<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
ON TECHNOLOGY CORPORATION
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
________________________________________________________________________
(3) Filing Party:
________________________________________________________________________
(4) Date Filed:
________________________________________________________________________
<PAGE>
ON TECHNOLOGY CORPORATION
ONE CAMBRIDGE CENTER
CAMBRIDGE, MA 02142
Dear Stockholder:
The Annual Meeting of Stockholders (the "Meeting") of ON Technology
Corporation (the "Company") will be held at Fleet National Bank, 75 State
Street, Boston, Massachusetts at 10:00 a.m., Eastern Daylight Time, on
Wednesday, April 30, 1997.
At the Meeting, you will be asked to consider and vote upon the election of
directors to serve until the annual meeting in the year 2000, to approve an
amendment to the Company's 1992 Employee and Consultant Stock Option Plan (the
"Stock Option Plan") to increase the number of shares available under the
Stock Option Plan from 2,550,000 shares to 3,300,000 shares, and to ratify the
Board of Directors' selection of Arthur Andersen LLP as the Company's
independent auditors.
In the material accompanying this letter, you will find a Notice of Annual
Meeting of Stockholders, a Proxy Statement relating to the actions to be taken
by the Company's stockholders at the Meeting and a Proxy. The Proxy Statement
more fully describes and includes information about the matters for
consideration at the Meeting.
All stockholders are cordially invited to attend the Meeting in person.
However, whether or not you plan to attend the Meeting, please complete, sign,
date and return your Proxy in the enclosed envelope. If you attend the
Meeting, you may vote in person as you wish, even though you have previously
returned your Proxy. It is important that your shares be represented and voted
at the Meeting.
Sincerely,
/s/ Christopher A. Risley
Christopher A. Risley
President and Chief Executive
Officer
<PAGE>
ON TECHNOLOGY CORPORATION
ONE CAMBRIDGE CENTER
CAMBRIDGE, MASSACHUSETTS 02142
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 30, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of ON
Technology Corporation, a Delaware corporation (the "Company"), which will be
held at Fleet National Bank, 75 State Street, Boston, Massachusetts at 10:00
a.m., Eastern Daylight Time, on Wednesday, April 30, 1997, for the following
purposes:
1. To elect two Class II directors, each to serve until the Company's
2000 Annual Meeting of Stockholders and until his successor is elected and
qualified;
2. To approve and ratify an amendment to the Company's 1992 Employee and
Consultant Stock Option Plan (the "Stock Option Plan") to increase the
number of shares authorized for issuance under the Stock Option Plan from
2,550,000 shares to 3,300,000 shares;
3. To ratify the selection of Arthur Andersen LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1997; and
4. To transact such other business that may properly come before the
meeting or any postponement or adjournment thereof.
Stockholders of record at the close of business on March 7, 1997 are entitled
to notice of, and to vote at, this Annual Meeting of Stockholders and any
postponement or adjournment thereof. For ten days prior to this Annual Meeting,
a complete list of the stockholders entitled to vote at the meeting will be
available for examination by any stockholder for any purpose relating to the
meeting during ordinary business hours at the principal offices of the Company.
By Order of the Board of Directors
/s/ John M. Bogdan
JOHN M. BOGDAN
Secretary
Cambridge, Massachusetts
March 28, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED REPLY ENVELOPE. BY RETURNING YOUR PROXY CARD, YOU WILL ASSURE
REPRESENTATION OF YOUR SHARES AT THE MEETING. IF YOU ATTEND THE MEETING, YOU
MAY, OF COURSE, VOTE YOUR SHARES IN PERSON EVEN THOUGH YOU HAVE SENT IN YOUR
PROXY. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A
BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST
OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
ON TECHNOLOGY CORPORATION
ONE CAMBRIDGE CENTER
CAMBRIDGE, MASSACHUSETTS 02142
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of proxies to be voted at the Annual Meeting
of Stockholders of the Company to be held at Fleet National Bank, 75 State
Street, Boston, Massachusetts, at 10:00 a.m., Eastern Daylight Time, on
Wednesday, April 30, 1997, and at any adjournment thereof (the "Meeting"), for
the purposes set forth in the accompanying Notice of Annual Meeting. This
Proxy Statement and the accompanying proxy card are being mailed on or about
March 28, 1997, to the stockholders of record as of the close of business on
March 7, 1997 (the "Record Date").
GENERAL INFORMATION
SOLICITATION OF PROXIES
The cost of soliciting proxies from stockholders will be borne by the
Company. Copies of solicitation materials will be furnished to banks,
brokerage houses, fiduciaries and custodians holding in their names shares of
common stock beneficially owned by others to forward to such beneficial
owners. The Company may reimburse persons representing beneficial owners of
Common Stock for their costs of forwarding solicitation materials to such
beneficial owners. Original solicitation of proxies by mail may be
supplemented by telephone, telegram or personal solicitation by directors,
officers or employees of the Company.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked in writing
(including by delivery of a later dated proxy) or in person by notifying the
Secretary of the Meeting, in writing, at any time prior to the voting of the
proxy.
VOTING OF PROXIES
If the enclosed proxy card is properly executed and returned to the Company,
all shares represented thereby will be voted as indicated therein. If a proxy
is returned without instructions it will be voted FOR the nominees named
therein, FOR the proposal to approve an amendment to the Company's 1992
Employee and Consultant Stock Option Plan (the "Stock Option Plan"), and FOR
the ratification of Arthur Andersen LLP as the independent auditors of the
Company for the fiscal year ending December 31, 1997.
VOTING RIGHTS AND OUTSTANDING SHARES
On the Record Date there were 12,094,767 outstanding shares of Common Stock,
which is the only class of stock outstanding and therefore entitled to vote at
the Meeting. The holders of such shares will be entitled to cast one vote for
each share held of record as of the Record Date. On the Record Date, the
closing sales price of the Common Stock on the Nasdaq National Market was
$4.75 per share.
The holders of a majority of the shares of Common Stock issued, outstanding
and entitled to vote at the Meeting shall constitute a quorum for the
transaction of business at the Meeting. Shares of Common Stock
<PAGE>
present in person or represented by proxy will be counted for purposes of
determining whether a quorum exists at the Meeting.
The affirmative vote of the holders of a plurality of the shares of Common
Stock voting on the matter is required for the election of directors. The
affirmative vote of the holders of a majority of the shares of Common Stock
present, in person or by proxy, and entitled to vote is required to approve
the proposed amendment to the Stock Option Plan and to ratify the selection of
Arthur Andersen LLP as the Company's independent auditors. Abstentions and
shares held by brokers that are present, but not voted because the brokers do
not have the discretionary authority to vote such shares as to a particular
matter, i.e., "broker non-votes," will be counted as present for purposes of
determining if a quorum is present. Abstentions will have the same effect as a
negative vote. Broker non-votes, on the other hand, will have no effect on the
outcome of the vote.
2
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of March 1, 1997, certain information
relating to the beneficial ownership of Common Stock by (i) each person known
by the Company to own beneficially more than 5% of the Company's Common Stock;
(ii) each director of the Company; (iii) the Company's Chief Executive Officer
and each of the other five most highly compensated executive officers of the
Company (collectively, the "Named Executive Officers"); and (iv) the directors
and officers of the Company as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) COMMON STOCK(2)
------------------------ --------------------- ---------------
<S> <C> <C>
Christopher A. Risley(3)................ 1,301,524 10.78%
Loren K. Platzman....................... 993,479 8.23
Charles River Partnership VI(4)......... 679,010 5.62
c/o Charles River Ventures, Inc.
1000 Winter Street, Suite 3300
Waltham, MA 02154
Vimal Vaidya(5)......................... 693,611 5.74
1831 Parkview Green Circle
San Jose, CA 95131
Novell, Inc............................. 677,368 5.61
122 East 1700 Street
Provo, UT 84606
James A. Batson, Jr.(6)................. 33,000 *
John M. Bogdan(7)....................... 36,931 *
Ivan J. O'Sullivan(8)................... 186,548 1.55
John A. Rizzi(9)........................ 96,915 *
R. Stephen Cheheyl(10)(11).............. 13,433 *
Brian T. Horey(10)(11)(12).............. 495,469 4.10
William C. Hulley(10)(11)(13)........... 492,343 4.08
Michael J. Zak(4)(10)(11)............... 639,804 5.29
Allan Wallack(14)....................... 2,499 *
All directors and executive officers as
a group (11 persons)(15)............... 4,291,945 35.54
</TABLE>
- --------
* Less than 1%
3
<PAGE>
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to
community property laws, where applicable.
(2) The percentages shown in this column are calculated from the 12,076,017
shares of Common Stock actually outstanding on March 1, 1997, in addition
to 155,957 options held by the persons set forth in this table that are
issuable within 60 days from March 1, 1997.
(3) Includes 286,195 shares of Common Stock held by The Risley Family Limited
Partnership (the "RFLP"). Mr. Risley is a general partner of the RFLP, in
which he holds a 1% general partnership interest. As the general partner,
he has sole voting and investment control over the shares of Common Stock
held by the RFLP. The Risley Children's Trust (the "Risley Trust"), an
irrevocable trust for the benefit of Mr. Risley's children, is the
limited partner of the RFLP. Mr. Risley has no investment or voting
control over the Risley Trust and disclaims beneficial ownership of the
Risley Trust's 99% limited partnership interest in the RFLP.
(4) Includes 529,538 shares of Common Stock held by Charles River Partnership
VI, 93,445 shares of Common Stock held by Charles River Partnership VI-A,
an affiliate of Charles River Partnership VI, 8,388 shares held by
Michael J. Zak, 18,684 shares held by John T. Neises, 20,522 shares held
by Richard M. Burnes, Jr. and 8,433 shares issuable upon the exercise of
options held by Mr. Zak. See Notes 10 and 11. Michael J. Zak is a
director of the Company and a general partner of Charles River
Partnership VI and Charles River Partnership VI-A. Richard M. Burnes, Jr.
and John T. Neises are also general partners of the general partner of
Charles River Partnership VI and Charles River Partnership VI-A. Charles
River Partnership VI disclaims beneficial ownership of the shares held by
Charles River Partnership VI-A and the shares held by Messrs. Zak, Burnes
and Neises. Charles River Partnership VI-A disclaims beneficial ownership
of the shares held by Charles River Partnership VI and the shares held by
Messrs. Zak, Burnes and Neises. Messrs. Zak, Burnes and Neises each
disclaim beneficial ownership with respect to the shares held by Charles
River Partnership VI and VI-A, except to the extent of his respective
proportionate pecuniary interest therein, and each also disclaims
beneficial ownership with respect to shares held by each of the other
general partners.
(5) Includes 20,811 shares issuable upon the exercise of options.
(6) Includes 28,000 shares issuable upon the exercise of options.
(7) Includes 20,833 shares issuable upon exercise of options.
(8) Includes 15,667 shares issuable upon the exercise of options.
(9) Includes 34,415 shares issuable upon the exercise of options.
(10) Includes 5,833 shares issuable upon exercise of options received under
the Company's 1995 Directors Stock Option Plan.
(11) Includes 2,600 shares issuable upon the exercise of options under the
Company's 1992 Employee and Consultant Stock Option Plan.
(12) Includes shares of Common Stock directly held by Lawrence, Tyrrell,
Ortale & Smith II, L.P. ("LTOS"). Also includes 8,433 shares issuable
upon the exercise of options ("option shares") held by Mr. Horey. See
Notes 10 and 11. Mr. Horey, a director of the Company, is a general
partner of LTOS. Pursuant to Mr. Horey's partnership agreement with LTOS,
LTOS has a beneficial interest in such option shares.
(13) Consists of shares of Common Stock held directly by The P/A Fund, L.P.
William C. Hulley, a director of the Company, is a general partner of
Adams Capital Management, Inc., a managing partner of The P/A Fund, L.P.
Mr. Hulley disclaims beneficial ownership of the shares held by The P/A
Fund, L.P. Mr. Hulley assigned all options he received pursuant to the
Company's Director Stock Option Plan and pursuant to the Company's 1992
Employee and Consultant Stock Option Plan to The P/A Fund, L.P. and,
accordingly, disclaims beneficial ownership with respect to shares
issuable upon the exercise of such options. See Notes 10 and 11.
4
<PAGE>
(14) Includes 2,499 shares issuable upon exercise of options received under
the Company's 1995 Directors Stock Option Plan.
(15) Includes an aggregate of 155,957 shares of Common Stock issuable pursuant
to options exercisable within 60 days from March 1, 1997. Includes
1,404,647 shares held by affiliates of certain officers and directors of
the Company with respect to which such officers and directors disclaim
beneficial ownership.
ELECTION OF DIRECTORS
(PROPOSAL I)
The Company has a classified Board of Directors consisting of two Class I
Directors, two Class II directors and two Class III directors. The Class I,
Class II and Class III directors will serve until the annual meetings of
stockholders to be held in 1999, 1997 and 1998, respectively, and until their
respective successors are elected and qualified. At each annual meeting,
directors are elected for a full term of three years to succeed those whose
terms are expiring.
The term of office for both Class II directors is currently expiring and two
nominees for director have been recommended for election at the Meeting. The
persons named in the proxy will vote to elect as directors Mr. Zak and Mr.
Horey, unless the proxy is marked otherwise.
The Class II directors will be elected to hold office until the 2000 Annual
Meeting of Stockholders and until each of their successors is elected and
qualified. The nominees have indicated their willingness to serve, if elected;
however, if either nominee should be unable to serve, the proxies may be voted
for a substitute nominee designated by the Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
IN FAVOR OF THE NAMED NOMINEE
5
<PAGE>
BOARD OF DIRECTORS
The table below sets forth for the current directors, including the Class II
nominees to be elected at this Meeting, certain information with respect to
age and background.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITION WITH THE COMPANY
- ---- --- -------- -------------------------
<S> <C> <C> <C>
Class I Directors:
William C. Hulley........................ 38 1994 Director
Allan L. Wallack......................... 51 1996 Director
Nominees for Class II Director
to be elected at the
Annual Meeting:
Michael J. Zak........................... 43 1992 Director
Brian T. Horey........................... 37 1993 Director
Class III Directors:
President, CEO and
Christopher A. Risley.................... 47 1985 Director
R. Stephen Cheheyl....................... 51 1995 Director
</TABLE>
EXECUTIVE OFFICERS
The executive officers of the Company as of March 7, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
President and Chief Executive
Christopher A. Risley........................ 47 Officer
John M. Bogdan............................... 49 Chief Financial Officer, Vice
President, Finance, Treasurer
and Secretary
Loren K. Platzman............................ 45 Vice President, Research
Ivan J. O'Sullivan........................... 34 Vice President, Marketing
John A. Rizzi................................ 37 Vice President, Sales
James A. Batson, Jr.......................... 42 Vice President, Engineering
</TABLE>
BUSINESS EXPERIENCE OF OFFICERS, DIRECTORS AND NOMINEES FOR DIRECTOR
Christopher A. Risley has served as President, Chief Executive Officer and
as a Director of the Company since May 1985. Prior to joining the Company, Mr.
Risley served as a consultant in the areas of marketing, corporate strategies
and United States acquisitions to large European companies.
John M. Bogdan has served as Chief Financial Officer, Vice President,
Finance and Secretary of the Company since October 1994 and as Treasurer since
May 1995. From September 1986 to October 1994, Mr. Bogdan was Vice President,
Finance, and Chief Financial Officer of Concord Communications, Inc., a data
communications firm.
6
<PAGE>
Loren K. Platzman has served as Vice President, Research, of the Company
since May 1994. From May 1985 to May 1994, Mr. Platzman served as Vice
President, Engineering of the Company. Prior to joining the Company, Mr.
Platzman served as Associate Professor of Operations Research at the Georgia
Institute of Technology.
Ivan J. O'Sullivan has served as Vice President, Marketing, of the Company
since February 1992. He served as Director of Marketing of the Company from
June 1991 to February 1992, International Marketing Director from October 1990
to June 1991 and marketing manager with the Company from February 1987 to
February 1989.
John A. Rizzi has served as Vice President, Sales, of the Company since
February 1992. From August 1989 until February 1992, Mr. Rizzi served as
Director of Operations with the Company. From May 1982 to October 1988, Mr.
Rizzi served as an officer in the United States Navy, serving in aircraft
management and operations positions.
James A. Batson, Jr. has served as Vice President, Engineering, of the
Company since April 1995. Prior to joining the Company, Mr. Batson served as a
senior analyst providing qualitative market analysis and consulting in the
technology market for Forrester Research, Inc. from April 1993 to April 1995.
From February 1992 to April 1993, Mr. Batson was the director of product
marketing for Cayman Systems, Inc., a networking products company. From
November 1987 to January 1992, Mr. Batson was a software product manager for
Bolt, Beranek & Newman, a diversified technology company.
R. Stephen Cheheyl has been a director of the Company since August 1995.
From October 1994 until he retired in December 1995, Mr. Cheheyl served as
Executive Vice President, Business Operations, of Bay Networks, Inc., which
was formed through the merger of Wellfleet Communications, Inc. ("Wellfleet")
and Synoptics Communications Inc. From December 1990 to October 1994, Mr.
Cheheyl served as Senior Vice President, Finance and Administration, of
Wellfleet. He also serves as a director of Auspex Systems, Inc., Sapient
Corporation and Infinium 2000, Inc.
Brian T. Horey has been a director since June 1993. Mr. Horey has been a
general partner of LSH Partners III, a venture capital partnership, since May
1995. He has also served as a general partner of the venture capital
partnerships of LTOS II Partners and Lawrence Venture Partners, the general
partner of Lawrence, Tyrrell, Ortale & Smith II, L.P., and Lawrence, Tyrrell,
Ortale & Smith, since July 1990 and December 1988, respectively. Mr. Horey is
a Director of the New York New Media Association, Inc., a non-profit
corporation.
William C. Hulley has been a director since June 1994. Mr. Hulley was
employed from 1989 until 1995 by Fostin Capital Corp., a venture capital
company, and has been a General Partner of Fostin Capital Partners since 1993.
Mr. Hulley has been a Vice President and General Partner of Adams Capital
Management, Inc., a venture capital company, since January 1995. Adams Capital
Management is a managing partner of The P/A Fund.
Michael J. Zak has been a director of the Company since July 1992. Mr. Zak
has been employed by Charles River Ventures, Inc., a venture capital firm,
since November 1991 and has been a general partner of the general partner of
Charles River Partnership VI and VI-A since July 1993. Mr. Zak was Vice
President of Marketing and Product Development at Concord Communications,
Inc., a data communications firm, from March 1986 to October 1991.
7
<PAGE>
Allan L. Wallack has been a director of the Company since September 1996.
Mr. Wallack has been employed as President and Chief Executive Officer by
Chrysalis Symbolic Design, Inc., a software company, since October 1994 and
was President and Chief Executive Officer of Synernetics, Inc., a network
communications company, from 1991 until January 1994. Mr. Wallack served as a
consultant to Synernetics, Inc. from January 1994 until September 1994.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established two standing committees, the
Compensation Committee and the Audit Committee. The Board of Directors does
not maintain a Nominating Committee or a committee performing similar
functions. The Compensation Committee is comprised of three members of the
Board of Directors: Messrs. Zak, Cheheyl and Horey. The principal functions of
the Compensation Committee are to review the Company's compensation programs
and policies, to establish compensation for the Company's executive officers,
to review and approve annual bonuses to be paid to such executive officers and
to administer the stock option plans.
The Audit Committee is comprised of three members of the Board of Directors:
Messrs. Risley, Horey and Hulley. The principal functions of the Audit
Committee are to nominate the accounting firm to be appointed as the Company's
independent certified public accountants and to review the plan and scope of
the audit, the report of the audit upon its completion and the adequacy of the
Company's internal accounting procedures and controls. The Audit Committee
also maintains a continuing review of the nature and extent of all services
provided to the Company by such accountants and evaluates their fees and the
effects of such services upon their independence.
MEETINGS AND COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive a fee of $4,000 for
attendance at each regular and special meeting of the Board of Directors, a
fee of $2,000 for attendance at each meeting of the Audit or Compensation
Committees and a fee of $650 for attendance at each telephonic meeting of the
Board of Directors and at each telephonic meeting of the Audit or Compensation
Committees. Each of Messrs. Zak, Horey, Hulley and Cheheyl elected, in lieu of
cash for attendance at telephonic Board and committee meetings, to receive
options to purchase 2,600 shares of Common Stock under the 1992 Employee and
Consultants Stock Option Plan at a price per share equal to $1 less than the
fair market value of the Company's Common Stock on the date of grant. These
options are fully exercisable. Directors who are not employees of the Company
are additionally reimbursed for out-of-pocket expenses incurred in attending
Board of Directors meetings and are eligible to receive options under the
Company's 1995 Directors Stock Option Plan. Directors who are employees of the
Company are not compensated for their service on the Board or any committee
thereof. The Board of Directors, the Compensation Committee and the Audit
Committee met in person seven, four and zero times, respectively, and by
telephonic means three, one and one times, respectively, during 1996.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1996, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were satisfied, except that (i) Michael J.
Zak, a director of the Company, failed to file a Form 4 on or prior to June
10, 1996, to reflect one sale transaction during May, 1996, and (ii) Allan L.
Wallack, a Director of the Company, failed to file an initial Form 3 on or
prior to September 9, 1996, the date he was elected to the Board of Directors.
Such required filings were made on July 5, 1996 and November 3, 1996,
respectively.
8
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information with respect to the compensation,
for the last two fiscal years, of the Company's Chief Executive Officer and
each of the five other most highly compensated executive officers who received
compensation in excess of $100,000 during fiscal year 1996.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#)
--------------------------- ---- ---------- --------- ------------
<S> <C> <C> <C> <C>
Christopher A. Risley.................... 1996 $155,000 $55,936
President and Chief Executive Officer 1995 170,000 55,000
John M. Bogdan........................... 1996 125,000 34,366 20,000
Chief Financial Officer, 1995 120,000 35,000
Vice President, Finance,
Treasurer and Secretary
Loren K. Platzman........................ 1996 120,000 11,700
Vice President, Research 1995 114,167 15,000
Ivan J. O'Sullivan....................... 1996 150,000 55,936 30,000
Vice President, Marketing 1995 120,000 75,000
John A. Rizzi............................ 1996 150,000 55,936 30,000
Vice President, Sales 1995 120,000 75,000 16,666
James A. Batson(1)....................... 1996 125,000 33,271 10,000
Vice President, Engineering 1995 82,308 40,000 75,000
</TABLE>
- --------
(1) Mr. Batson joined the Company as Vice President, Engineering in May 1995.
9
<PAGE>
STOCK OPTION GRANTS IN FISCAL YEAR 1996
The following table shows information with respect to stock options granted
to each Named Executive Officer during fiscal year 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED(1) YEAR ($/SHARE)(2) DATE 5% ($) 10% ($)
---- ---------- ---------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Christopher A. Risley... -- -- -- -- -- --
John M. Bogdan(3)....... 20,000 3.2% $ 5.625 8/05/06 $ 183,251 $ 291,796
Loren K. Platzman....... -- -- -- -- -- --
Ivan J. O'Sullivan(3)... 20,000 3.2 15.125 2/01/06 492,741 784,607
10,000 1.66 5.625 8/05/06 91,625 145,898
John A. Rizzi(3)........ 20,000 3.2 15.125 2/01/06 492,741 784,607
10,000 1.66 5.625 8/05/06 91,625 145,898
James A. Batson(3)...... 10,000 1.66 5.625 8/05/06 91,625 145,898
</TABLE>
- --------
(1) The options were granted under the Company's 1992 Employee and Consultant
Stock Option Plan. Options are subject to the employee's continued
employment. The exercise of options will be accelerated in the event of
certain occurrences including the sale of the Company or significant
merger.
(2) The exercise price per share of each option was determined by the Board of
Directors to be equal to the fair market value per share of Common Stock
at the date of grant.
(3) The options become exercisable over a five-year period, 20% on the first
anniversary of the date of grant and 5% at the end of each of the
following three month periods.
EMPLOYMENT AGREEMENTS
The Company entered into Employment Agreements in May 1995 with each of
Messrs. Batson, Bogdan, O'Sullivan, Platzman, Risley and Rizzi. These
Employment Agreements are each of a three year term, fix base compensation for
the employee and provide for salary increases and bonuses as the Company's
Board of Directors may determine from time to time. Each of the Employment
Agreements also provides that upon termination without cause or upon
expiration and non-renewal of the agreement, the employees shall receive
severance pay in an amount equal to his aggregate compensation (including
bonuses earned for the prior four quarters) for the preceding 12 months,
together with a continuation of benefits for such 12 month period. The
Employment Agreements also provide for health, life insurance and similar
benefits. The Employment Agreements require that for a period of 12 months
after any employment termination, the employee will not directly or indirectly
carry on, be engaged in or have any financial interest in, any business
involved in LAN-based groupware applications or workgroup utilities.
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The following table shows information with respect to stock options held as
of December 31, 1996 by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL-YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
VALUE DECEMBER 31, 1996 (#) DECEMBER 31, 1996 ($) (2)
SHARES ACQUIRED REALIZED ------------------------- -------------------------
NAME ON EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Christopher A. Risley... -- -- -- -- -- --
John M. Bogdan.......... 20,832 $339,353 16,666 65,835 $48,581 $133,609
Loren K. Platzman....... -- -- -- -- -- --
Ivan J. O'Sullivan...... 26,248 329,150 12,751 49,334 38,636 103,020
John A. Rizzi........... -- -- -- -- -- --
James A. Batson......... -- -- -- -- -- --
</TABLE>
- --------
(1) Calculated based on the fair market value of the underlying securities on
the exercise date minus the exercise price of such options.
(2) Calculated based on the fair market value per share of the underlying
securities at December 31, 1996 ($5.375) minus the per share exercise
price.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's executive compensation program is determined by the
Compensation Committee of the Board of Directors (the "Compensation
Committee"), which is comprised of non-employee directors. The Compensation
Committee approves compensation policies for the executive officers of the
Company and oversees the general compensation policies of the Company. The
Compensation Committee has furnished the following report:
COMPENSATION PHILOSOPHY AND GOALS
The goals of the Company's executive compensation program are to attract,
retain and motivate the most talented individuals available in the Company's
marketplace. The elements of compensation encompassed in the program include
base salary, annual cash incentive compensation and awards of stock options
under the Company's incentive compensation plans. The competitiveness of the
Company's executive compensation approach is reviewed annually and validated
with external salary surveys conducted by outside consultants.
The Company utilizes four guiding principles for its executive compensation
approach, which are set forth below. These principles are established to
design, fund and administer the program and form the framework for decision
making.
Stockholder Interests--The financial interests of the stockholders are
the major consideration in the design, funding and administration of all
executive compensation programs.
Executive Compensation--The value of all tangible compensation components
to the executive compensation program are considered in the aggregate.
Consideration of individual components is only performed in the context of
the total executive compensation program.
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Group and Individual Achievement--The Company's performance-based
executive compensation program reflects a balancing of group and individual
achievement.
Sustained Performance--An emphasis is placed on the long-term executive
compensation incentives while maintaining an annual cash compensation
program capable of producing focus on near-term results and milestones.
COMPONENTS OF COMPENSATION
Target Annual Cash Compensation. Each executive position in the Company is
compared to similar positions in comparable companies for which data are
available. From this comparison, annual target cash compensation is set to
reflect compensation standards in the industry. The Compensation Committee
gathers data from independent consultants and, after conferring with Mr.
Risley on the salaries for senior management (excluding his own salary), sets
annual salary levels in the first quarter of each year. The target annual cash
compensation is broken into two separate components: a base salary and an
incentive bonus. During 1996, the Compensation Committee reviewed the target
annual cash compensation levels of all executive officers who were employed at
the Company and, based on the performance of the Company and these executives,
approved increases of 4.2% to 25.0% for such executive officers. In reviewing
the comparable levels of compensation for Chief Executive Officers, the
Compensation Committee determined that Mr. Risley's cash compensation was
below the bottom of the range of salaries offered to chief executive officers
of comparable companies, as identified by independent consultants. In
discussions with Mr. Risley, he once again stressed his view that because of
his role as founder of the Company and his position today as a major
shareholder, he preferred that his financial gain from the Company come over
the long term in the form of stock appreciation rather than in the short term
in the form of cash compensation. Following discussions with Mr. Risley, the
Compensation Committee agreed to set Mr. Risley's 1997 cash compensation level
at a point that remains below the average of the "market consensus" range for
comparable companies. The Compensation Committee will again review the
performance of the Company and its executives at year-end 1997 and make
compensation adjustments accordingly.
Base Salary. In general, the Compensation Committee sets the base salary
component of total target annual cash compensation at approximately 75% of the
total cash compensation for executive officers. The intention of the
Compensation Committee is to leave a significant portion of target annual cash
compensation subject to the performance of the Company.
Incentive Bonus. The Compensation Committee awards incentive bonuses as part
of total annual cash compensation when the Company achieves targets for annual
revenue and operating income. These objectives relate entirely to an annual
business plan that is submitted in December by the executive team and the
bonus system is intended to stimulate successful execution of the operating
plan. The bonus plan allows for quarterly (partial) payments of executive
bonuses, with the balance of executive bonuses payable only after completion
of the audit following each fiscal year. No incentive bonuses are paid unless
achievement is at least 90% of the annual business plan at various milestones
throughout each fiscal year.
Equity Incentives. The Compensation Committee believes that the executive
compensation program of the Company must motivate the executive officers of
the Company to create core economic value which results in long-term
appreciation in the price of the Common Stock. Additionally, the Compensation
Committee believes that the appropriate use of equity incentives, such as
stock options, serves to align the interests of employees with the interests
of the Company's stockholders and provides a strong incentive for key
executive to remain in
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<PAGE>
the employ of the Company. The Compensation Committee believes that, in the
case of a growth-oriented business such as the Company, a substantial portion
of the compensation of executive officers should be contingent on appreciation
in value of the stockholders' investments. Based on the foregoing principles,
the Compensation Committee awarded options for 30,000 shares to each of Ivan
O'Sullivan and John A. Rizzi, options for 20,000 shares to John M. Bogdan and
options for 10,000 shares to James A. Batson, Jr.
The Committee believes that for calendar 1996 the remaining key executives
of the Company, including Mr. Risley, had adequate stock and option packages
to provide them with an appropriate incentive to maximize short-term and long-
term shareholder value. The Committee intends to review the status of equity
incentives for senior executives in 1997 and thereafter to insure that key
executives of the Company are appropriately motivated and rewarded.
CERTAIN TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code of 1986 generally disallows a
tax deduction to publicly held companies for compensation in excess of
$1,000,000 paid to the chief executive officer and the four other most highly
compensated executive officers. Compensation based on performance is not
subject to this deduction limit, if certain requirements are met. Based on the
compensation awarded to Mr. Risley and the other executive officers of the
Company, it does not appear that the Section 162(m) limitation will have a
significant impact on the Company in the near term. The Compensation Committee
plans to structure the incentive compensation part, which currently consists
of the annual cash incentive compensation and the stock option plan, of its
compensation program to comply with Section 162(m).
The Compensation Committee
Michael J. Zak
Brian T. Horey
R. Stephen Cheheyl
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
Messrs. Zak, Horey and Cheheyl. Mr. Zak is a general partner of the general
partner of Charles River Partnership VI, an investor that holds more than five
percent (5%) of the Company's Common Stock. Each of the current non-employee
directors is entitled to receive compensation in the form of cash and options
to purchase Common Stock for their services as directors. Mr. Zak and Mr.
Horey, on July 31, 1995, and Mr. Cheheyl, on August 4, 1995, have received
options to purchase 10,000 shares of Common Stock under the Directors Plan,
which will be exercisable in 12 equal quarterly installments on the date of
grant and the last day of each of the 11 fiscal quarters commencing with the
first full fiscal quarter after the date of grant at a per share price equal
to the initial public offering price. Additionally, each of Messrs. Zak, Horey
and Cheheyl elected, in lieu of cash for attendance at telephonic board and
committee meetings, to receive options to purchase 2,600 shares of Common
Stock under the 1992 Employee and Consultants Stock Option Plan at a price per
share equal to $1 less than the fair market value of the Company's Common
Stock on the date of grant. These options are fully exercisable. No director
or executive officer of the Company and no member of its Compensation
Committee is, or was during the year ended December 31, 1996, a director or
compensation committee member of any other business entity that had a director
that sits on the Company's Board of Directors or Compensation Committee.
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<PAGE>
COMPARISON OF STOCKHOLDER RETURN
The line graph below compares the cumulative total stockholder return on the
Company's Common Stock with the cumulative total return of the Nasdaq Total
U.S. Index and the Nasdaq Computer and Data Processing Index, resulting from
an initial assumed investment of $100 in each, and assuming the reinvestment
of any dividends, for the period beginning on the date of the Company's
initial public offering on August 1, 1995 and ending on December 31, 1996.
Stock price performance shown in the Performance Graph for the Common Stock is
historical and not necessarily indicative of future price performance. The
Common Stock was sold at its initial offering at a price of $15.00 per share,
and the closing sales price of the Common Stock on the Nasdaq National Market
on December 31, 1996, was $5.375.
[PERFORMANCE GRAPH APPEARS HERE]
8/1/95 12/29/95 12/31/96
------ -------- --------
ONTC $100 $ 70.70 $ 29.20
NASDAQ $100 $105.60 $123.00
NASDAQ COMP & DP $100 $107.70 $133.00
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<PAGE>
AMENDMENT TO THE 1992 EMPLOYEE AND CONSULTANT STOCK OPTION PLAN
(PROPOSAL II)
PROPOSED AMENDMENT TO THE COMPANY'S 1992 EMPLOYEE AND CONSULTANT STOCK OPTION
PLAN
On March 3, 1997, the Compensation Committee of the Board of Directors of
the Company, pursuant to authority granted to them by the Board, approved an
amendment to the 1992 Employee and Consultant Stock Option Plan (the "Stock
Option Plan") to provide for an increase in the number of shares available for
issuance pursuant to the Stock Option Plan from 2,550,000 shares to 3,300,000
shares. This number of authorized shares represents the total number of
options to purchase shares available under the Stock Option Plan regardless of
the number of options previously granted, whether exercised or not by such
optionees. As of March 1, 1997, the Company had only 615,340 shares remaining
available for the grant of additional options. This amendment to the Stock
Option Plan remains subject to approval by the stockholders of the Company at
this Annual Meeting. Assuming the presence of a quorum, the affirmative vote
of the holders of a majority of the outstanding shares of Common Stock present
at the Annual Meeting, in person or by proxy, is necessary to approve the
amendment to the Stock Option Plan.
DESCRIPTION OF THE 1992 EMPLOYEE AND CONSULTANT STOCK OPTION PLAN
The Stock Option Plan was originally adopted by the Company's Board of
Directors (the "Board") and the stockholders of the Company on July 29, 1992.
The Stock Option Plan was amended by the Board and the stockholders of the
Company effective May 6, 1994, May 18, 1995 and April 30, 1996. The Stock
Option Plan, as amended, provides for the grant of options which will qualify
as "incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended and any successor provision thereto (the "Code") and
nonstatutory stock options, which will not so qualify. The purpose of the
Stock Option Plan is to secure for the Company and its stockholders the
benefits arising from capital stock ownership by employees, officers and
directors of, and certain consultants or advisors to, the Company who are
expected to contribute to the future growth and success of the Company.
ADMINISTRATION OF THE STOCK OPTION PLAN
The Stock Option Plan is administered by the Board, whose construction and
interpretation of the terms and provisions of the Stock Option Plan, and the
option agreements issued pursuant to the Stock Option Plan, is final and
conclusive. The Board has the authority to adopt, amend and repeal rules and
regulations relating to the Stock Option Plan and to determine the terms and
conditions of the respective option agreements and to make all other
determinations as it shall deem necessary or desirable for the administration
of the Stock Option Plan. No member of the Board may be liable for any action
or determination relating to the Stock Option Plan made in good faith. The
Board has, to the full extent permitted by or consistent with applicable laws
and regulations (including, without limitation, applicable state law and Rule
16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act"), or any successor rule ("Rule 16b-3")), delegated any or all of its
powers under the Stock Option Plan to the Compensation Committee. In such
event, all references to the Board in the Sections of this Proxy Statement
dealing with the Stock Option Plan shall mean such Compensation Committee or
the Board.
The Board may, in its sole discretion, grant options to purchase shares of
the Company's Common Stock and issue shares upon exercise of such options as
provided in the Stock Option Plan. With respect to the grant of options under
the Stock Option Plan to officers or directors of the Company (as defined for
purposes of Rule 16b-3), the selection of the recipient, the timing of the
option grant, the exercise price of the option and the
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<PAGE>
number of shares subject to the option must be determined by either (i) the
Board or (ii) a committee of two or more directors having full authority to
act, all of the members of which shall be Non-Employee Directors. For purposes
of the Stock Option Plan, a director shall be deemed to be a "Non-Employee
Director" within the meaning of Rule 16b-3, as such term is interpreted from
time to time.
SHARES SUBJECT TO THE STOCK OPTION PLAN
The total number of shares that were authorized for issuance under the Stock
Option Plan is 2,550,000. As of March 1, 1997, 615,340 shares were available
for issuance under the Stock Option Plan pursuant to options currently
outstanding or options available for grant. If an option granted under the
Stock Option Plan expires or is terminated without having been exercised in
full, the shares allocable to the unexercised portion of such option shall
again become available for grant pursuant to the Stock Option Plan.
The Stock Option Plan contains provisions for the disposition of options in
the event of a consolidation, merger or sale of substantially all of the
assets of the Company in which outstanding shares of Common Stock are
exchanged for securities, cash or property of any other corporation or
business entity or in the event of a liquidation of the Company.
The Board may grant options under the Stock Option Plan in substitution for
options held by employees of another corporation who become employees of the
Company, or a subsidiary of the Company, as a result of a merger or
consolidation of the employing corporation with the Company, or a subsidiary
of the Company, or as a result of the acquisition by the Company, or one of
its subsidiaries, of property or stock of the employing corporation. The
substitute options may be granted on such terms as the Board considers
appropriate in the circumstances.
If the outstanding shares of Common Stock of the Company are changed by
reason of any merger, consolidations, sale of substantially all of the assets
of the Company, reorganization, recapitalization, reclassification, stock
dividend, stock-split, reverse stock-split, or other similar capital change in
the Company's capital stock, the Board may appropriately adjust (i) the
maximum number and kind of shares reserved for issuance under the Stock Option
Plan, (ii) the number and kind of shares or other securities subject to then
outstanding options under the Stock Option Plan, and (iii) the price for each
share subject to any then outstanding options under the Stock Option Plan,
without changing the aggregate purchase price as to which such options remain
exercisable, provided that no such adjustment shall be made if such adjustment
would cause the Stock Option Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3.
GENERAL TERMS AND CONDITIONS OF THE STOCK OPTION PLAN
Types of Options. The Stock Option Plan provides for the granting of options
which will qualify as incentive stock options under Section 422 of the Code
and nonstatutory stock options, which will not so qualify.
Option Agreements. Each recipient of an option must execute an option
agreement which indicates whether the option is an incentive stock option or a
nonstatutory option and which contains the specific terms applicable to such
option, including the exercise price, duration, time and method of exercise
and such other terms and conditions of the grant as may be determined by the
Board in accordance with the Stock Option Plan. The terms applicable to a
specific grant may vary among participants in the Stock Option Plan.
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<PAGE>
Option Exercise Price. The option exercise prices for all options granted
under the Stock Option Plan are determined by the Board. In the case of an
incentive stock option, this price may not be less than 100% (or 110% in the
case of an option granted to a person holding more than 10% of the total
combined voting power of all classes of stock of the Company) of the fair
market value of the Common Stock on the date of grant.
Nontransferability of Options. Options granted under the Stock Option Plan
shall not be assignable or transferable by the person to whom it is granted,
either voluntarily or by operation of law, except (i) by will or the laws of
descent and distribution, (ii) pursuant to a qualified domestic relations
order (as defined in the Code) or (iii) pursuant to Title I of the Employee
Retirement Income Security Act, or the rules thereunder. During the life of
the optionholder, the option shall be exercisable only by the optionholder.
Duration of Options. Each option shall expire on such date as the Board
shall be set forth in the applicable option agreement. In the case of an
incentive stock option, this expiration date may not be more than ten years
from the date on which the option is granted (or five years in the case of
options granted to persons holding more than 10% of the voting power of stock
of the Company).
Exercise of Options. The period or periods during which any option granted
under the Stock Option Plan may be exercised shall be determined by the Board.
Options generally become exercisable over a five-year period beginning on the
first anniversary of either the date of grant or the date of hire of an
employee and continuing thereafter in equal quarterly installments. An option
shall be considered outstanding until it has been either fully exercised or
cancelled or has expired by reason of the lapse of time.
Terms of Payment. The purchase price of any shares of Common Stock purchased
upon exercise of an option shall be paid in full, at the time of purchase, by
delivery of cash or a check payable to the Company, or by such other methods
as may be provided in the optionholder's option agreement.
Termination of Employment. The Board shall determine the period of time
during which an optionholder may exercise an option following such
optionholder's termination of employment, death or disability. Such periods
shall be set forth in each optionholder's option agreement. No incentive stock
option may be exercised unless, at the time of such exercise, the optionholder
is, and has been continuously since the date of grant of his or her option,
employed by the Company, except that:
(a) an incentive stock option may be exercised within the period of three
months after the date the optionholder ceases to be an employee of the
Company (unless his or her option agreement specifies a shorter period or a
longer period, in which case an exercise after such three-month period
shall be treated as the exercise of a non-qualified option);
(b) if the optionholder dies while employed by the Company, or within
three months after the optionholder ceases to be an employee of the
Company, the incentive stock option may be exercised by the person to whom
it is transferred by will or the laws of descent and distribution within
the period of one year after the date of death (unless a shorter period is
specified in the applicable option agreement); and
(c) if the optionholder becomes disabled (as defined in Section 22(e)(3)
of the Code or any successor provision thereto) while employed by the
Company, the incentive stock option may be exercised within the period of
one year after the date the optionholder ceases to be employed because of
such disability (unless a shorter period is specified in the applicable
option agreement).
Notwithstanding the above, no option is exercisable after the expiration
period as determined by the Board at the time of the option grant.
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<PAGE>
Limitations on the Incentive Stock Options. In addition to the provisions
concerning incentive stock options which are described above, if an incentive
stock option granted to any employee under the Stock Option Plan becomes
exercisable for the first time by any employee during any one calendar year
such that the aggregate fair market value of the Common Stock with respect to
which incentive stock options are exercisable exceeds $100,000, the options to
acquire stock in excess of the $100,000 shall be treated as nonstatutory stock
options.
Additional Restrictions. The Board may include additional provisions in any
option agreement under the Stock Option Plan, including restrictions on
transfer, repurchase rights, commitments to pay cash bonuses, to make or
arrange for loans or to transfer other property to optionholders upon the
exercise of options, or such other provisions as determined by the Board in
accordance with the Stock Option Plan; provided that such additional
provisions shall not be inconsistent with any other term or condition of the
Stock Option Plan and shall not cause any incentive stock options granted
under the Stock Option Plan to fail to qualify as incentive stock options
within the meaning of Section 422 of the Code.
Acceleration, Extension. The Board has the authority to accelerate the date
on which an option granted under the Stock Option Plan may be exercised or to
extend the dates during which an option granted under the Stock Option Plan
may be exercised.
Cancellation and New Grant of Options. The Board has the authority to
effect, at any time and from time to time, with the consent of the affected
optionholders, (i) the cancellation of any or all outstanding options under
the Stock Option Plan and (ii) the grant in substitution therefor of new
options under the Stock Option Plan covering the same or different numbers of
shares of Common Stock and having an option exercise price per share which may
be lower or higher than the exercise price per share of the cancelled options.
Eligibility. Options under the Stock Option Plan may be granted to persons
who are, at the time of the grant, employees of or consultants to (including
any officers and directors who are employees of or consultants to), the
Company or any of its subsidiaries, provided, that incentive stock options may
only be granted to persons who are eligible to receive such options under
Section 422 of the Code. A person who has been granted an option may, if he is
otherwise eligible, be granted an additional option or options if the Board
shall so determine. The Stock Option Plan provides additional limitations on
the options that may be granted to a person who hold, directly or indirectly,
more than 10% of the combined voting power of all classes of stock of the
Company.
Subject to adjustments as set forth in the Stock Option Plan, no employee
shall receive options to purchase more than 500,000 shares of common stock
during the ten-year term of the Stock Option Plan. For purposes of calculating
this maximum number, (i) an option shall continue to be treated as outstanding
despite its repricing, cancellation or expiration and (ii) the repricing of an
outstanding option or issuance of a new option in substitution for a cancelled
option shall be deemed to constitute the grant of a new additional option
separate from the original grant of the option that is repriced.
GENERAL RESTRICTIONS
Participants in the Stock Option Plan generally have no rights as
stockholders in shares of Common Stock until certificates for those shares
have been issued. No certificates for Common Stock will be issued under the
Stock Option Plan unless and until, in the opinion of counsel for the Company,
any applicable registration requirements of the Securities Act, any applicable
listing requirements of any national securities exchange upon which stock of
the same class is then listed, and any other requirements of law or of any
regulatory bodies having jurisdiction over such issuance and delivery, shall
have been fully complied with. Participants may be required
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<PAGE>
to represent and agree in writing, for themselves and for their transferees,
that the stock acquired by him or them under the Stock Option Plan is being
acquired for investment purposes.
Nothing contained in the Stock Option Plan confers upon any participant any
rights with respect to his or her employment by the Company.
The Stock Option Plan does not provide that any person has or may create a
lien on any funds, securities or other property held under the Stock Option
Plan.
EFFECTIVE DATE; AMENDMENT; TERMINATION
The Stock Option Plan was adopted by the Board and the stockholders of the
Company on July 29, 1992. The Stock Option Plan was amended by the Board and
the stockholders of the Company effective May 6, 1994. The Stock Option Plan
was again amended by the Board and the stockholders effective on May 18, 1995.
The Stock Option Plan was again amended by the Board and the stockholders
effective on April 30, 1996.
The Stock Option Plan shall terminate upon the earlier of (i) the close of
business on the day next preceding the tenth anniversary of the date of its
adoption by the Board of Directors, or (ii) the date on which all shares
available for issuance under the Stock Option Plan shall have been issued
pursuant to the exercise or cancellation of options granted under the Stock
Option Plan. If the date of termination is determined under (i) above, then
options outstanding on such date shall continue to have force and effect in
accordance with and subject to the terms and conditions of the Stock Option
Plan and the appropriate option agreements.
The Board has the power to amend the Stock Option Plan. No amendment may be
made without stockholder approval if such approval is necessary to comply with
any applicable tax or regulatory requirement, including Section 422 of the
Code and Rule 16b-3 of the Exchange Act or any successor provisions thereto.
The termination or any modification or amendment of the Stock Option Plan
shall not, without the consent of an optionholder affect his or her rights
under an option previously granted to him or her. With the consent of the
optionholder affected, the Board may amend outstanding option agreements in a
manner not inconsistent with the Stock Option Plan. The Board has the right to
amend or modify (i) the terms and provisions of the Stock Option Plan and of
any outstanding incentive stock option granted under the Stock Option Plan to
the extent necessary to qualify any or all such options for such favorable
federal income tax treatment (including deferral of taxation upon exercise) as
may be afforded incentive stock options under Section 422 of the Code and (ii)
the terms and provisions of the Stock Option Plan and of any outstanding
option to the extent necessary to ensure the qualification of the Stock Option
Plan under Rule 16b-3.
FEDERAL INCOME TAX TREATMENT OF STOCK OPTIONS
The following is a summary of the federal income tax treatment of incentive
stock options and non-qualified stock options. This summary is general and
does not apply to gifts or any dispositions other than sales. Also, under
certain circumstances, an optionholder may be entitled to a credit for
alternative minimum tax previously paid. Additionally, in some individual
cases, it will be important to consider the state and foreign tax consequences
of participation in the Stock Option Plan and the effect, if any, of gift,
estate and inheritance taxes.
Incentive Stock Options. No taxable income will be recognized by the
optionholder upon the grant or exercise of an incentive stock option granted
under the Stock Option Plan (provided the difference between the
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<PAGE>
option exercise price and the fair market value of the stock on the date of
exercise must be included in the optionee's "alternative minimum taxable
income" as described below), and no corresponding expense deduction will be
available to the Company. Generally, if an optionholder holds shares acquired
upon the exercise of an incentive stock option until the later of (i) two
years from the grant of the option and (ii) one year from the date of transfer
of the purchased shares to him or her (the "Statutory Holding Period"), any
gain recognized by the optionholder upon a sale of such shares will be treated
as a capital gain. The gain recognized upon the sale is the difference between
the option price and the sale price of the stock. The net federal income tax
effect on the holder of incentive stock options is to defer, until the stock
is sold, taxation of any increase in the stock's value from the time of grant
to the time of exercise, and to cause all such increase to be treated as
capital gain.
If the optionholder sells the stock prior to the expiration of the Statutory
Holding Period (a "disqualifying disposition"), he or she will realize taxable
income at ordinary income tax rates in an amount equal to the lesser of (i)
the fair market value of the stock on the date of exercise less the option
price or (ii) the amount realized on sale less the option price, and the
Company will receive a corresponding business expense deduction. Any
additional gain will be treated as long-term capital gain if the shares are
held for more than one year prior to the sale and as short-term capital gain
if the shares are held for a shorter period. If the optionholder sells the
stock for less than the option price, he or she will recognize a capital loss
equal to the difference between the sale price and the option price. The loss
will be a long-term capital loss if the shares are held for more than one year
prior to the sale and as a short-term capital loss if the shares are held for
a shorter period.
Special rules may apply to options held by directors and officers. If the
optionholder making a disqualifying disposition is a person required to file
reports under Section 16(a) of the Exchange Act, and the option was exercised
within six months of the date of grant, the amount of taxable income realized
at ordinary income tax rates (and the amount of the Company's business expense
deduction) will be equal to the lesser of (i) the fair market value of the
shares on the date that is six months after the date of grant less the option
price or (ii) the amount realized on sale less the option price.
For purposes of the "alternative minimum tax" applicable to individuals, the
exercise of an incentive stock option is treated in the same manner as the
exercise of a nonstatutory stock option. Thus, an optionholder must, in the
year of option exercise, include the difference between the exercise price and
the fair market value of the stock on the date of exercise in alternative
minimum taxable income. The alternative minimum tax is imposed upon an
individual's alternative minimum taxable income at a rate of 24%, but only to
the extent that such tax exceeds the taxpayer's regular income tax liability
for the taxable year.
Non-Statutory Stock Options. No taxable income is recognized by the
optionholder upon the grant of a nonstatutory option. The optionee must
recognize as ordinary income in the year in which the option is exercised the
amount by which the fair market value of the purchased shares on the date of
exercised exceeds the option price and the Company is required to file reports
under Section 16(a) of the Securities Exchange Act of 1934, as amended. If
such a person (executive officers and directors of the Company) exercised the
option within six months of the date of grant, upon exercise of such option,
no income will be recognized by the optionholder until six months have expired
from the date the option was granted, and the income then recognized will
include any appreciation in the value of the shares during the period between
the date of exercise and the date six months after the date of the grant,
unless the optionholder makes an election under Section 83(b) of the Internal
Revenue Code of 1986, as amended (the "Code") to have the difference between
the exercise price and fair market value at the time of exercise recognized as
ordinary income as of the time of exercise.
20
<PAGE>
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee. Any additional gain or
any loss recognized upon the subsequent disposition of the purchased shares
will be a capital gain or loss, and will be a long-term gain or loss if the
shares are held for more than one year.
Withholding. The Company has the right to deduct from any payments otherwise
due to an optionholder any federal, state or local taxes required by law to be
withheld with respect to any shares issued upon exercise of options under the
Stock Option Plan.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
The Stock Option Plan is qualified under Section 401(a) of the Code and the
Company believes that the Stock Option Plan is not subject to the Employee
Retirement Income Security Act of 1974.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
IN FAVOR OF PROPOSAL II
RATIFICATION OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT AUDITORS
(PROPOSAL III)
The Board of Directors has selected Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997, and has
further directed that management submit the selection of independent auditors
for ratification by the shareholders at the Annual Meeting. Arthur Andersen
LLP has acted as the Company's auditors since 1987. Representatives of Arthur
Andersen LLP will be present at the Annual Meeting, will have an opportunity
to make a statement if they desire to do so, and will be available to respond
to appropriate questions.
Shareholder ratification of the selection of Arthur Andersen LLP is not
required by the Company's By-laws or otherwise. The Board of Directors,
however, is submitting the selection of Arthur Andersen LLP to the
shareholders as a matter of good corporate practice. If the shareholders fail
to ratify the selection, the Audit Committee and the Board of Directors will
reconsider whether or not to retain such firm. Even if the selection is
ratified, the Audit Committee and the Board, in their discretion, may direct
the appointment of a different independent accounting firm at any time during
the year if they determine that such a change would be in the best interest of
the Company and its shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
IN FAVOR OF PROPOSAL III
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders that are intended to be presented at the Company's
Annual Meeting of Stockholders in 1998 must be received at the Company's
executive offices in Cambridge, Massachusetts no later than December 31, 1997,
to be included in the proxy statement and proxy card related to such meeting.
21
<PAGE>
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for action
at the Annual Meeting, other than the matters set forth herein. Should any
other matter requiring a vote of shareholders arise, the proxies in the
enclosed form of proxy confer upon the person or persons entitled to vote the
shares represented by such proxies discretionary authority to vote the same in
accordance with the best judgment.
By Order of the Board of Directors
/s/ John M. Bogdan
John M. Bogdan
Secretary
March 28, 1997
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 IS
AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO: INVESTOR RELATIONS, ON
TECHNOLOGY CORPORATION, ONE CAMBRIDGE CENTER, CAMBRIDGE MASSACHUSETTS 02142
22
<PAGE>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
- -------------------------------------------
ON TECHNOLOGY CORPORATION
- -------------------------------------------
RECORD DATE SHARES:
-----------------------------
Please be sure to sign and date this Proxy Date
- --------------------------------------------------------------------------------
- --------Stockholder sign here-------------------Co-owner sign here-------------
1. Election of Directors With- For All
For hold Except
MICHAEL J. ZAK
BRIAN T. HOREY [_] [_] [_]
NOTE: If you do not wish your shares voted "For" a particular nominee, mark
the "For All Except" box and strike a line through the nominee's(s') name(s).
Your shares will be voted for the remaining nominee(s).
For Against Abstain
2. To approve an amendment to
the 1992 Employee and [_] [_] [_]
and Consultant Stock Option
Plan.
3. To ratify the appointment
of Arthur Andersen LLP [_] [_] [_]
as independent auditors.
4. In their discretion, the
proxies are authorized to
vote upon any other business [_] [_] [_]
that may properly come
before the meeting or at
any adjournments thereof.
Mark box at right if an address change or comment has been
noted on the reverse side of this card. [_]
DETACH CARD DETACH CARD
ON TECHNOLOGY CORPORATION
Dear Stockholder:
Please take note of the important information enclosed with this Proxy
Ballot. There are a number of issues related to the management and operation
of your Corporation that require your immediate attention and approval.
These are discussed in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders,
April 30, 1997.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
ON Technology Corporation
<PAGE>
ON TECHNOLOGY CORPORATION
ONE CAMBRIDGE CENTER
CAMBRIDGE, MASSACHUSETTS 02142
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON APRIL 30, 1997
The undersigned hereby appoints as Proxies Christopher A. Risley and John M.
Bogdan, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated on the reverse side, all shares of
capital stock of ON Technology Corporation (the "Company") held of record by the
undersigned on March 7, 1997, at the Annual Meeting of Stockholders to be held
on April 30, 1997 and at any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
"FOR" PROPOSALS 1, 2 AND 3.
--------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN
THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
Please sign exactly as your name(s) appear(s) on the books of the Company. Joint
owners should each sign personally. Trustees, custodians, and other fiduciaries
should indicate the capacity in which they sign, and where more than one name
appears, a majority must sign. If the shareholder is a corporation, the
signature should be that of an authorized officer who should indicate his or her
title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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