCN by the chief executive or chief financial officer of Trilogy that each of the foregoing conditions have been satisfied.

Termination of the Merger Agreement

The Merger Agreement may be terminated at any time prior to the completion of the Merger, whether before or after adoption of the Merger Agreement by our stockholders:

·       by mutual written agreement of us (authorized by our board of directors), RCN and Trilogy;

·       by either us or RCN at any time after September 6, 2006 if the Merger has not been completed on or prior to that date and the failure to complete the Merger is not caused by a breach of the Merger Agreement by the terminating party;

·       by either us (as long as we are in compliance with certain provisions of the Merger Agreement) or RCN if the approval of our stockholders is not obtained after a duly held vote;

·       by either us or RCN if there has been a material breach of any representation, warranty, covenant or agreement in the Merger Agreement on the part of the non-terminating party and such breach is not cured within 30 days of notice of such breach;

·       by either us or RCN if any court or other governmental authority has issued a law or order making illegal or otherwise prohibiting the completion of the Merger;

·       by us if our board of directors receives an unsolicited alternative acquisition proposal and, acting through its disinterested members, determines in good faith (after consulting with the Company’s outside legal counsel) that the alternative acquisition proposal is or presents a reasonable likelihood of resulting in a proposal that provides greater value to our stockholders, is supported by fully committed financing and did not result from a breach of any of the provisions of the Merger Agreement, provided that we must pay to Trilogy the expense reimbursement fee and termination fee described below provided further that in no event shall the aggregate amount of fees payable by the Company to Trilogy exceed $750,000;

·       by RCN if any party (other than RCN) breaches any obligation under or terminates any voting agreement with respect to itself; or

61




·       by RCN if our board of directors shall have withdrawn or modified or qualified in a manner adverse to Trilogy the board’s approval or recommendation of the Merger Agreement or the Merger, or the Company has breached its obligations with respect to the stockholder’s meeting, proxy or non-solicitation, or the breach by any party (other than RCN) of its obligations under the voting agreements, provided that we must pay to Trilogy the expense reimbursement fee and termination fee described below provided further that in no event shall the aggregate amount of fees payable by the Company to Trilogy exceed $750,000.

If the Merger Agreement is terminated, such agreement will become null and void and none of us, Trilogy or RCN will be obligated to complete the Merger.

Termination Fee

If the Merger Agreement is terminated under any of the following circumstances, we will be required to pay RCN a termination fee of $750,000:

·       if we terminate the Merger Agreement because our board of directors receives an unsolicited alternative acquisition proposal and our special committee determines in good faith (after consulting with the Company’s outside legal counsel) that the alternative acquisition proposal is or presents a reasonable likelihood of resulting in a proposal that provides greater value to our stockholders, is supported by fully committed financing and did not result from a breach of any of the provisions of the Merger Agreement;

·       if either we or RCN terminates the Merger Agreement because the approval of our stockholders is not obtained after a duly held vote, and/or an alternative acquisition proposal has been publicly disclosed or publicly proposed to us or our stockholders and such proposal was not publicly withdrawn prior to the vote and we consummate a transaction involving the acquisition of at least a majority of our outstanding voting securities or assets within twelve months of the date of termination; or

·       if Trilogy and RCN terminate the Merger Agreement because our board of directors has withdrawn or modified or qualified in a manner adverse to Trilogy the board’s approval or recommendation of the Merger Agreement or the Merger, or the Company has breached its obligations with respect to the stockholder’s meeting, proxy or non-solicitation, or the breach by any party (other than RCN) of its obligations under the voting agreements.

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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

The following table sets forth information with respect to beneficial ownership of the Company’s Common Stock as of February 28, 2006, for (i) each person known by the Company to beneficially own more than 5% of each class; (ii) each director and nominee for director; (iii) each Named Executive Officer (as defined); and (iv) all of the Company’s executive officers and directors as a group. Unless otherwise indicated, the principal address of each stockholder listed below is c/o Artemis International Solutions Corporation, 4041 MacArthur Boulevard, Suite 401, Newport Beach, California 92660.

NAME OF BENEFICIAL OWNER

 

 

 

TOTAL AMOUNT OF
SHARES
BENEFICIALLY
OWNED(1)

 

PERCENTAGE OF
COMMON STOCK
BENEFICIALLY
OWNED

 

 

Proha Plc(2)

 

 

7,977,062

 

 

 

77

%

 

 

Maapallonkuja 1 A

 

 

 

 

 

 

 

 

 

 

FIN-02210 Espoo

 

 

 

 

 

 

 

 

 

 

Emancipation Capital LP(7)

 

 

1,678,984

 

 

 

14

%

 

 

Trilogy Capital Holdings Corporation(8)(10)

 

 

1,376,904

 

 

 

12

%

 

 

Directors and Executive Officers

 

 

 

 

 

 

 

 

 

 

Bengt-Åke Älgevik(5)

 

 

15,000

 

 

 

*

 

 

 

David Cairns(5)

 

 

22,000

 

 

 

*

 

 

 

Joseph Liemandt(5)(8)(9)

 

 

1,398,904

 

 

 

*

 

 

 

Michael Murphy(5)

 

 

33,000

 

 

 

*

 

 

 

Olof Odman(3)(4)(5)

 

 

32,980

 

 

 

*

 

 

 

Pekka Pere(3)(4)(5)

 

 

7,996,042

 

 

 

*

 

 

 

Charles F. Savoni(5)

 

 

24,500

 

 

 

*

 

 

 

Robert Stefanovich(5)

 

 

140,000

 

 

 

*

 

 

 

Patrick Ternier(4)(5)

 

 

253,600

 

 

 

*

 

 

 

All directors and executive officers as a group (9 persons)(6)

 

 

562,060

 

 

 

5

%

 

 


*                    Less than 1%

(1)          Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the Company believes that the persons named in the above table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them.

(2)          Based upon information contained in a Form 13D/A dated November 20, 2001, filed with the SEC by Proha Plc on behalf of itself and related entities, such entity owns 7,977,062 shares of Common Stock.

(3)          This individual also serves on the board of directors of Proha Plc.

(4)          Director or executive officer disclaims beneficial ownership of 7,977,062 shares held by Proha Plc, except to the extent of his pecuniary interests in Proha Plc.

(5)          Includes the number of shares of Common Stock that could be acquired within sixty days of February 28, 2006, pursuant to outstanding stock options, as follows: Mr. Odman, 32,980 shares; Mr. Pere 18,980 shares; Mr. Liemandt 22,000 shares; Mr. Murphy 33,000 shares; Mr. Algevik 15,000 shares; Mr. Cairns 22,000 shares; Mr. Stefanovich 140,000 shares; Mr. Ternier 253,600 shares; Mr. Savoni 24,500 shares, and of the group 562,060 shares.

(6)          The shares beneficially owned by Proha Plc (7,977,062) and Trilogy Capital Holdings Corporation (1,376,904) are not included in this total as the respective directors disclaimed beneficial ownership per footnotes (4) and (9).

63




(7)          The principal address of Emancipation Capital LP, or EC, is 153 East 53rd Street, Suite 26B, New York, NY 10022. Emancipation Capital LLC acts as the general partner of EC and has voting and dispositive power over the securities held by EC. The managing member of Emancipation Capital LLC is Mr. Charles Frumberg. Emancipation Capital LLC and Mr. Frumberg disclaim beneficial ownership of the securities held by EC, except for their pecuniary interest therein. The total shares beneficially owned by EC of 1,678,984 include (i) 1,390,336 share of Common Stock currently issuable upon the conversion of Series A Convertible Preferred Stock, (ii) 136,364 shares of Common Stock currently issuable to EC upon exercise of certain warrants that were fully vested and exerciseable on the issuance date, and (iii) 152,284 shares of Common Stock issued upon exercise of other warrants.

(8)          Trilogy Capital Holdings Corporation (f/k/a Samuelson Investment Inc.) is wholly owned by Trilogy, Inc. Mr. Liemandt is Chairman of the Board, President and CEO of Trilogy, Inc.

(9)          Director disclaims beneficial ownership of 1,376,904 shares held by Trilogy Capital Holdings Corporation (f/k/a Samuelson Investment Inc.)

(10)   The total shares beneficially owned by Trilogy Capital Holdings Corporation (f/k/a Samuelson Investment Inc.) of 1,376,904 includes (i) 1,136,364 shares of Common Stock currently issuable upon conversion of Preferred Stock, (ii) 113,636 shares of Common Stock currently issuable upon exercise of certain warrants that were fully vested and exerciseable on the issuance date, and (iii) 126,904 shares of Common Stock issued upon exercise of other warrants.

ARTEMIS BUSINESS DESCRIPTION

Artemis is one of the world’s leading providers of Investment Planning and ControlTM (“IP & C”) software and services. Since 1976, we have been helping organizations improve their performance through portfolio, project and resource management.

We provide a comprehensive set of Investment Planning and Control solutions designed to help organizations execute their strategies through effective project portfolio management. These solutions combine our flagship product Artemis 7 with verticalized solutions and oriented consulting services to address the needs of both private and public sector organizations in the areas of:

·       New Product Development (NPD) and launch

·       Information Technology (“IT”) Management and Governance

·       Strategic Asset Optimization

·       Aerospace and Defense Program Management

·       Public Investment Management

Our Investment Planning and Control solutions cover the full investment lifecycle, from selection and prioritization based on strategy and operational goals, to reiterative budgeting and resource allocation, to project execution and performance measurement, including value and benefit assessment. Our customers rely on us to provide them with a solution to better manage their IT investments, develop and launch new products such as pharmaceuticals and high techs, promote business efficiency through better alignment and allocation of funds in governmental agencies, optimize investments in assets like nuclear power stations, and manage defense programs.

The solutions are deployed in a phased approach using SM², the Artemis Solution Management MethodologyTM, designed to accelerate return on investment (“ROI”) and minimize implementation risks.

More than 440 companies representing 645,000 users in 44 different countries have licensed Artemis solutions in a broad range of industries, including: AMI Semiconductor, Chicago Mercantile Exchange, Denso, Exelon Energy, Lockheed Martin, MoneyGram, Nokia, Telecom Italia, Toshiba, and USAA.

64




Our corporate offices are located at 4041 MacArthur Boulevard, Suite 401, Newport Beach, CA 92660 and our telephone number at that address is (949) 660-6500.

Industry Overview

Private and public sector organizations are under growing pressure to deliver more with less, and improve the alignment of their investments with evolving objectives in an increasingly competitive market characterized by tighter margins, shorter product lifecycles, economic and political uncertainty, and more stringent regulatory controls and compliance criteria.

Across all industry sectors, the past two years have confirmed the urgent need to improve the processes for selecting, budgeting, prioritizing and executing investments in order to optimize corporate resources, improve business performance and ensure visibility throughout the process.

Similar issues exist in all areas of the business including IT, Research and Development and Asset Lifecycle Management:

·       Increasing visibility and alignment of the investment portfolio with evolving business strategy

·       Making objective, value-based investment selections

·       Maintaining agility in the allocation of funds and resources to reflect changing priorities

·       Aligning investment planning and execution to ensure business benefits achievement and value delivery

·       Minimizing unnecessary costs by early identification of investments that bring insufficient value

·       Enabling effective governance over both strategy and execution

·       Ensuring regulatory compliance through standard methods and processes

These requirements make Portfolio and Value Management one of the most powerful combinations for improved business performance.

·       Within R&D organizations, according to AMR Research and Aberdeen Group, Product Portfolio Management is one of the most strategic investments companies can make in improving Product Life cycle Management, as it can help them to focus their resources on the products that will provide the highest value. The resulting PPM application market is estimated at $300 million growing at 13% a year. The increasing focus of companies on improving profit growth through better innovation management offers an additional confirmation of the dynamics of this market segment.

·       Within IT organizations, according to Gartner Group, the two top priorities of CIOs—“linking business and IT strategies and plans” and “delivering projects that enable business growth”—will continue to fuel the demand for IT Portfolio Management applications, pushing the market to increase over 5% per year until 2009. Other leading analyst firms report similar trends, confirmed by our own customers.

Most organizations have been trying to solve the above issues using in-house tools, desktop software and point solutions, without being able to leverage the benefits associated with a comprehensive and dynamic view of the investment portfolio through its full life cycle, and involving all stakeholders throughout the organization.

65




Our Solutions

Our solutions help translate strategy into measurable results by providing a permanent, comprehensive view of the investment portfolio, agility to respond to change, detailed performance analysis, support for rapid objective decision making, and timely communication to stakeholders.

They incorporate a fully integrated set of top-down and bottom-up processes enabling all stakeholders to concentrate on the key business decisions related to their investments and projects without getting caught-up in the details: from selection and prioritization based on strategy and operational goals, to reiterative budgeting and resource allocation, to project execution and performance measurement, including value and benefit assessment.

Our solutions are designed to deliver value throughout the full investment life-cycle to all stake-holders: R&D managers, Chief Information Officer, Chief Financial Officers, line of business managers, project and resources managers, knowledge workers, customers and partners. Unlike other systems, our solutions are completely integrated to offer a real connection between the different processes including demand management, portfolio and budgeting management, project and resource management, benefit measurement and delivery control.

The web-based software underlying our solutions is accessible through any browser, and is scalable for tens of thousands of users. Multiple language and currency support ensures seamless integration, consolidation and analysis of all investments for our global customers.

Strategy

Our strategy is to become the leading provider of Investment Planning and Control solutions for large private and public sector organizations.

Our plan includes the following key components:

·       Shift more of our efforts toward the New Product Development market to leverage the recent focus of R&D organizations on increasing their investments in innovation and on getting more return from their R&D dollars

·       Continue to show leadership in functionality not only in IT Management, but in other investment intensive businesses areas such strategic asset management

·       Increase the leverage created by our extensive international presence to improve our sales in growing and emerging regions

·       Add more strategic partnerships to increase our access to the market and the value delivered to customers

·       Cultivate customer intimacy to enhance implementation service quality and build more industry best practices into our solutions

Products

Artemis 7, the software product underlying our Investment Planning and Control solutions, was first introduced in December 2001 under the name Portfolio Director. Version 6.1 was released in July 2005, extending the capabilities of the previous version by adding:

·       Workflow driven idea and request management

·       Advanced Planning and Scheduling as an alternative to Microsoft Project usage

·       Improved time reporting features

66




·       Support of IBM DB2 Universal Database

We expect to release Artemis 7, version 6.2 in June/July 2006, with content particularly focused on improvement requests from our large existing customer base. The objective is to increase user satisfaction and allow customers to expand their implementations beyond their existing scope.

In Q3 2006, we also expect to launch version 7 of Artemis 7, a major release clearly focused on satisfying specific requirements of the New Product Development and R&D target market in the areas of:

·       Ideation Management

·       Product Portfolio Management analysis

·       Phase-Gate process management, a methodology widely used in R&D organizations

·       Master Plan Management

Artemis 7 incorporates a fully integrated set of top-down and bottom-up collaborative processes:

Investment Portfolio Management

·        Collect demands and ideas

·        Define, classify, prioritize investments

·        Model and simulate alternative investment strategies

·        Record investment risks and issues

·        Regularly review investment performance and communicate status to stakeholders

Performance Based Budgeting

·        Financial management of multi-year investments

·        Dynamic linkage of budgets to strategy

·        Manage fund requests, arbitration and allocation process

·        Maintain visibility of budgeting and resource allocation decisions

·        Manage full cost of investments

Execution Management

·        Manage projects and work

·        Allocate and optimize resources

·        Manage deliverables

·        Track time

·        Manage risk and issues

·        Assess results

This integrated set of processes is supported by horizontal capabilities:

Dashboards & Analytics

Artemis 7 provides a comprehensive set of standard dashboards and unlimited analytical capabilities on investment portfolio management, budget and cost control, benefit measurements, resource usage and project management.

67




In addition to multiple scorecards and other on-line key performance indicators, the product offers sophisticated web-based integration with Microsoft Excel. An unlimited number of Excel based reports can be created through pre-defined templates and fully integrated in each user environment while respecting data security requirements. The software also facilitates use of other third party Business Intelligence tools by providing access to a set of ready to use reporting data tables.

Work Flow Management

The product uses investment and project management methodology templates to provide integrated workflow control and stage gate capabilities. These governance templates contain the steps, milestones and stakeholders involved in the lifecycle approval and funding process for each investment or project including review, approval and authorization steps. The application uses workflows to prompt identified stakeholders to formally review and approve different milestones and stages throughout the lifecycle of investments, programs and projects.

Triggers can send alerts within the Artemis 7 platform or via email to defined investment project stakeholders, providing instant notification of critical issues for review and approval.

Collaboration

The product provides a comprehensive collaborative capability, allowing stakeholders and contributors to store and share information. The integrated document management capability allows documents and data to be linked directly to the target investment, project or work items, while the discussion area provides an informal process for threaded comments and notes. Risks are more easily monitored and controlled through the shared Risks and Issues Register. Users may subscribe to specific documents receiving updates through email and home page alerting.

Integration Management

Artemis 7 is an extensible solution, allowing integration with existing systems and the capacity to extend standard system functionality through Custom Plug-ins, Application Program Interface (“API”) and Extensible Markup Language (“XML”) capabilities.

Artemis 7 allows configurable access levels based on role and rights granted that allow users to access the various processes and features of the solution based on their individual needs. This approach by process favors phased implementations, allowing the organization to start with a 25 user system initially focused on portfolio and budget optimization, then expanding to ten of thousands of users leveraging all the business processes supported by the solution.

Artemis Views, a web and client server product designed to manage project based work in organizations with well-established project management practices, comprises a series of core modules including: Project Management, Advanced Planning and Resourcing, Earned Value Management, Time Reporting, and Project Analytics.

Technology and Architecture

The technology underlying our solutions offers a highly scalable and configurable environment on a web-based architecture designed to support distributed environments.

Multi-Platform

Built in J2EE (the most established Java programming language), Artemis 7 supports the majority of popular platforms and environments, allowing organizations to leverage their existing investment in deployed technologies.

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Security

Role based access security ensures that authorized users are presented with an intuitive, easy to navigate interface that provides only the information appropriate to their role.

Internationalization

Designed for global deployment using multiple currencies, Artemis 7 provides multi-language support including DBCS (Double Byte Character Set) and is available today in English, French, German, Spanish, Italian, Russian, Dutch, Japanese, Chinese and Korean.

Integration

Artemis 7 is a fully extensible solution, allowing integration with existing systems and the capacity to extend standard system functionality. Custom Plug-ins enable event driven extensions, while our API provides for more complex integrations and extensions. In addition, the application provides a complete XML schematic to aid custom data transfer.

Expansion and Strategic Alliances

From a sales perspective, we will seek to continue to consolidate our leadership throughout Europe and Japan, while increasing sales in North America. We established a program for growth in the Japanese market and will selectively extend our presence in emerging markets such as China and Australia. To support our growth within specific industry market segments, we have established strategic alliances with a number of specialized consulting companies and system integrators. These include Atos Origin, BearingPoint, IBM Global Services, Unilog, Fujitsu Consulting, DMR Conseil (Quebec). Our technology-focused alliances include companies such as IBM Corporation, Oracle Corporation, Microsoft Corporation, Cognos, BEA Systems, and Sun Microsystems.

Selling and Marketing

We market our solutions through our own direct sales organizations in the United States, the United Kingdom, France, Finland, Germany, Italy, Japan and Singapore. Additionally, our joint venture and distributor network provides sales and service capabilities in other European countries, Australia, Asia Pacific and Latin America.

We also support our growth within specific markets through consulting partnerships that enhance our total offering by providing an integrated solution deployment and systems integration capability.

Our overall marketing strategy is to continue to position our Investment Planning and Control offering as the leading solution in the market. An IP&C solution that provides a management framework for the optimization of the complete set of investments of a given organization during their full lifecycle, from value assessment to benefit realization.

Customers

We provide mission-critical software solutions to hundreds of organizations worldwide. The below list demonstrates the diverse geographical and industry coverage we have recently established with our solutions.

Financial Services:   AIG Insurance, Allianz-AGF, AXA Life Insurance, Banco Espirito Santo, Banque La Poste, BNP Paribas, Chicago Mercantile Exchange, Crédit Agricole, Calyon, Generali Insurance, Moneygram, Promina Group Insurance, USAA.

High-Tech & Manufacturing:   AMI Semiconductor, Arcelor, Cummins, Denso Corporation, Hitachi, Jatco, LG, McData Corporation, Ogihara, Philips Medical Systems, Renault, Sara lee, Trigem Computers.

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Lifescience:   Actelion Pharmaceutical, Celesio, Kirin, Gambro, Lundbeck, Maruho , Pfizer, Tanabe, Unomedical.

Government:   Bordeaux District Council, Brisbaine City Council, City of Munich, French UNEDIC, Office of UK Deputy Prime Minister, Singapore Immigration & Checkpoint Authority, Italian Ministry of Economy & Finance, UK Metropolitan Police, UK Regional Development Agencies.

Telecommunications:   China Telecom Shanghai, France Telecom, Indonesia PT Telecom, Nokia Corporation, Telecom Italia, Telefonica Moviles, Telenor, T-Systems, Vodafone, Wind Spa.

Energy:   CEA, Ergon Energy, Exelon Nuclear, Exelon Energy Delivery, Gazprom, GE Oil & Gas, Osaka Gas.

Aerospace & Defense Program:   Alcatel Space, BAE Systems, Bath Iron Works, Liebherr Aerospace, Lockheed Martin Space Systems, Raytheon, Thales, Turbomeca

To date, more than 440 companies representing 645,000 users have licensed our software solutions.

Intellectual Property

Patents do not protect our proprietary products. However, to protect our intellectual property rights, we license our software products and require our customers to enter into license agreements that impose restrictions on their ability to utilize the software or transfer it to other users. Additionally, we seek to avoid disclosure of our trade secrets through a number of means, including, but not limited to, requiring those persons with access to our proprietary information to execute confidentiality agreements with us and restricting access to our source code. In addition, we protect our software, documentation, templates and other written materials under trademark, trade secret and copyright laws. Even with all of these efforts, there can be no assurance that such precautions will provide meaningful protection from competition or that competitors will not independently be able to develop similar technology. If, in the future, litigation is necessary to enforce our intellectual property rights, to protect our trade secrets, and/or to determine the validity and scope of the proprietary rights of others, such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our business, operating results and/or financial condition. As a result, we may be unable, for financial or other reasons, to enforce our rights under the various intellectual property laws as described above.

In addition, the laws of certain foreign countries (particularly in Asia) in which our products are or may be licensed may not protect our products and intellectual property rights to the same extent as laws of the United States. Patent protection within the World Trade Organization appears to permit substantial discretion to member countries.

We believe that our products do not infringe upon any valid existing proprietary rights of third parties.

Competition

With demonstrated market growth in the Project Portfolio Management software space, we expect positive trends for the application software market in general. We also expect the intensity of existing competition to increase, particularly in the US and the UK.

We believe other parts of the world, such as Japan and Continental Europe, to be more sheltered from competitive pressure due to our long established presence, understanding of local market needs, and existing partnerships.

Our products compete with a variety of business application software and with in-house developments based on Microsoft Office developments or other programming languages.

70




Competition comes mainly from pure project portfolio software vendors, IT Management suites and some Enterprise Resource Planning (“ERP”) modules that can initially appear attractive to customers who have implemented the ERP software for other business processes.

Competition varies according to the different markets we address with our solutions:

·       IT Management and Governance with vendors such as Computer Associates, Mercury Interactive and Compuware

·       New Product Development with vendors such as Agile, Sopheon, SAP and MatrixOne

·       Aerospace and Defense Program management with vendors such as Primavera, Welcom, Microsoft, SAP and Oracle

We expect to continue to compete very favorably on a global basis due to our solution capabilities and inbuilt intelligence, together with our ability to leverage our international presence and local market intimacy.

Research and Development

We incurred research and development expenses of approximately $7.9 million, $7.7 million and $8.2 million, respectively, for the years ended December 31, 2005, 2004 and 2003. Research and development expenses consist primarily of salaries and related costs associated with the development of our products.

In early 2004, we changed the leadership of our product development organization and consolidated our Product Management, Development and Tier II Support functions under a single structure, Product Operations. In late 2005 we reinforced the responsibilities of our Strategic Marketing organization to better align our product strategy with the Company’s strategic objectives.

In late 2004, there was recognition that the project management technology from Views was not a good fit for Artemis 7. During our investigation of alternatives, a best-of-breed technology became available on the market, thereby significantly reducing our time to market for similar cost. This had the immediate benefit of allowing us to deliver a major new functional module wholly developed by this offshore team in June/July 2005.

In 2005, additional steps were taken to begin the complete transition of the Views Development, Quality Assurance and Tier II Support function to our outsourcing partner’s facility in India. Hiring and training of development staff at the outsourcing partner’s facility dedicated to Artemis started during the second quarter of 2005. The transition is expected to be completed by the end of 2006.

In addition, Artemis 7 Quality Assurance and Tier II functions are being further augmented starting early 2006, using the outsourcing partner, with further augmentation anticipated later in the year.

We believe that continued investment in research and development is critical to attaining our strategic objectives and, as a result, we expect that our overall capacity in research and development in 2006 will increase while the overall cost will decrease, resulting from the reorganizing activities described above. This restructuring exercise allowed Artemis to increase its core development capacity in 2005 while retaining some of the cost savings from the actions described above.

Our plan is to increase our R&D output to strengthen our leadership in the geographical markets and/or industries we are targeting. Major new releases will increase our ability to support additional business processes and user types in key market segments, increasing our footprint in the customer’s organizations.

71




R&D efforts are performed in our facilities in the US and the UK, with significant additional capacity from our partner company based in India.

In fiscal 2005, our R&D efforts focused primarily on our Artemis 7 based solutions and to a lesser extent on Artemis Views.

Services and Support

Drawing on the consolidated experience of a global network of consultants specialized in the definition and deployment of processes and systems to support enterprise investment planning and control, we have developed a structured Solution Management Methodology (sm2). This modular, phased approach enables reduction in deployment time thereby delivering more immediate benefits, accelerating ROI, and minimizing the risks frequently associated with the deployment of enterprise solutions. We regularly partner with consulting organizations and system integrators to increase the value delivered to our clients.

We offer a worldwide support network and complementary systems that ensure timely and quality responses to client requests. From all our offices worldwide, we provide telephone and Web-based support as well as guidance on how to best use our solutions, and to resolve issues encountered during installation, deployment, and day-to-day usage of our products.

Employees

As of December 31, 2005, Artemis directly employed approximately 295 persons on a worldwide basis: 58 in the United States of America, 190 in Europe, 32 in Japan, and 15 in Asia. Our employees are not represented by labor unions or collective bargaining agreements, except as may be required by the laws of certain foreign jurisdictions. We have not experienced any work stoppages anywhere, and consider our relations with our employees worldwide to be good.

Financial Information about Geographic Areas

Our revenue is segmented by geographic region and is based upon management responsibility for such operations. The following table presents information about the Company’s revenue (net of eliminations) by geographic area for each of the three years in the period ended December 31, 2005.

 

 

For the years ended

 

 

 

December 31,

 

 

 

2005

 

2004

 

2003

 

 

 

(in thousands)

 

Americas

 

$

9,250

 

$

12,039

 

$

15,642

 

EMEA(1)

 

30,823

 

33,744

 

34,423

 

Japan

 

6,109

 

5,196

 

6,073

 

Asia

 

1,183

 

1,466

 

1,153

 

Total revenue

 

$

47,365

 

$

52,445

 

$

57,291

 


(1)          Europe, Middle East and Africa

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PROPERTIES

We occupy facilities in the United States and internationally, pursuant to leases that expire from a month-to-month basis to December 31, 2012. In addition, we maintain facilities in various other locations across the United States, Europe and Asia (including Japan). Our facilities comprise a total of 20,000 square feet in the United States and 54,000 square feet in Europe and Asia. We believe our current facilities are sufficient for our needs.

LEGAL PROCEEDINGS

We are a party to a number of legal claims arising in the ordinary course of our business. We believe the ultimate resolution of these claims will not have a material adverse effect on our financial position, results of operations or cash flows.

SELECTED FINANCIAL DATA/ SUMMARIZED FINANCIAL INFORMATION

The following consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (see below) and the consolidated financial statements and notes thereto included in the Company’s December 31, 2005 Annual Report on Form 10-K filed with the SEC and included in this proxy statement as Annex E. The consolidated financial data are derived from our audited consolidated financial statements, which have been prepared assuming that the Company will continue as a going concern. The Company has incurred substantial recurring losses from operations and may incur losses in the future. These and other factors as described in Note 1 to the aforementioned financial statements raise substantial doubt about the Company’s ability to continue as a going concern without financial restructuring, absent an improvement in the Company’s operating performance. 

 

 

Year Ended December 31,

 

 

 

2005

 

2004

 

2003

 

2002

 

2001

 

 

 

(in thousands, except per share data)

 

Summary of operations data:

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

47,365

 

$

52,445

 

$

57,291

 

$

68,664

 

$

67,646

 

Gross profit

 

26,955

 

28,955

 

31,262

 

35,954

 

34,549

 

Operating loss

 

(4,648

)

(9,553

)

(8,092

)

(3,746

)

(66,483

)

Net loss

 

(4,045

)

(9,685

)

(7,891

)

(3,948

)

(59,764

)

Basic and diluted loss per common share

 

(0.38

)

(0.97

)

(0.79

)

(0.40

)

(6.78

)

Shares used in computing loss per common share

 

10,717

 

9,988

 

9,965

 

9,965

 

8,816

 

Balance sheet data:

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

15,608

 

18,162

 

18,877

 

25,677

 

20,294

 

Working capital deficiency

 

(5,577

)

(3,420

)

(9,016

)

(4,964

)

(5,432

)

Non-current assets

 

1,469

 

4,158

 

9,481

 

13,328

 

18,276

 

Total assets