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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1998
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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ON TECHNOLOGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3162846
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
ONE CAMBRIDGE CENTER
CAMBRIDGE, MASSACHUSETTS 02142
(617) 374-1400
HTTP://WWW.ON.COM
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
HERMAN DELATTE
ONE CAMBRIDGE CENTER
CAMBRIDGE, MASSACHUSETTS 02142
(617) 374-1400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
GABOR GARAI, ESQ.
EPSTEIN BECKER & GREEN, P.C.
75 STATE STREET, 27TH FLOOR
BOSTON, MASSACHUSETTS 02109
(617) 342-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement of the earlier effective registration statement for the
same offering [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value.................. 1,471,041 $1.2813(1) $1,884,771.28 $556.01
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(1) The price of $1.2813 per share, which was the average of the high and low
prices of the Common Stock on the Nasdaq National Market on January 14,
1998, is set forth solely for the purpose of calculating the registration
fee in accordance with Rule 457(c) of the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+AN OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 16, 1998
PROSPECTUS
1,471,041 SHARES
ON TECHNOLOGY CORPORATION
COMMON STOCK
This Prospectus relates to the public offering, which is not being
underwritten, of 1,471,041 shares (the "Shares") of common stock, $.01 par
value per share (the "Common Stock") of ON Technology Corporation ("ON" or the
"Company"). The Shares are outstanding shares that may be sold from time to
time by or on behalf of certain stockholders of the Company (the "Selling
Stockholders"). The Selling Stockholders acquired the Shares in private
transactions in which the Company acquired all of the outstanding stock of
Purview Technologies, Inc., a Pennsylvania corporation ("Purview"), and csd
Software GmbH, a German corporation ("csd").
The Shares may be offered by the Selling Stockholders from time to time in
transactions on the Nasdaq National Market, in privately negotiated
transactions, or by a combination of such methods of sale, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Selling
Stockholders may effect such transactions by selling the Shares to or through
broker-dealers and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders or the
purchasers of the Shares for whom such broker-dealers may act as agent or to
whom they sell as principal, or both (which compensation to a particular
broker-dealer might be in excess of customary commissions). See "Selling
Stockholders" and "Plan of Distribution".
The Company will not receive any of the proceeds from the sale of the Shares
by the Selling Stockholders. The Company has agreed to bear certain expenses in
connection with the registration and sale of the Shares being offered by the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain liabilities, including liabilities arising under
the Securities Act of 1933, as amended (the "Securities Act"), or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). See "Selling
Stockholders".
On January 14, 1998, the closing bid price of the Company's Common stock on
the Nasdaq National Market was $1.25 per share. The Common Stock is traded
under the Nasdaq National Market symbol "ONTC".
-----------
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed
to be "underwriters" within the meaning of Section 2(11) of the Securities Act,
and any commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
-----------
SEE "RISK FACTORS" COMMENCING ON PAGE 3 FOR A DISCUSSION OF RISK FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE SECURITIES OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is January , 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Information filed by the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at 7 World Trade Center, New York,
New York, 10048. Copies of such material can also be obtained at prescribed
rates by addressing written requests for such copies to the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
In addition, the Company is required to file electronic versions of such
material with the Commission through the Commission's Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system. The Commission maintains a
World Wide Web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. Electronic filings are publicly available on the Commission's
World Wide Web site within 24 hours of acceptance. The address of such site is
http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form
S-3, including this Prospectus and other information (herein, together with
all amendments, exhibits and schedules, referred to as the "Registration
Statement"), under the Securities Act with respect to the shares of Common
Stock offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission, and to which
reference is hereby made. Statements made in this Prospectus as to the
contents of any document referred to are not necessarily complete. With
respect to each such document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement, including the exhibits
and schedules thereto, may be inspected at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of such material may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission are hereby incorporated by
reference in this Prospectus:
(i) the Company's Annual Report on Form 10-K for the year ended December
31, 1996;
(ii) the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997;
(iii) the Company's Current Report on Form 8-K pertaining to the
acquisition of the outstanding securities of csd Software GmbH filed with
the Commission on February 6, 1997 and the exhibits thereto;
(iv) the Company's Current Report on Form 8-K pertaining to that certain
Asset Purchase Agreement by and among the Company and Elron Software, Inc.
filed with the Commission on November 12, 1997 and the exhibits thereto;
and
(v) the Company's Current Report on Form 8-K pertaining to a special
meeting of the Company's stockholders filed with the Commission on January
9, 1998 and the definitive Proxy Statement for Special Meeting of
Stockholders attached as an exhibit thereto (the "Special Proxy").
All documents filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Prospectus and prior to the termination of
this offering shall be deemed incorporated by reference in this Prospectus and
to be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or
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<PAGE>
superseded for purposes of this Prospectus to the extent that a statement
contained herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom this Prospectus is delivered, upon
written or oral request of such person, a copy of any and all of the
information that has been incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated by reference into the information
that the Prospectus incorporates). Requests should be directed to John M.
Bogdan, Chief Financial Officer, ON Technology Corporation, One Cambridge
Center, Cambridge, Massachusetts 02142, telephone number (617) 374-1400.
THE COMPANY
The Company's principal executive offices are located at One Cambridge
Center, Cambridge, Massachusetts 02142 and its telephone number is (617) 374-
1400. The Company's Internet address is http://www.on.com. Information
contained on the Company's World Wide Web site shall not be deemed part of
this Prospectus.
On October 29, 1997 the Company and Elron Software, Inc. ("Elron") entered
into an Asset Purchase Agreement (the "Purchase Agreement") pursuant to which
Elron agreed to purchase, subject to the approval of ON's stockholders, the
Company's Network Management and Security product, catalog business and Free
Trial Marketing system. The Purchase Agreement and the transactions
contemplated thereby (the "Transaction") are described in a Proxy Statement
for Special Meeting of Stockholders dated January 9, 1998, which is an exhibit
to the Company's Current Report on Form 8-K filed with the Commission on
January 9, 1998 (the "Special Proxy").
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Common Stock offered by this Prospectus. Potential investors are advised that
statements contained herein or incorporated by reference into this Prospectus
expressing the beliefs and expectations of management regarding the Company's
future results or performance are forward-looking statements based on current
expectations that involve a number of risks and uncertainties. The Company's
actual results and the timing of certain events could differ materially from
those anticipated by such forward-looking statements as a result of certain
factors discussed in this Prospectus and the documents incorporated herein by
reference, including the factors set forth in the "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and "Business" sections in the Special Proxy.
CHANGE IN MARKETING STRATEGY
Historically, the Company has marketed all of its products other than its
Comprehensive Client Management ("CCM") products through its Free Trial
Marketing system. See "--Free Trial Marketing" below and "THE PROPOSED
TRANSACTION--GENERAL" in the Special Proxy. Under the Purchase Agreement,
Elron has agreed to purchase the Company's Free Trial Marketing system,
subject to a limited license back to the Company. This would allow the Company
to continue to use the Free Trial Marketing system to market its current
Groupware products, including future versions and feature extensions of such
products, to existing customers and identified potential customers, for a
period of three years from the closing date of the transactions contemplated
by the Purchase Agreement (the "Closing Date"), subject to termination in the
event of a sale of the Groupware products or a sale of all or substantially
all of the Company's business or assets.
Although the Company would retain limited rights to the Free Trial Marketing
system after the consummation of the Transaction, the Company's ability to
implement a marketing strategy based on the Free
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Trial Marketing system would be severely curtailed because the Company would
no longer have the personnel and infrastructure necessary to support to such a
strategy. Moreover, the Company has made the strategic decision to limit its
Groupware marketing efforts to exclusively selling new seats to its existing
customer base, while focusing the majority of its management, financial and
technical resources on the CCM products. Inasmuch as the Company's historical
marketing strategy has been based primarily on the Free Trial Marketing
system, the Company's decision to sell substantially all of its rights to the
Free Trial Marketing system would, if consummated, significantly limit the
marketing strategies available to the Company.
CCM PRODUCT MARKETING STRATEGY
If the Transaction is consummated, the Company will be focused primarily on
its CCM products. The target market for the CCM products is entirely different
from the target market for the products the Company has marketed and sold
through its Free Trial Marketing system. The target market for the CCM
products consists primarily of large corporations such as Deutsche Telekom and
Munich Reinsurance (both existing CCM customers). In addition, CCM product
sales per customer are generally in the range of $20,000 to $500,000, as
opposed to an average sale per customer for the Company's other products of
approximately $2,000. Sales of CCM products pose significantly greater
financial risks, and require greater up-front investments in marketing,
technical and financial resources, than sales of the Company's historical
products. As a result, the Company is adopting a new and untested marketing
strategy using a direct sales force and in-field service organization. This
marketing strategy requires significant investments in additional marketing
and technical personnel, retraining of existing personnel, ongoing product
development and creation of an in-field service organization. To date,
substantially all of the Company's marketing of CCM products has been in
Europe. While the Company has developed valuable experience and expertise in
Europe, there can be no assurance that the Company will be able to transfer
such experience and expertise to the North American market.
If the proposed Transaction is consummated, the Company will rely on fewer
large customers for its revenue since the target market for CCM products is
primarily large corporations. Currently, only one customer accounts for more
than 10% of net revenue of the products that are not being sold as part of the
Proposed Transaction. For the nine months ended September 30, 1997, Deutsche
Telekom accounted for $4.5 million, or 22.2%, of net revenue for such
products. It is possible that the Company's change in marketing strategy will
result in other customers accounting for more than 10% of the Company's net
revenues.
TECHNOLOGICAL REQUIREMENTS OF THE CCM PRODUCTS; PRODUCT DEVELOPMENT
The technological demands of the CCM products require a commitment of
significant ongoing financial, technical and personnel resources to product
development, training of service technicians and customer training. Because
the Company's historical products are not as technologically demanding as the
CCM products, the Company has not to date made the required investment and has
not proven that it can develop and maintain the organization required to
support such products. The Company believes that its experience with the CCM
products in Europe will provide a valuable base on which to build the
necessary financial, technical and personnel resources to sell, market,
develop and support the CCM products in North America; however, there can be
no assurance that the Company will be able to expand and develop its resources
to support CCM products in North America.
If the Transaction is consummated, the Company will be focused primarily on
its CCM product. The CCM product is typically larger and more complex than the
products that the Company has previously developed. The Company's ability to
continue to enhance the CCM product to meet customer and market requirements
will depend substantially on its ability to effectively manage its development
effort, to attract and retain the required development personnel in Cambridge,
Massachusetts and Starnberg, Germany and to coordinate and manage
geographically remote development efforts.
REQUIRED FINANCIAL RESOURCES
The Company has estimated that the product development, marketing and sales
costs of the CCM products
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are approximately $1.0 to $1.5 million per month. The Company believes that it
will have sufficient financial resources to fund these costs through March
1998, whether or not the Transaction is consummated. If the Transaction is
consummated, the Company believes that it will have sufficient financial
resources to fund these costs through at least December 1998. If the
Transaction is not consummated, the Company will have to seek additional
sources of capital to fund CCM product costs beyond March 1998. There can be
no assurance that the Company's estimate of the marketing, sales and product
development costs of the CCM products will prove correct, that such costs will
not increase beyond the Company's available financial resources, or that
additional sources of capital, if and when needed, will be sufficient or
available.
MANAGEMENT AGREEMENT; TRANSFERRED EMPLOYEES
Contemporaneously with the execution and delivery of the Purchase Agreement,
the Company and Elron Software, Inc. entered into a Management Agreement (the
"Management Agreement") pursuant to which Elron is managing the assets being
acquired by Elron pursuant to the Purchase Agreement (the "Proposed Assets")
for its benefit and at its risk and expense. Pursuant to the Management
Agreement, Elron, has, subject to certain covenants regarding extraordinary
transactions, complete discretion to operate the business of the Company with
regard to the Proposed Assets. In the event that the Transaction is not
consummated, Elron will be obligated to return the Proposed Assets to the
Company, subject to the terms and conditions of the Management Agreement. See
"TERMS OF THE PROPOSED TRANSACTION--MANAGEMENT OF PROPOSED BUSINESS PRIOR TO
CLOSING--The Management Agreement" in the Special Proxy. There can be no
assurance that the Proposed Assets would upon return by Elron have at least
the same value as such assets had at the time the Management Agreement was
executed. Any diminution in value of the Proposed Assets could have a material
adverse effect on the Company's business, condition (financial and otherwise),
prospects and results of operations.
Pursuant to the Purchase Agreement, certain employees of the Company will
continue to be employed by the Company, but will from the date of the Purchase
Agreement until the Closing Date, to the extent allowed by law, be subject to
the complete supervision, direction and control of Elron (the "Transferred
Employees"). The Company has been advised that the Transferred Employees have
been offered various benefits and incentives to be granted by Elron after the
consummation of the Transaction. In the event that the Transaction is not
consummated, and as a result such benefits and incentives are not provided,
the performance of the Transferred Employees could be materially adversely
affected and a significant portion of such employees may seek employment
elsewhere.
FAILURE OF THE COMPANY TO OBTAIN CERTAIN THIRD-PARTY CONSENTS
Although the only conditions to closing the Transaction (the "Closing") are
that the Purchase Agreement and Transaction be approved by the stockholders of
the Company and that the Company deliver $3,000,000 of guaranteed receivables
to Elron, the Company is obligated to obtain certain third-party consents on
or prior to the Closing. In the event that the Company does not obtain such
consents, it will be obligated to pay certain specified financial damages. The
payment of such financial penalties may have a material adverse effect on the
Company's business, condition (financial and otherwise), prospects and results
of operations.
INTERNATIONAL REVENUE
In fiscal 1996 and the nine-month period ending September 30, 1997, total
revenue from international licenses (license revenue from outside the United
States) represented approximately 17% and 35%, respectively, of the Company's
total revenue. For the fourth quarter of 1997 and thereafter (assuming the
Transaction is consummated), the Company expects that international revenue
will constitute a significantly greater portion of the Company's total
revenue. Accordingly, a greater percentage of the Company's total revenue will
be subject to the risks inherent in international sales, including the impact
of fluctuating exchange rates on demand for its products, longer payment
cycles, greater difficulty in protecting intellectual property, greater
difficulty in accounts receivable collection, unexpected changes in legal and
regulatory requirements, seasonality due to the slowdown of European business
activity in the third quarter and tariffs and other trade barriers. There can
be no assurance that these factors will not have a material adverse effect on
the Company's future international license revenue.
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LOSS OF KEY MANAGEMENT PERSONNEL
Ivan O'Sullivan and Chadwick Roll, Vice President--Worldwide Marketing and
Vice President of Inside Sales of the Company, respectively, are among the
Transferred Employees. Messrs. O'Sullivan and Roll are key employees of the
Company. The loss of their services may have a material adverse effect on the
Company's business, condition (financial or otherwise), prospects and results
of operations.
The Company's success depends to a significant extent upon a number of key
technical and management employees. While the Company's employees are required
to sign standard agreements concerning confidentiality and ownership of
inventions, the employees, with the exception of Messrs. Herman DeLatte, Loren
Platzman and John Bogdan, are generally not otherwise subject to employment
agreements or noncompetition covenants. The loss of the services of any of the
Company's key employees could have a material adverse effect on the Company's
business, condition (financial or otherwise), prospects and results of
operation. The Company does not maintain life insurance policies on key
employees. The Company's success also depends in large part upon its ability
to attract and retain highly skilled technical, managerial, sales and
marketing personnel.
Competition in the software industry for such personnel is intense. There
can be no assurance that the Company will be successful in retaining its
existing key personnel and in attracting and retaining the personnel it
requires.
GROUPWARE BUSINESS
If the Transaction consummated, the Company's products will consist of the
CCM and the Groupware products. The Company has made the strategic decision to
limit its Groupware marketing efforts to exclusively selling new seats to its
existing customer base, while focusing the majority of its management,
financial and technical resources on the CCM products. The Company believes
that in the short-term the Company can significantly reduce the costs
associated with the Groupware products while continuing to generate cash flow
from the sale of these products. However, there can be no assurance that cash
flow from the sale of the Groupware products will not decrease faster than
expected. In addition, over the longer term, the Company's strategic decision
to cease marketing the Groupware products to new customers will lead to an
erosion of the customer base and a reduction of revenue from such products.
The Company's ability to attract and retain the employees needed to service
the Groupware products may be materially adversely affected by the Company's
strategic decision to de-emphasize the Groupware products. Any loss of revenue
from the Groupware products may have a material adverse effect on the
Company's business, condition (financial and otherwise), prospects and results
of operation.
STRATEGIC REORGANIZATION
On July 29, 1997, the Company reorganized and restructured its operations.
On October 29, 1997, additional restructuring actions were implemented. These
actions were designed to focus the Company on the Comprehensive Client
Management business (the "CCM Business"). To date, implementation of this new
corporate strategy has included hiring a new Chief Executive Officer, electing
a new Chairman of the Board of Directors, deemphasizing the acquisition of new
customers in the Company's Groupware and Network Management and Security
businesses, discontinuing sales of the Company's virus protection software,
closing or reducing the Company's offices in Sydney, Australia; Paris, France;
London, United Kingdom; and Munich, Germany while building up the Company's
office in Starnberg, Germany and laying off approximately 160 employees. There
can be no assurance that the Company's new corporate strategy will be
successfully implemented. Furthermore, there can be no assurance that the
Company will not engage in further reorganizations or restructurings in the
future.
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's licensing activity and results of operations can fluctuate
significantly on a quarterly basis. Causes of such fluctuations may include,
among other factors, the volume and timing of new and repeat orders, the
introduction or announcement of new products or product enhancements by ON or
third parties, failure to ship trials, changes in response rates to the
Company's mailings and telemarketing programs, interruption in the Company's
overnight delivery, telephone or internal networks and databases, work
stoppages, changes in product prices, changes in operating expenses, changes
in product mix, increase in international sales as a percentage of total
revenue, seasonality, trends in the computer industry, unavailability of
product, potential software viruses
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<PAGE>
and perceived threats thereof, customer order deferrals, general economic
conditions, extraordinary events such as acquisitions or litigation and the
occurrence of unexpected events. While to date, the Company has not
experienced any significant failure to ship trials, work stoppages or
unavailability of products, there can be no assurance any of such events will
not occur in the future. The occurrence of any such event could have a
material adverse effect on the Company's business, condition (financial or
otherwise), prospects and results of operations. Because of the nature of its
distribution methods for its Groupware and Network Management and Security
products, the Company has virtually no backlog with respect to such products
and generally cannot predict when users will license such products. As a
result of the longer enterprise sales and product rollout cycle for CCM, the
Company will be better able to assess anticipated customer orders for CCM.
Historically, repeat orders have accounted for a significant portion of the
Company's total revenue; however, there can be no assurance that the Company
will be able to sustain current repeat order rates in the future, especially
if the Transaction is consummated and in light of the de-emphasis in marketing
efforts for the Groupware and Network Management and Security products.
Furthermore, since the Company's cost of total revenue is relatively low and
its operating expenses are relatively fixed, any revenue shortfall in a
quarter will result in a substantially similar shortfall in net income. In
addition, significant quarterly fluctuations in licensing activity will cause
significant fluctuations in the Company's cash flows and the cash and cash
equivalents, accounts receivable and deferred revenue accounts on the
Company's balance sheet.
The Company's business has experienced and is expected to continue to
experience seasonality, due in part to customer buying patterns. In recent
years, the Company generally has had greater demand for its products in the
fourth quarter and has had weaker demand for its products during the first
quarter. These fluctuations are caused primarily by customer budgeting and
purchasing patterns. The Company believes this pattern will continue.
The Company believes that period-to-period comparisons of its financial
results should not be relied upon as an indication of future performance.
RAPID TECHNOLOGICAL CHANGE
The Groupware, Network Management and Security and Client Management
software markets are characterized by rapid technological developments,
changes in customer requirements, evolving industry standards and frequent new
product introductions. The Company's future success will depend, in part, upon
its ability to enhance its existing applications, develop and introduce new
products that take advantage of technological advances, and respond promptly
to new customer requirements and evolving industry standards. As discussed
above, the Company has made a strategic decision to limit its Groupware
marketing efforts to exclusively selling new seats to its existing customer
base and has agreed to sell, subject to stockholder approval, its Network
Management and Security products. The Company has identified a number of
enhancements to CCM which it believes are important to its continued success
in the Client Management software market. There can be no assurance that the
Company will be successful in developing and marketing, on a timely basis,
enhancements to its existing products or new products, or that its new
products will adequately address the changing needs of the marketplace.
Failure by the Company in any of these areas could materially and adversely
affect the Company's business, condition (financial or otherwise), prospects
and results of operations. In addition, from time to time the Company or its
competitors may announce new products with capabilities or technologies that
could have a potential to replace or shorten the life cycles of the Company's
existing products or render such products obsolete. There can be no assurance
that announcements by the Company or its competitors of new products will not
cause customers to defer purchasing the Company's existing products. In
addition, there can be no assurance that future changes in DOS, Windows,
Windows NT, Unix, NetWare or other popular operating systems would not result
in incompatibility with the Company's products. The Company's failure to
introduce new products on a timely basis that are compatible with operating
systems and environments preferred by desktop computer users would have a
material adverse effect on the Company's business, condition (financial or
otherwise), prospects and results of operations.
7
<PAGE>
COMPETITION
The market for the Company's products is highly competitive, and the Company
expects competition to increase in the future. The Company believes that the
principal competitive factors affecting the market for its products include
performance, functionality, quality, customer support, breadth of product
line, speed of product delivery, frequency of upgrades and updates, brand name
recognition, company reputation, adherence to industry standards, integration
with third-party solutions and price. Certain of the criteria upon which the
performance and quality of the Company's Groupware and Network Management and
Security software compete include speed of response, ease of use, ease of
installation, interoperability with other messaging systems and simplicity of
administration. The Company believes that it generally competes favorably with
respect to each of these factors; however, there can be no assurance that the
Company will be able to continue to compete successfully against current and
future competitors. Certain of the Company's competitors have been in the
market longer than the Company, and other competitors are larger and may have
greater name recognition that the Company. As is the case in many segments of
the software industry, the Company may encounter increasing price competition
in the future. This could reduce average selling prices and, therefore, profit
margins. Competitive pressures could result not only in sustained price
reductions but also in a decline in sales volume, which could have a material
adverse effect on the Company's business, condition (financial or otherwise),
prospects and results of operations. There can be no assurance that the
Company will continue to compete effectively against existing and potential
competitors in these markets, many of whom have substantially greater
financial, technical, marketing and support resources and name recognition
than the Company.
The Groupware, Network Management and Security and Client Management
software markets are highly fragmented, with products offered by many vendors.
In the e-mail market, the Company competes with offerings from software,
shareware and freeware developers. Shareware is software that is made
available electronically on bulletin boards systems. Shareware users are
encouraged to evaluate the software for a short period of time and then either
cease using it or pay a license fee. In the group scheduling market, the
Company also competes with personal information manager products ("PIMs") that
have been enhanced to include some group scheduling features. In addition, the
trend toward enterprise-wide communications software solutions may result in a
consolidation of the communications software market around a smaller number of
vendors who are able to provide all of the necessary software and support
capabilities.
In the Client Management market, the Company faces competition from large
and established companies, such as Microsoft, Intel and IBM/Tivoli, which
offer client management capabilities as part of their systems, network and/or
desktop management systems. Moreover, Microsoft has announced the Zero
Administration Initiative for Windows ("ZAW"), which includes a set of
technologies that address some of the same client management issues as CCM.
Microsoft has described components of ZAW as being available for future
versions of the Windows NT and Windows 95 operating systems, as well as the
Microsoft Systems Management Server product. There can be no assurance that
the Company can continue to compete effectively against Client Management
software which is included free with operating system software. See
"BUSINESS--Competition" in the Special Proxy.
PRODUCT DEVELOPMENT
The Company has in the past experienced delays in software development, and
there can be no assurance that it will not experience further delays in
connection with its current or future product development activities. The
Company puts all of its products through alpha and beta test cycles and makes
significant efforts to debug all products before commercial release. The
Company makes well-marked alpha and beta versions of its software available
for evaluation and testing and solicits and responds to input from evaluators.
However, there can be no assurance that the Company's products will not
contain undetected errors or version compatibility issues, particularly when
first introduced or when new versions are released, resulting in loss of or
delay in market acceptance. Delays and difficulties associated with new
product introductions or product enhancements could have a material adverse
effect on the Company's business, condition (financial or otherwise),
prospects and results of operations.
8
<PAGE>
In addition to developing new products, the Company's internal development
staff is focused on developing upgrades and updates to existing products and
modifying, enhancing and completing any acquired products and incomplete
projects. Future enhancements may, among other things, include additional
functionality, respond to user problems or address issues of compatibility
with changing operating systems and environments. Failure to release such
enhancements on a timely basis could have a material adverse effect on the
Company's business, condition (financial or otherwise), prospects and results
of operation. There can be no assurance that the Company will be successful in
these efforts.
If the Company believes that a licensed product continues to be valuable
after the expiration of the initial license term, it will seek to extend the
term of the license. There can be no assurance that the Company will be able
to extend the term of expiring licenses, or that the economic arrangements for
such extensions would be comparable to the arrangements in effect during the
initial license term.
INCLUSION OF CCM, GROUPWARE, NETWORK MANAGEMENT AND SECURITY SOFTWARE IN
SYSTEM SOFTWARE AND APPLICATION SUITES
In the future, vendors of operating system software and applications sold
for a single price (generally referred to as application suites) may continue
to enhance their products to include certain functions that are currently
provided most often by CCM, Groupware, Network Management and Security
software or may bundle these products in their application suites at no
additional charge. The widespread inclusion of the functions provided by the
Company's products as standard features of operating system software could,
particularly if the quality of such functions were comparable to that of the
Company's products, render the Company's products obsolete and unmarketable.
Furthermore, even if the CCM, Groupware, Network Management and Security
software functions provided as standard features by operating systems are more
limited than those of the Company's products, there is no assurance that a
significant number of customers would not elect to accept such functions in
lieu of purchasing additional software. If the Company were unable to develop
new CCM, Groupware, Network Management and Security software products to
further enhance operating systems and to replace successfully any obsolete
products, the Company's business, condition (financial or otherwise),
prospects and results of operations would be materially and adversely
affected.
FREE TRIAL MARKETING
If the Transaction is not consummated and the rights to the Free Trial
Marketing system revert to the Company and, in any event, to the extent the
Company retains certain limited rights to the Free Trial Marketing system
pursuant to the Purchase Agreement, the Company would be exposed to the risks
associated with the Free Trial Marketing system set forth below.
As part of the Free Trial Marketing system, customers are provided with 30-
day free trials of certain of the Company's principal products. The trials are
full featured versions of the product that are internally designed to cease
operation in 30 days. The Company depends on direct mail, trade shows and
telemarketing to find prospects and install trials. There can be no assurance
that this strategy will continue to be effective in the future for either
current or new products. The failure of this strategy to continue to
effectively generate license revenue would have a material adverse effect on
the Company's business, condition (financial or otherwise), prospects and
results of operations. In addition, as mailings are mailed repeatedly to the
same customers, customers' responsiveness to particular offers and products
declines. There can be no assurance that the Company will be able to sustain
current response rates to its mailings in the future. The Company's growth
with respect to products sold and marketed through the Free Trial Marketing
system depends both on its ability to select names from rented lists and to
grow its "house list." The availability and relevance of rentable names to the
Company's products are not certain. In addition, since the ability of the
Company to grow its house list is dependent on the supply of rentable names,
house list growth cannot be assured. In both the domestic and international
markets, increases in postal rates (including modifications in the
classification of mail) or telephone rates, or changes in postage or telephone
regulations which prohibit unsolicited direct mail or unsolicited telephone
calls, could significantly impact the economics of the Company's Free Trial
Marketing strategy. In addition, it is possible that other software vendors
could adopt all or parts of the Company's strategy and compete more directly
or effectively with the Company.
9
<PAGE>
If some of the Company's Free Trial Marketing disks were to become infected
with a computer virus, they would cause difficulties for prospects and could
damage the Company's reputation. The Company does extensive testing for
viruses. The Company's use of outside fulfillment contractors increases the
risk that a virus could be shipped undetected on disks bearing the Company's
label. There can be no assurance that ON would be able to collect adequate
compensation from such fulfillment contractors if such a virus infected disks
bearing the Company's label.
The Company fulfills orders received directly from customers through a
third-party fulfillment contractor, which warehouses the Company's products
and ships them directly to ON's customers. The Company also maintains a
private use prospects list at a bonded third-party database firm. In the event
that either the customer fulfillment contractor or the private use database
firm experience a substantial business interruption, whether through business
failure or interruption or some natural calamity, or the Company's
relationship with either of such parties is terminated for any reason, the
Company's ability to continue to mail free trial offers to prospective
customers and to fulfill orders placed by customers would be adversely
affected.
INDIRECT CHANNELS OF DISTRIBUTION
The Company markets its products (other than CCM) through distributors and
resellers in addition to its direct sales force and its Free Trial Marketing
system. These distributors and resellers also sell other products that are
complementary to, or compete with, those of ON. There can be no assurance that
these distributors and resellers will not give greater priority to products of
other suppliers. They have no long-term obligation to purchase products from
the Company. Since the Company's agreements with its distributors provide for
a right of return, revenue recognized upon sales to distributors is subject to
a reserve for returns. Although management believes that the current reserve
balance is adequate to cover this exposure, there can be no assurance that any
future period reserves for returns will be adequate. Moreover, these
distributors and resellers generally have limited financial resources, and
there can be no assurance with respect to the collectibility of accounts
receivable owed by such distributors and resellers. In addition, the Company
may be unaware of the nature and scope of the representations made to
customers by these distributors and resellers. For example, they could make
representations to customers about the Company's current and future products
which are inaccurate or incomplete. This could result in the products not
meeting the customers' expectations or requirements. Although the Company's
agreements with its distributors generally provide the Company with recourse
against unauthorized action taken by the distributors, there can be no
assurance that the Company could recover adequate compensation to cover the
damage caused by an inaccurate representation.
PROPRIETARY TECHNOLOGY
The Company's success is heavily dependent upon its proprietary software
technology. The Company relies on a combination of contractual rights,
trademarks, trade secrets and copyrights to establish and protect its
proprietary rights in its software.
The Company uses a printed "shrink-wrap" license for users of its Groupware,
Network Management and Security products distributed through traditional
distribution channels in order to protect its copyrights and trade secrets in
those products. Since these shrink-wrap licenses are not signed by the
licensee, many authorities believe that they may not be enforceable under many
state laws and the laws of many foreign jurisdictions. If such licenses are
not enforceable, the user would not be bound by the terms thereof, including
the terms which seek to protect the Company's proprietary technology. If the
printed shrink-wrap licenses prove to be unenforceable, this may have a
material adverse effect on the Company's business, condition (financial or
otherwise), prospects and results of operations.
The laws of some foreign countries either do not protect the Company's
proprietary rights or offer only limited protection for those rights.
Furthermore, in countries with a high incidence of software piracy, the
Company may experience a higher rate of piracy of its products.
10
<PAGE>
The Company has obtained registrations in the United States for the
following trademarks: ON Technology, Notework, Meeting Maker, ON Technology &
Design, ON Location, Instant Update and DaVinci Systems. The Company has filed
for the trademark "ON Command CCM" in the United States, the European
Community, Canada and Australia. The Company has obtained only four foreign
registrations of its Notework mark and two foreign registrations of its
MeetingMaker mark, due to the significant costs involved in obtaining foreign
registrations. As a result, the Company may not be able to prevent a third
party from using its trademarks in many foreign jurisdictions. The Company has
not to date registered any of its copyrights.
There can be no assurance that the steps taken by the Company to protect its
proprietary software technology will be adequate to deter misappropriation of
this technology. Lesser sensitivity by corporate, government or institutional
users to avoiding copyright infringement could have a material adverse effect
on the Company's business, condition (financial or otherwise), prospects and
results of operation. While the Company to date has not taken any legal action
to enforce its intellectual property rights against infringing users, it
believes, based upon current interpretations of law, that its use of Free
Trial Marketing and the widespread availability of its trials do not
significantly impact its ability to enforce its intellectual property rights
against infringing users, including corporate, institutional and government
entities. However, there is no assurance that a court or other authority may
not rule otherwise in the future. Such a ruling would have a material adverse
effect on the Company's business, condition (financial or otherwise),
prospects and results of operations.
There has been substantial litigation in the software industry involving
intellectual property rights of technology companies, although, to date, the
Company has not been subject to any such litigation. Although the Company does
not believe that it is infringing the intellectual property rights of others,
there can be no assurance that such claims, if asserted, would not have a
material adverse effect on the Company's business, condition (financial or
otherwise), prospects and results of operations. In addition, as the Company
may acquire or license a portion of the software included in its future
products from third parties, its exposure to infringement actions may increase
because the Company must rely upon such third parties for information as to
the origin and ownership of any software being acquired. The Company generally
obtains representations as to the origin and ownership of such acquired or
licensed software and generally obtains indemnification to cover any breach of
such representations. However, there can be no assurance that such
representations are accurate or that such indemnification will provide
adequate compensation for a breach of such representations. In the future,
litigation may be necessary to enforce and protect trade secrets and other
intellectual property rights owned by the Company. The Company may also be
subject to litigation to defend against claimed infringement of the rights of
others or to determine the scope and validity of the proprietary rights of
others. Any such litigation could be costly and cause diversion of
management's attention, either of which could have a material adverse effect
on the Company's business, condition (financial or otherwise), prospects and
results of operations. Adverse determinations in such litigation could result
in the loss of the Company's proprietary rights, subject the Company to
significant liabilities, require the Company to seek licenses from third
parties or prevent the Company from manufacturing or selling its products, any
one of which could have a material adverse effect on the Company's business,
condition (financial or otherwise), prospects and results of operations.
Furthermore, there can be no assurance that any necessary licenses will be
available on reasonable terms, or at all.
The Company could be subjected to lawsuits by customers, past, present or
future, and others due to possible errors in the Company's software. The
Company is not aware of any material errors in its software or any pending or
threatened litigation. The Company maintains insurance covering such
liabilities in the amounts of $12 million domestically and $4 million
internationally. The Company believes that its insurance coverages are
sufficient to cover any such losses.
VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock has been, and in the future
may be, subject to wide fluctuations in response to actual or anticipated
quarterly operating results of the Company, announcements of technological
innovations or new applications by the Company or its competitors and general
market conditions
11
<PAGE>
in the software industry, as well as other events or factors. In addition,
stock markets have experienced extreme price and volume trading volatility in
recent years. This volatility has had a substantial effect on the market price
of many technology companies and has often been unrelated to the operating
performance of those companies. This volatility may adversely affect the
market price of the Company's Common Stock.
ANTI-TAKEOVER EFFECT OF CHARTER PROVISIONS
The Board of Directors has the authority to issue up to 2,000,000 shares of
Preferred Stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any further
vote or action by the stockholders of the Company. The rights of the holders
of Common Stock will be subject to, and may be adversely affected by, the
rights of the holders of any Preferred Stock that may be issued in the future.
Additionally, the issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire a majority of the outstanding voting stock of the Company. The
Company has no present plans to issue shares of Preferred Stock. The Company's
Fourth Restated Certificate of Incorporation and the Amended and Restated By-
Laws provide for a classified Board of Directors and contains other provisions
which may also discourage an unsolicited takeover attempt. These provisions
could limit the price that investors might be willing to pay in the future for
shares of Common Stock and could make it more difficult for stockholders of
the Company to effect certain corporate actions.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the Shares
by the Selling Stockholders. See "Selling Stockholders".
SELLING STOCKHOLDERS
The following table lists the Selling Stockholders, the number of shares of
the Company's Common Stock which each owned as of January 5, 1998, the number
of shares of the Company's Common Stock expected to be sold by each and the
number of the shares of the Company's Common Stock which each will own after
the offering pursuant to this Registration Statement, assuming the sale of all
the Shares expected to be sold. The Shares are being registered to permit
public secondary trading of the Shares and the Selling Stockholders may offer
the Shares for resale from time to time. See "Plan of Distribution". Assuming
the sale of all the Shares registered hereby, each of the Selling Stockholders
will own less than 1% of the outstanding Common Stock of the Company.
The Shares being offered by the Selling Stockholders were acquired from the
Company in connection with the Company's acquisition of all of the outstanding
stock of either (i) Purview Technologies, Inc. (the "Purview Acquisition") or
(ii) csd Software GmbH (the "csd Acquisition"). The Purview Acquisition was
completed pursuant to the terms of a Stock Purchase Agreement dated January
24, 1997 whereby all issued and outstanding stock of Purview Technologies,
Inc. was acquired by the Company for $1,000,000 in cash, 155,251 shares of the
Company's Common Stock and an option to purchase 50,461 shares of Common
Stock. The option was granted to a stockholder of Purview Technologies, Inc.
who is not among the Selling Stockholders. As part of the Purview Acquisition,
the Company entered into a Registration Rights Agreement dated January 30,
1997 (the "Purview Rights Agreement") with certain of the Selling Stockholders
pursuant to which the Company agreed, under certain circumstances, to effect a
registration of the Shares in order to permit the Selling Stockholders to
effect sales of such Shares from time to time in the market or in privately
negotiated transactions. Reference is made to the full text of the Purview
Rights Agreement which is an exhibit to the Registration Statement of which
this Prospectus forms a part. The csd Acquisition was completed pursuant to
the terms of a Stock Purchase Agreement dated January 28, 1997 whereby all the
issued and outstanding stock of csd was acquired by the Company for $5,000,000
in cash and 1,315,790 shares of the Company's Common Stock. As part of the csd
Acquisition, the Company entered into a Registration Rights Agreement dated
January 28, 1997 (the "csd Rights Agreement") with certain of the Selling
Stockholders pursuant to which the Company agreed, under certain
circumstances, to effect a registration of the Shares in order to permit the
Selling Stockholders to effect sales of such Shares from time to time in the
market or in privately negotiated transactions. Reference is made to the full
text of the csd Rights Agreement which is an exhibit to the Registration
Statement of which this Prospectus forms a part.
12
<PAGE>
The Company has filed with the Commission, under the Act, a Registration
Statement on Form S-3, of which this Prospectus forms a part, with respect to
the resale of the Shares from time to time on the Nasdaq National Market or in
privately-negotiated transactions. The Company has agreed to use reasonable
efforts to keep such Registration Statement effective for up to 180 days from
the date of effectiveness of the Registration Statement on Form S-3, of which
this Prospectus forms a part, subject to certain restrictions or, if earlier,
until the distribution contemplated in this Prospectus has been completed.
The Shares offered by this Prospectus may be offered from time to time by
the Selling Stockholders named below:
<TABLE>
<CAPTION>
TOTAL
NO. OF NUMBER OF NO. OF SHARES TO
SHARES SHARES TO BE BE OWNED
NAME OWNED OFFERED OR SOLD AFTER THE OFFERING
---- ------- --------------- ------------------
<S> <C> <C> <C>
Mary Shaeffer Smith................. 100,943 100,943 0
Jaime Ellertson..................... 30,857 30,857 0
William Calcagni.................... 4,114 4,114 0
Mark Coticchia...................... 5,349 5,349 0
Larry A. Krueger.................... 13,988 13,988 0
Eugen Heiter........................ 238,116 238,116 0
Harald Moller....................... 250,636 250,636 0
Hans Till Freiherr von Ruxleben..... 100,265 100,265 0
Jochen Tschunke..................... 125,319 125,319 0
Reinhold Weber...................... 12,532 12,532 0
Iska Heiter......................... 263,158 263,158 0
Liliane Freifrau von Ruxleben....... 263,158 263,158 0
</TABLE>
PLAN OF DISTRIBUTION
All or a portion of the Shares offered hereby by the Selling Stockholders
may be delivered and/or sold from time to time in transactions on the Nasdaq
National Market, in privately negotiated transactions, or by a combination of
such methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. After the effectiveness of the Registration
Statement of which this Prospectus is a part, the Selling Stockholders may
engage in hedging transactions, make short sales of the Company's Common Stock
and may use the Shares to cover the resulting short positions. The Selling
Stockholders may effect such transactions by selling the Shares to or through
broker-dealers and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders or the
purchasers of the Shares for whom such broker-dealers may act as agent or to
whom they sell as principal or both (which compensation to a particular
broker-dealer might be in excess of customary commissions). There is no
assurance that any of the Selling Stockholders will sell any or all of the
Shares offered by them.
Any Selling Stockholder and any broker-dealer that participate in the
distribution may under certain circumstances be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions received by such
broker-dealers and any profits realized on the resale of Shares may be deemed
to be underwriting discounts and commissions under the Securities Act. Each
Selling Stockholder may agree to indemnify such broker-dealers against certain
liabilities, including liabilities under the Securities Act. In addition, the
Company has agreed to indemnify in certain circumstances the Selling
Stockholders against certain liabilities, including liabilities arising under
the Securities Act and the Exchange Act. The Selling Stockholders have agreed
to indemnify in certain circumstances the Company against certain liabilities,
including liabilities arising under the Securities Act and the Exchange Act.
13
<PAGE>
Any broker-dealer participating in such transactions as agent may receive
commissions from a Selling Stockholder (or a purchaser for whom such broker-
dealer may act as agent). Broker-dealers may agree with such Selling
Stockholder to sell a specified number of Shares at a stipulated price per
share, and, to the extent such a broker-dealer is unable to do so acting as
agent for such Selling Stockholder, to purchase as principal any unsold
Shares. Broker-dealers who acquire Shares as principal may thereafter resell
such Shares from time to time in transactions (which may involve crosses and
block transactions and which may involve sales to and through other broker-
dealers, including transactions of the nature described above) on the Nasdaq
National Market, in privately negotiated transactions, or by a combination of
such methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices, and in connection with such resales may pay to
or receive from the purchasers of such Shares commissions computed as
described above.
Each Selling Stockholder will be subject to applicable provisions of the
Exchange Act, and the rules and regulations promulgated thereunder. Each
Selling Stockholder will pay all commissions and other expenses associated
with the sale of the Shares by such Selling Stockholder. The Shares offered
hereby are being registered pursuant to contractual obligations of the
Company, and the Company has agreed to bear certain expenses in connection
with the registration and sale of the Shares being offered by every such
Selling Stockholder. The Company has not made any underwriting arrangements
with respect to the sale of Shares offered hereby.
MATERIAL CHANGES
All material changes in the Company's affairs that have occurred since
December 31, 1996 are set forth in the Company's Proxy Statement for Special
Meeting of Stockholders to be held on February 11, 1998. The Proxy Statement
is an exhibit to the Company's Current Report on Form 8-K, which was filed
with the Commission on January 9, 1998 and is incorporated herein by
reference.
INTERESTS OF NAMED EXPERTS AND COUNSEL
The validity of the securities offered hereby will be passed upon for the
Company by Epstein Becker & Green, P.C., a New York professional corporation,
Boston, Massachusetts. Gabor Garai, a partner in Epstein Becker & Green, P.C.,
is the Assistant Secretary of the Company.
EXPERTS
The Consolidated Financial Statements and Schedule incorporated in this
Registration Statement by reference have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference in reliance upon the authority of
said firm as experts in giving said reports.
14
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF ITS AGENTS. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UN-
LAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
The Company................................................................ 3
Risk Factors............................................................... 3
Use of Proceeds............................................................ 12
Selling Stockholders....................................................... 12
Plan of Distribution....................................................... 13
Material Changes........................................................... 14
Interest of Named Experts and Counsel...................................... 14
Experts.................................................................... 14
</TABLE>
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1,471,041 SHARES
ON TECHNOLOGY CORPORATION
COMMON STOCK
----------------
PROSPECTUS
----------------
JANUARY , 1998
- --------------------------------------------------------------------------------
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by the
Registrant in connection with the distribution of the securities being
registered hereunder. All of the amounts shown are estimates, except the
Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 556.01
Legal Fees and Expenses....................................... 25,000.00
Accounting Fees and Expenses.................................. 2,500.00
Miscellaneous................................................. 5,000.00
----------
Total....................................................... $33,056.01
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware, as
amended, gives Delaware corporations the power to indemnify each of their
present and former directors or officers under certain circumstances, if such
person acted in good faith and in a manner which he or she reasonably believed
to be in or not opposed to the best interests of the corporation.
Article Seventh of the Registrant's Fourth Restated Certificate of
Incorporation provides that no director of the Registrant shall be personally
liable to the Registrant or its stockholders for monetary damages for any
breach of fiduciary duty as a director, except to the extent that the Delaware
General Corporation Law prohibits the limitation or elimination of liability
of directors for breaches of fiduciary duty.
Article Seventh of the Registrant's Fourth Restated Certificate of
Incorporation further provides that a director or officer of the Registrant
(a) shall be indemnified by the Registrant against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her or on his or her behalf in connection with
any action, suit or proceeding, whether civil, administrative or investigative
(other than an action by or in the right of the Registrant), brought against
him or her by reason of the fact that he or she is or was, or has agreed to
become, a director or officer of the Registrant, or is or was serving, or has
agreed to serve, at the request of the Registrant, as a director, officer or
trustee of, or in a similar capacity with, another corporation, partnership,
joint venture, trust or other enterprise (including any employee benefit
plan), or by reason of any action alleged to have been taken or omitted in
such capacity if he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
Registrant and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement actually and reasonably incurred by him or her
or on his or her behalf in connection with any action, suit or proceeding by
or in the right of the Registrant to procure a judgment in its favor by reason
of the fact that he or she is or was, or has agreed to become, a director or
officer of the Registrant, or is or was serving, or has agreed to serve, at
the request of the Registrant, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust
or other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity if he or she
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, the best interests of the Registrant, except that no
indemnification shall be made with respect to any matter as to which such
person shall have been adjudged to be liable to the Registrant unless and only
to the extent the Court of Chancery of Delaware or the court in which such
action or suit was brought shall determine upon application that, despite such
adjudication but in view of all of the circumstances, he or she is fairly and
reasonably entitled to indemnification of such expenses (including attorneys'
fees) which the Court of Chancery of Delaware or such other court shall deem
proper. Notwithstanding the foregoing, to the extent that a director or
officer has been
II-1
<PAGE>
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, he or she is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his or her request, provided that he or she undertakes to repay the
amount advanced if it is ultimately determined that he or she is not entitled
to indemnification for such expenses.
Indemnification is required to be made unless the Registrant determines that
the applicable standard of conduct required for indemnification has not been
met. If the Registrant denies a request for indemnification, in whole or in
part, or if no disposition thereof is made within 60 days after such payment
is claimed by such director or officer, the right to indemnification or
advances is enforceable by such director or officer in any court of competent
jurisdiction. As a condition precedent to the right of indemnification, the
director or officer must give the Registrant notice of the action for which
indemnity is sought and the Registrant has the right to participate in such
action or assume the defense thereof.
Article Seventh of the Registrant's Fourth Restated Certificate of
Incorporation further provides that the indemnification provided therein is
not exclusive, and provides that in the event that the Delaware General
Corporation law is amended to expand the indemnification permitted to
directors or offices the Registrant must indemnify those persons to the
fullest extent permitted by such law as so amended.
The Company has entered into agreements to indemnify its directors and
certain of its officers in addition to the indemnification provided for in the
Charter and By-Laws. These agreements, among other things, indemnify the
Company's directors and certain of its officers for certain expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred
by such person in any action or proceeding, including any action by or in the
right of the Company, on account of services as a director or officer of the
Company, or as a director or officer of any other company or enterprise to
which the person provides services at the request of the Company.
ITEM 16. EXHIBITS.
The Exhibits to this Registration Statement are listed in the Index to
Exhibits on page II-6.
ITEM 17. UNDERTAKINGS.
1. The Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or section 15(d) of the Exchange Act that are
incorporated by reference in this Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-2
<PAGE>
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
2. The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be in the initial
bona fide offering thereof.
3. The Registrant hereby undertakes to deliver or cause to be delivered with
the Prospectus, to each person to whom the Prospectus is sent or given, the
latest annual report to security holders that is incorporated by reference in
the Prospectus and furnished pursuant to and meeting the requirements of Rule
14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the Prospectus, to deliver, or cause to be
delivered to each person to whom the Prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
Prospectus to provide such interim financial information.
4. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cambridge, Commonwealth of Massachusetts, on
January 16, 1998.
ON TECHNOLOGY CORPORATION
/s/ Herman DeLatte
By:__________________________________
Herman DeLatte
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Herman DeLatte and John M. Bogdan, jointly and
severally, his true and lawful attorneys-in-fact and agents will full powers
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below on the dates indicated by the following persons
in the capacities indicated.
<TABLE>
<S> <C>
Date: January 16, 1998 /s/ Herman DeLatte
____________________________________
Name: Herman DeLatte
Title:President and Director
(Principal Executive Officer)
Date: January 16, 1998 /s/ John M. Bogdan
____________________________________
Name: John M. Bogdan
Title:Vice President, Finance;
Treasurer; Secretary; Chief Accounting
Officer; and Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)
Date: January 16, 1998 /s/ Christopher A. Risley
____________________________________
Name: Christopher A. Risley
Title: Director
Date: January 16, 1998 /s/ Brian T. Horey
____________________________________
Name: Brian T. Horey
Title:Director
Date: January 16, 1998 /s/ William C. Hulley
____________________________________
Name: William C. Hulley
Title:Director
Date: January 16, 1998 /s/ Michael J. Zak
____________________________________
Name: Michael J. Zak
Title:Director
Date: January 16, 1998 /s/ R. Stephen Cheheyl
____________________________________
Name: R. Stephen Cheheyl
Title:Director
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
2.1 Stock Purchase Agreement dated January 24, 1997 by and among the
Registrant and the stockholders of Purview Technologies, Inc.
2.2* Stock Purchase Agreement dated January 28, 1997 by and among the
Registrant and the stockholders of csd Software GmbH
4.1 Registration Rights Agreement dated January 30, 1997 by and among the
Registrant and the stockholders of Purview Technologies, Inc.
4.2 Registration Rights Agreement dated January 28, 1997 by and among the
Registrant and the stockholders of csd Software GmbH
5.1 Opinion of Epstein Becker & Green, P.C.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Epstein Becker & Green, P.C. (included in Exhibit 5.1)
24.1 Power of Attorney (included in Part II of this Registration Statement
under the caption "Signatures")
</TABLE>
- --------
* Incorporated by reference to the Registrant's Current Report on Form 8-K
filed with the Commission on February 6, 1997).
II-6
<PAGE>
EXHIBIT 2.1
-----------
STOCK PURCHASE AGREEMENT
------------------------
This agreement (the "Agreement") is made as of the 24th day of January
1997 by and among ON Technology Corporation, a Delaware corporation (the
"Buyer"), Purview Technologies, Inc., a Pennsylvania corporation (the
"Company"), and the stockholders and optionholders listed on Schedule I attached
----------
hereto under the caption "Stockholders" (individually, a "Stockholder" and
collectively, the "Stockholders"), who, as of the Closing Date, will own all of
the issued and outstanding capital stock of the Company.
Preliminary Statement
---------------------
1. Each of the Stockholders and optionholders owns, or as of the Closing
Date will own, the number of issued and outstanding shares of the common stock,
$.01 par value per share (the "Company Common Stock"), of the Company set forth
opposite his name on Schedule I attached hereto (collectively, the "Shares").
----------
2. The Buyer desires to purchase, and the Stockholders desire to sell, the
Shares for the consideration set forth below, subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereby agree as follows:
1. Purchase and Sale of the Stock
------------------------------
1.1 Purchase of the Shares from the Stockholders. Subject to and upon
--------------------------------------------
the terms and conditions of this Agreement, at the closing of the transactions
contemplated by this Agreement (the "Closing"), each Stockholder will sell,
transfer, convey, assign and deliver to the Buyer, and the Buyer will purchase,
acquire, accept and pay for, all the Shares owned by such Stockholder. At the
Closing, each Stockholder will deliver to the Buyer certificates evidencing the
Shares owned by such Stockholder, duly endorsed in blank or with stock powers
duly executed by such Stockholder.
1.2 Further Assurances. At any time and from time to time after the
------------------
Closing, at the Buyer's request and without further consideration, each of the
Stockholders shall promptly execute and deliver such instruments of sale,
transfer, conveyance, assignment and confirmation, and take all such other
action, as the Buyer may reasonably request more effectively to transfer, convey
and assign to the Buyer, and to confirm the Buyer's title to, all of the Shares
owned by such Stockholder and to assist the Buyer in exercising all rights with
respect thereto and to carry out the purpose and intent of this Agreement.
<PAGE>
1.3 Purchase Price for the Stock.
----------------------------
(a) The total consideration to be paid by the Buyer for the Shares
shall be Two Million One Hundred Twenty Five Thousand Dollars ($2,125,000) (the
"Purchase Price") and shall be payable in the manner described in this Section
1.3, subject to a right of off-set as set forth in Section 1.4.
(b) The Purchase Price shall be delivered as follows:
(i) at the Closing, by the Buyer to the Stockholders, the amount
of One Million Dollars ($1,000,000) (the "Cash Payment"), by cashier's or
certified check, or by wire transfer of immediately available funds, to the
respective accounts designated by the Stockholders and in the respective
amounts set forth opposite such Stockholders' names on Schedule I attached
hereto; ----------
(ii) on the dates set forth below, by the Buyer to the
Stockholders, certificates representing that number of shares of the Buyer's
Common Stock, $.01 par value per share (the "Buyer's Shares"), equal to (x) One
Million One Hundred Twenty Five Thousand Dollars ($1,125,000) divided by (y) the
-------
Average Closing Price (the "Stock Payment"), to be allocated among the
Stockholders in the proportion set forth opposite such Stockholders' names on
Schedule I attached hereto and to be distributed in the amounts and at the times
- ----------
that follow:
(A) by the Buyer to all of the Stockholders except Greg
Johnson and/or Mauri Johnson on the last day of the sixth month after the
Closing Date, certificates representing that number of the Buyer's Shares equal
to the proportion of the Stock Payment due to each such Stockholder;
(B) by the Buyer to Greg Johnson or Mauri Johnson (but not
both) on the Closing Date, a Non-Statutory Stock Option Agreement, attached
hereto as
Exhibit A, for the purchase of that number of the Buyer's Shares equal to the
- ---------
amount of the Stock Payment due to either Greg Johnson or Mauri Johnson (but not
both).
(c) For purposes of this Section 1.3, the "Average Closing Price"
shall mean the average closing price of the Buyer's Shares on the Nasdaq
National Market during the ten consecutive trading days immediately preceding
the execution of this Agreement (excluding the date on which this Agreement is
signed). The closing prices of the Buyer's Shares used in such determination
shall be subject to appropriate adjustment in the event of a stock split, stock
dividend or other recapitalization which becomes effective during such ten-day
period, and similarly the Average Closing Price shall be subject to appropriate
adjustment if any such event becomes effective after the end of such ten-day
period and prior to the Closing. The Buyer shall determine the Average Closing
Price at least two business days prior to the Closing Date and shall promptly
report such determination in reasonable detail to the Stockholders. For purposes
of this Agreement, any fractional shares shall be rounded to the nearest whole
share.
-2-
<PAGE>
(d) If, prior to the delivery of the Stock Payment, as a result
of a merger, consolidation, reorganization, recapitalization, reclassification,
stock dividend, stock split or other distribution with respect to outstanding
Common Stock of the Buyer, the outstanding shares of Common Stock of the Buyer
are increased or decreased, or are exchanged for a different number or kind of
shares or other securities, or additional shares or new or different shares or
other securities are distributed or with respect to such shares of Common Stock
or other securities, an appropriate and proportionate adjustment will be made to
the Stock Payment .
1.4 Right of Off-Set. If at any time the Buyer shall make a
----------------
claim for indemnification pursuant to Section 10 herein, the Buyer may, at its
option, immediately offset the amount of such claim against the Buyer's
obligation to pay any amounts constituting the Stock Payment to the Stockholders
under Section 1.3; provided, however, that if it is finally determined pursuant
-------- -------
to the provisions of Section 13 herein that no amounts are owing for such claim
from the Stockholders to the Buyer, the Buyer shall forthwith resume all
payments constituting the Stock Payment in accordance with the provisions of
Section 1.3 herein. Any reduction in the Stock Payment shall be made on a pro-
rata basis reflecting each Stockholder's proportionate ownership of the
Company's common stock as reflected on Schedule I attached hereto (except for
----------
any reductions based upon a violation by any Stockholder of the representations
set forth in Section 2 of this Agreement, which reductions shall only reduce the
payment to be made to such Stockholder).
1.5 Closing. The Closing shall take place at the offices of
-------
Epstein Becker & Green, P.C., 75 State Street, Boston, Massachusetts 02109 at
10:00 a.m., Boston Time, on January 31, 1997 or at such other place, time or
date as may be mutually agreed upon in writing by the parties (the "Closing
Date"). The transfer of the Shares by the Stockholders to the Buyer shall be
deemed to occur at 9:00 a.m., Boston Time, on the Closing Date.
2. Representations of the Stockholders Regarding the Shares
--------------------------------------------------------
Each Stockholder severally represents and warrants to the Buyer as
follows:
2.1 At the closing, such Stockholder will have good and marketable
title to the Shares which are to be transferred to the Buyer by such Stockholder
pursuant hereto. As of the Closing, such Shares will be free and clear of any
and all covenants, conditions, restrictions, voting trust arrangements, liens,
charges, encumbrances, options and adverse claims or rights whatsoever. Such
Stockholder has the full right, power and authority to enter into this Agreement
and to transfer, convey and sell to the Buyer at the Closing the Shares to be
sold by such Stockholder hereunder and, upon consummation of the purchase
contemplated hereby, the Buyer will acquire from such Stockholder good and
marketable title to such Shares, free and clear of all covenants, conditions,
restrictions, voting trust arrangements, liens, charges, encumbrances, options
and adverse claims or rights whatsoever. Schedule I attached hereto sets forth
----------
a true and correct description of all Shares owned by such Stockholder or which
such Stockholder has the right to acquire.
-3-
<PAGE>
2.2 Such Stockholder is not a party to, subject to or bound by any
agreement or any judgment, order, writ, prohibition, injunction or decree of any
court or other governmental body which would prevent the execution or delivery
of this Agreement by such Stockholder or the transfer, conveyance and sale of
the Shares to be sold by such Stockholder to the Buyer pursuant to the terms
hereof. No broker or finder has acted for such Stockholder in connection with
this Agreement or the transactions contemplated hereby, and no broker or finder
is entitled to any brokerage or finder's fee or other commissions in respect of
such transactions based upon agreements, arrangements or understandings made by
or on behalf of such Stockholder.
3. Representations of the Stockholders and the Company Regarding the
-----------------------------------------------------------------
Company
- -------
Each of the Stockholders and the Company, jointly and severally,
represent and warrant to the Buyer that:
3.1 Organization. The Company is a corporation duly organized,
------------
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania, and has all requisite corporate power to own its properties, to
carry on its business as now being conducted, to execute and deliver this
Agreement and the agreements contemplated herein, and to consummate the
transactions contemplated hereby and thereby. The Company is duly qualified to
do business and in good standing in all jurisdictions in which its ownership of
property or the character of its business requires such qualification, except
where the failure to be so qualified will not have a material adverse effect on
the business and operations of the Company, taken as a whole. Certified copies
of the charter and Bylaws of the Company, as amended to date, have been
previously delivered to the Buyer, are complete and correct, and no amendments
have been made thereto or have been authorized since the date thereof.
3.2 Capitalization; Subsidiaries. As of the date hereof, the
----------------------------
Company's authorized capital stock consists of 1,000,000 shares of Common Stock,
$.01 par value per share, of which 22,150 shares are issued and outstanding and
2,850 are issuable upon the exercise of options. There are no shares of
Preferred Stock. As of the Closing, the capital stock of the Company will be
held of record and beneficially by the Stockholders as set forth on Schedule I.
----------
All such issued and outstanding shares of stock have been, and on the Closing
Date will be, duly and validly issued and are, or will be on such date, fully
paid and non-assessable. On the Closing Date there will not be outstanding (i)
any options, warrants or other rights to purchase from the Company any capital
stock of the Company; (ii) any securities convertible into or exchangeable for
shares of such stock; or (iii) any other commitments of any kind for the
issuance of additional shares of capital stock or options, warrants or other
securities of the Company. The Company has no subsidiaries and has no advances
to, or investments in, any securities of, or other equity interest in, any
corporation, partnership, business entity, enterprise or organization, public or
private.
3.3 Authorization. The execution and delivery by the Company of this
-------------
Agreement and the agreements provided for herein, and the consummation by the
Company of all
-4-
<PAGE>
transactions contemplated hereunder and thereunder, have been duly authorized by
all requisite corporate action. This Agreement has been duly executed by the
Company and the Stockholders. This Agreement and all other agreements and
obligations entered into and undertaken in connection with the transactions
contemplated hereby to which the Company or any of the Stockholders is a party
constitute the valid and legally binding obligations of the Company and the
Stockholders, enforceable against them in accordance with their respective
terms. The execution, delivery and performance by the Company and the
Stockholders of this Agreement and the agreements provided for herein, and the
consummation by the Company and the Stockholders of the transactions
contemplated hereby and thereby, will not, with or without the giving of notice
or the passage of time or both, (a) violate the provisions of any law, rule or
regulation applicable to the Company or any of the Stockholders; (b) violate the
provisions of the charter or Bylaws of the Company; (c) violate any judgment,
decree, order or award of any court, governmental body or arbitrator applicable
to the Company or the Stockholders; (d) conflict with or result in the breach or
termination of any term or provision of, or constitute a default under, or cause
any acceleration under, or cause the creation of any lien, charge or encumbrance
upon the properties or assets of the Company pursuant to any indenture,
mortgage, deed of trust or other agreement or instrument to which the Company is
a party or by which the Company is or may be bound, subject to the receipt of
the consents and approvals listed on Schedule 3.3. Schedule 3.3 attached hereto
------------ ------------
sets forth a true, correct and complete list of all consents and approvals of
third parties that are required in connection with the consummation by the
Company of the transactions contemplated by this Agreement.
3.4 Financial Statements. The Company has previously delivered to
--------------------
the Buyer the unaudited balance sheet of the Company as of October 31, 1996 (the
"Balance Sheet") and the related statements of income and retained earnings and
cash flows of the Company for the four-month period then ended (collectively,
the "Financial Statements"). Except as set forth on Schedule 3.4, the Financial
------------
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the period covered thereby,
are complete and correct in all material respects and present fairly as of their
respective dates, the financial condition, retained earnings, assets and
liabilities of the Company and the results of operations of the Company's
business for the periods indicated, except that the Financial Statements may not
be in accordance with generally accepted accounting principles because of the
absence of footnotes therein and are subject to normal year-end audit
adjustments, which in the aggregate will not be material.
3.5 Absence of Undisclosed Liabilities. Except as and to the extent
----------------------------------
(a) reflected and reserved against in the Current Balance Sheet, (b) set forth
on Schedule 3.5 attached hereto, or (c) incurred in the ordinary course of
------------
business after the date of the Current Balance Sheet and not material in amount,
either individually or in the aggregate, the Company has no liability or
obligation, secured or unsecured, whether accrued, absolute, contingent,
unasserted or otherwise, which is material to the condition (financial or
otherwise) of the assets, properties, business or prospects of the Company taken
as a whole. For purposes of this Section, "material" means any amount in excess
of $15,000.
-5-
<PAGE>
3.6 Inventory. The Company does not have or maintain any inventory.
---------
3.7 Litigation. Except as set forth on Schedule 3.7 attached hereto:
---------- ------------
(a) there is no action, suit or proceeding to which the Company is a party
pending or, to the best knowledge of the Stockholders, threatened before any
court or governmental agency, authority, body or arbitrator; (b) the Company has
not been permanently or temporarily enjoined by any order, judgment or decree of
any court or any governmental agency, authority or body from engaging in or
continuing any conduct or practice in connection with the business, assets, or
properties of the Company; and (c) there is not in existence on the date hereof
any order, judgment or decree of any court, tribunal or agency enjoining or
requiring the Company to take any action of any kind with respect to its
business, assets or properties.
3.8 Insurance. The Company does not have or maintain any fire,
---------
theft, casualty, general liability, workers compensation, business interruption,
environmental impairment, product liability, automobile and other insurance
policies.
3.9 Intellectual Property.
---------------------
(a) Schedule 3.9(a) attached hereto sets forth a true, correct
and complete list and, where appropriate, a brief description of all domestic
foreign letters patent, patents, patent applications, patent licenses, software
licenses, know-how licenses, tradenames, trademarks, copyrights, unpatented
inventions, servicemarks, trademark registrations and applications, servicemark
registrations and applications, copyright registrations and applications, trade
secrets or other confidential proprietary information owned or used by the
Company (collectively, the "Intellectual Property", except for the Programs,
which are specifically referenced in Section 3.9(c) below). Except as otherwise
disclosed in Schedule 3.9(a): (a) the Company is the sole and
---------------
exclusive owner of all right, title and interest in and to the Intellectual
Property and all designs, permits, labels and packages used on or in connection
therewith, free and clear of all liens, security interests, charges,
encumbrances, equities and other adverse claims; (b) the Company has the right
and authority to use the Intellectual Property in connection with the conduct of
its business in the manner presently conducted, and to the best knowledge of the
Company and the Stockholders, such use does not conflict with, infringe upon or
violate any rights of any other person, corporation or entity; (c) neither the
Company nor any of the Stockholders has received notice of a pleading or
threatened claim, interference action or other judicial or adversarial
proceeding against the Company alleging that the Company's operations,
activities, products, services or publications infringe any patent, trademark,
trade name, copyright, trade secret or other property right of a third party, or
that it is illegally or otherwise using the trade secrets, formulae or property
rights of others; and (d) there are no outstanding disputes or other
disagreements with respect to any licenses or similar agreements or arrangements
described in Schedule 3.9(a) or with respect to infringement by a third party of
---------------
any of the Intellectual Property. Each item of Intellectual Property owned or
used by the Company immediately prior to the Closing will be owned or available
for use by the Buyer on identical terms and conditions immediately subsequent to
the Closing.
-6-
<PAGE>
(b) All employees and other persons currently employed or retained by
the Company who have participated in the development of the Intellectual
Property or have had access to the source code of any Intellectual Property have
executed and delivered to the Company a form of Nondisclosure and Proprietary
Rights Agreement in substantially the form attached hereto as Schedule 3.9(b).
---------------
(c) Schedule 3.9(c) attached hereto accurately identifies and
---------------
completely describes (or incorporates by reference to a manual or manuals
(copies of which have heretofore been made available to the Buyer) which
describes) the functions of all computer programs currently owned, licensed from
third parties or currently under development by the Company, excluding "off the
shelf", mass marketed software programs licensed by the Company from commercial
vendors (collectively, the "Programs"). Except as disclosed in Schedule 3.9(c),
---------------
all present and prior versions of the Programs constitute original works-for-
hire compiled or prepared by employees of or consultants to the Company. All
such versions of the Programs are proprietary to the Company; all right, title
and interest in and with respect to such versions are vested solely in the
Company (other than so-called moral rights granted under foreign laws which
cannot be waived or assigned), and no royalties or other payments are payable
with respect to the Programs or any portion thereof except under agreements
listed on Schedule 3.15 hereto; and the Company has all documentation reasonably
-------------
necessary to enforce its proprietary rights in such Programs. Each portion of
the Programs constitutes software "developed exclusively at private expense" as
such term is used in 48 CFR, Section 207.471. Except as set forth in Schedule
--------
3.9(c), the Programs contain no encryption codes or programs which would
- ------
preclude the export thereof under applicable federal law. None of the Programs
contain any so-called "virus" which restricts or impairs the proper operation of
the Program or any computer software or hardware (including any peripheral) on
which or with which any Program operates or is intended to operate, or which,
other than as decided by the user, propagates itself. All copies of the source
code for all Programs have been placed in safe keeping only at the offices of
the Company and Greg Johnson and at no other locations. The Company has taken
all necessary steps to protect the source code of the Programs as proprietary
trade secrets. The Company's proprietary trade secrets have been disclosed only
to consultants, legal and accounting advisors, investors, distributors,
customers and employees of the Company and only after such persons (excluding
advisors who are otherwise bound by law to do so) have executed agreements not
to disclose such proprietary trade secrets sufficient to maintain the
proprietary nature of such trade secrets under law. The Programs perform in
accordance with the Company's user manuals therefor in all material respects.
3.10 Fixed Assets. Schedule 3.10 attached hereto sets forth a true,
------------ -------------
correct and complete list of all equipment, furniture, fixtures and other assets
of the Company included within the category of capital or fixed assets on the
Current Balance Sheet (the "Fixed Assets") as of the date hereof. All of the
Fixed Assets are in good operating condition and repair, normal wear and tear
excepted, are currently used by the Company in the ordinary course of business
and in the production of products of the Company, and normal maintenance has
been consistently performed with respect to such Fixed Assets.
-7-
<PAGE>
3.11 Real Property. The Company does not own any real property.
-------------
3.12 Real Estate Leases. Schedule 3.12 attached hereto sets forth a
------------------ -------------
true, correct and complete list as of the date hereof of all leases of real
property, identifying separately each ground lease, to which the Company is a
party (collectively, the "Leases"). True, correct and complete copies of all
Leases and all amendments, modifications and supplemental agreements thereto,
have previously been delivered by the Stockholders or the Company to the Buyer.
The Leases are in full force and effect, are binding and enforceable against
each of the parties thereto in accordance with their respective terms and,
except as set forth on Schedule 3.12, have not been modified or amended since
-------------
the date of delivery to the Buyer. To the best knowledge of the Company and the
Stockholders, no party to any Lease has sent written notice to the other
claiming that such party is in default thereunder and that such default remains
uncured. Except as set forth on Schedule 3.12, the Company has not breached or
-------------
defaulted in the performance of any covenant, agreement or condition contained
in any Lease, nor has there occurred any event which with the passage of time or
the giving of notice or both would constitute such a breach or default.
3.13 Accounts Receivable. Schedule 3.13 attached hereto sets
---- ------------------- -------------
forth a true, correct and complete list of the accounts and notes receivable of
the Company (the "Accounts Receivable"), including the aging thereof as of the
date hereof. All Accounts Receivable arose out of the sales of inventory or
services in the ordinary course of business and 90% of such Accounts Receivable
are collectible in the face value thereof within 45 days after the date of
invoice, using normal collection procedures, net of the reserve for doubtful
accounts set forth thereon, which reserve is adequate and was calculated in
accordance with generally accepted accounting principles consistently applied.
All accounts receivable are valid, legal and binding, subject to no set-offs,
returns or counterclaims.
3.14 Tax Matters. All tax returns and reports of the Company required
-----------
by law to be filed have been filed and are complete and correct in all respects,
and all taxes and levies of every kind, character or description upon the
Company or upon any of its properties, assets, income or franchises which are or
were due have been paid in full, other than those currently payable without
penalty or interest, those currently under appeal (for which adequate reserves
have been taken) and set forth in Schedule 3.14 and those which would,
-------------
notwithstanding any such non-payment, not have a material adverse effect on the
business and operations of the Company. No tax lien has been filed and no
claim, whether written or oral, is being asserted with respect to any such taxes
or levies owed by, or with respect to any properties, assets, income or
franchises of, the Company. The Company has withheld and timely paid all taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor or other third party. The
Company has not waived the statute of limitations with respect to taxes or
agreed to any extension of time with respect to a tax assessment or deficiency
which would cause any tax return to be open at this time.
3.15 Contracts and Commitments.
-------------------------
-8-
<PAGE>
(a) Schedule 3.15 attached hereto contains a true, complete and
-------------
correct list and description of the following contracts and agreements, whether
written or oral (collectively, the "Contracts") which will continue after the
Closing Date: (i) all loan agreements, indentures, mortgages and guaranties to
which the Company is a party or by which the Company is bound; (ii) all pledges,
conditional sale or title retention agreements, security agreements (including
but not limited to maintenance agreements), equipment obligations, personal
property leases and lease purchase agreements to which the Company is a party or
by which the Company or any of their property is bound; (iii) all contracts,
agreements, commitments, purchase orders or other understandings or arrangements
to which the Company is a party or by which the Company or any of its property
is bound which either involve payments or receipts by the Company of more than
$15,000 in the case of any single contract, agreement, commitment, understanding
or arrangement under which full performance (including payment) has not been
rendered by all parties thereto, or may materially adversely effect the
condition (financial or otherwise) or the properties, assets, business or
prospects of the Company; (iv) all collective bargaining agreements, employment
and consulting agreements, executive compensation plans, bonus plans, deferred
compensation agreements, pension plans, retirement plans, employee stock option
or stock purchase plans and group life, health and accident insurance and other
employee benefit plans, agreements, arrangements or commitments to which the
Company is a party; (v) all agency, distributor, sales representative, franchise
or similar agreements to which the Company is a party; (vi) all contracts,
agreements or other understandings or arrangements between the Company and any
of the Stockholders or their affiliates; (vii) all material leases of personal
property, whether operating, capital or otherwise, under which the Company is
lessor or lessee; (viii) all contracts, agreements and other documents or
information relating to past disposal of waste (whether or not hazardous); and
(ix) any other material agreements or contracts entered into by the Company.
(b) Except as set forth on Schedule 3.15: (i) each Contract is a
-------------
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, and the Company does not have any knowledge that any
Contract is not a valid and binding agreement of the other parties thereto; (ii)
the Company has fulfilled all obligations required pursuant to the Contracts to
have been performed by the Company on its part prior to the date hereof, and the
Company has no reason to believe that it will not be able to fulfill, when due,
all of its obligations under the Contracts which remain to be performed after
the date hereof; (iii) the Company is not in breach of or default under any
Contract, and no event has occurred which with the passage of time or giving of
notice or both would constitute such a breach or default; (iv) to the best
knowledge of the Company and the Stockholders, there is no existing breach or
default by any other party to any Contract; and (v) no Contract is likely to
result in a material financial loss to the Company. True, correct and complete
copies of all Contracts have previously been delivered or made available by the
Company or the Stockholders to the Buyer.
3.16 Compliance with Agreements and Laws. Except as set forth on
-----------------------------------
Schedule 3.16 attached hereto, the Company has all licenses, permits and
- -------------
certificates, including environmental, health and safety permits, from federal,
state and local authorities necessary to conduct its business and own and
operate its assets (collectively, the "Permits"). Schedule 3.16
-------------
-9-
<PAGE>
attached hereto sets forth a true, correct and complete list of all such
Permits, copies of which have previously been delivered by the Company or the
Stockholders to the Buyer. The business of the Company as conducted on the date
hereof does not violate any federal, state, local or foreign laws, regulations
or orders (including, but not limited to, any of the foregoing relating to
employment discrimination, occupational safety, environmental protection,
hazardous waste, conservation, or corrupt practices) applicable to the Company
and its operations, the enforcement of which would have a material adverse
effect on the results of operations, condition (financial or otherwise), assets,
properties business or prospects of the Company. Except as set forth on Schedule
--------
3.16, the Company has not had notice or communication from any federal, state or
- ----
local governmental or regulatory authority since January 1, 1994 of any such
violation or noncompliance and, to the best knowledge of the Company and the
Stockholders, there are no other outstanding notices of any such violation or
noncompliance which have not been cured. Notwithstanding the disclosure made on
Schedule 3.16 regarding worker's compensation insurance, the Company and the
- -------------
Stockholders shall remain liable to the Buyer, pursuant to the provisions of
Section 10 herein, for any claims for worker's compensation made against the
Company based on or arising out of any incidents or actions occurring on or
prior to the Closing Date.
3.17 Employee Relations. Except as set forth on Schedule 3.17
------------------ -------------
attached hereto, the Company is in compliance with all federal, state and
municipal laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours, and is not engaged in any unfair
labor practice, and there are no arrears in the payment of wages or social
security taxes. None of the Company's employees are represented by a union and
there have been no union organizing efforts conducted at the Company and none is
now being conducted. The Company has not had at any time, nor, to the knowledge
of the Company and the Stockholders, is there now threatened, any strike or
other labor trouble that had or may have a material adverse effect on the
assets, properties, business operations, or condition (financial or otherwise)
of the Company taken as a whole. Schedule 3.17 sets forth a true, correct and
-------------
complete list as of December 31, 1996 showing each employee of the Company and
his or her position and compensation during calendar year 1996.
3.18 Employee Benefit Plans.
----------------------
(a) Employee Plans. Schedule 3.18 attached hereto contains a true,
-------------- -------------
correct and complete list of all pension, benefit, profit sharing, retirement,
deferred compensation, welfare, insurance, disability, bonus, vacation pay,
severance pay and other similar plans, programs and agreements, whether reduced
to writing or not, relating to the employees of the Company (the "Employee
Plans"). All Employee Plans comply in all material respects with the
requirements prescribed by all statutes, orders or governmental rules or
regulations currently in effect and applicable to such Employee Plans. The
Company has in all material respects performed all obligations required to be
performed by it under the Employee Plans. The Company has not ever been
obligated to contribute to any "multiemployer plan," as such term is defined in
-10-
<PAGE>
Section 3(37) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and has no "defined benefit plan," as such term is defined in Section
3(35) of ERISA.
(b) Prohibited Transactions. Neither the Company nor any of its
-----------------------
directors, officers, employees or agents, or any "party in interest" or
"disqualified person," as such terms are defined in Section 3 of ERISA and
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), has,
with respect to any Employee Plan, engaged in or been a party to any nonexempt
"prohibited transaction," as such term is defined in Section 4975 of the Code or
Section 406 of ERISA, in connection with which, directly or indirectly, the
Buyer or any of its affiliates, directors or employees or any Employee Plan or
any related funding medium could be subject to either a penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code.
(c) Copies of Employee Plans and Related Documents. The Stockholders
----------------------------------------------
or the Company have previously delivered to the Buyer true, correct and complete
copies of all Employee Plans which have been reduced to writing and written
descriptions of all Employee Plans which have not been reduced to writing, and
all agreements, including trust agreements and insurance contracts, related to
such Employee Plans, and the Summary Plan Description and all modifications
thereto for each Employee Plan communicated to employees.
(d) Qualifications; Claims. Each Employee Plan and all amendments
----------------------
thereto intended to qualify under Section 401(a) of the Code have been
determined by the Internal Revenue Service to so qualify, and the trusts created
thereunder have been determined to be exempt from tax under the provisions of
Section 501(a) of the Code, and copies of all determination letters with respect
to each such Employee Plan have been previously delivered by the Company to the
Buyer, and nothing has since occurred, or will occur prior to the Closing Date,
which might cause the loss of such qualification or exemption. There are no
pending claims, suits or other proceedings by present or former employees of the
Company or its affiliates, plan participants, beneficiaries or spouses of any of
the above, including claims against the assets of any trust, involving any
Employee Plan, or any rights or benefits thereunder, other than ordinary and
usual claims for benefits by participants or beneficiaries.
(e) No Implied Rights. Nothing expressed or implied herein shall
-----------------
confer upon any past or present employee of the Company, its representatives,
beneficiaries, successors and assigns, nor upon any collective bargaining agent,
any rights or remedies of any nature, including, without limitation, any rights
to employment or continued employment with the Buyer, the Company, or any
successor or affiliate; nor shall the Buyer, the Company or their affiliates be
precluded or prevented from terminating or amending any Employee Plan.
(f) Transfer. The Company shall take any actions as may be necessary
--------
or appropriate in the reasonable opinion of the Buyer and the Buyer's counsel
under all applicable laws and the terms of the Employee Plans to establish the
Buyer, or an affiliate of the Buyer, as having all rights and obligations with
respect to the Employee Plans assumed pursuant to this
-11-
<PAGE>
Agreement, including, without limitation, rights with respect to all annuity or
insurance contracts which form a part of any of such Employee Plans, together
with all other Employee Plan assets. The Company shall obtain as of the Closing
Date any and all consents from trustees required to effect any transfer of any
trust(s) related to such assumed Employee Plans to such Trustee(s) as may be
appointed by the Buyer.
3.19 Indebtedness to and from Officers and Directors. Except as set
-----------------------------------------------
forth on Schedule 3.19 attached hereto, the Company is not indebted, directly or
-------------
indirectly, to any person who is an officer, director or shareholder of the
Company or any affiliate of any such person in any amount whatsoever other than
for salaries for services rendered or reimbursable business expenses, and no
such officer, director, shareholder or affiliate is indebted to the Company,
except for advances made to employees of the Company in the ordinary course of
business to meet reimbursable business expenses anticipated to be incurred by
such obligor.
3.20 Powers of Attorney and Suretyship. The Company does not have any
---------------------------------
general or special powers of attorney outstanding and has no obligation or
liability as guarantor, surety, co-signor, endorser or co-maker with respect to
the obligation of any person, corporation, partnership or other entity, except
as endorser or maker of checks or letters of credit, respectively, endorsed or
made in the ordinary course of business.
3.21 Absence of Certain Changes or Events. Except as disclosed on
------------------------------------
Schedule 3.21, since the date of the Current Balance Sheet, the Company has not
- -------------
entered into any transaction which is not in the usual and ordinary course of
business. Except as disclosed on Schedule 3.21, since the date of the Current
-------------
Balance Sheet, there has not been any material adverse effect in the assets,
business operations, conditions (financial or otherwise) or prospects of the
Company ("Material Adverse Effect").
3.22 Warranty and Product Liability Claims.
-------------------------------------
(a) Each Program and other product manufactured, sold, leased,
licensed or delivered by the Company (collectively, "Product") has been
manufactured, sold, leased, licensed or delivered in conformity with all
applicable contractual commitments and all express and implied warranties, and
the Company has no liability (and there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against the Company giving rise to any such liability) for replacement or
repair thereof or other damage in connection therewith, subject only to the
reserve for product warranty claims set forth on the Current Balance Sheet.
Except as disclosed on Schedule 3.22, no Product is subject to any guaranty,
-------------
warranty or other indemnity materially different from the standard terms and
conditions set forth in the model form of license agreement attached as Schedule
--------
3.22 hereto. Schedule 3.22 hereto includes copies of the current standard terms
- ---- -------------
and conditions of the license agreements used by the Company (containing
applicable guaranty, warranty and indemnity provisions).
-12-
<PAGE>
(b) There are no claims for returns or trial use arrangements
which could result in the return of Products of the Company by reason of any
alleged overshipment, defective equipment, the expiration of trial use
arrangements or otherwise. Except as disclosed on Schedule 3.22, there are no
-------------
Products in the hands of customers under any understanding that such Product
would be returnable other than pursuant to the standard return policy set forth
in the model written license attached as Schedule 3.22 hereto. Neither the
-------------
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in any cancellations or withdrawals
of accepted or unfilled orders for the sale, license, lease or other transfer of
any Product.
(c) Schedule 3.22 attached hereto contains a true, correct and
-------------
complete list of all warranty and product liability claims made against the
Company from inception through the date hereof, the current status of all such
claims and the costs of all actions taken in satisfaction of such claims. All
information relative to such claims and those arising thereafter shall be
available to the Buyer from and after the date hereof.
3.23 Prepayments and Deposits. Schedule 3.23 attached hereto sets
------------------------ -------------
forth all prepayments and deposits, which have been received by the Company as
of the date hereof, from customers for products to be shipped, or services to be
performed, after the Closing Date.
3.24 Banking Facilities. Schedule 3.24 attached hereto sets forth a
------------------ -------------
true, correct and complete list of: (a) each bank, savings and loan or similar
financial institution in which the Company has an account or safety deposit box
and the numbers of the accounts or safety deposit boxes maintained by the
Company thereat; and (b) the names of all persons authorized to draw on each
such account or to have access to any such safety deposit box facility, together
with a description of the authority (and conditions thereof, if any) of each
such person with respect thereto.
3.25 Books and Records. The general ledgers and books of account of
-----------------
the Company, all federal, state and local income, franchise, property and other
tax returns filed by the Company, and all other books and records of the Company
are in all material respects complete and correct and have been maintained in
accordance with good business practice and in accordance with all applicable
procedures required by laws and regulations.
3.26 Customers. Schedule 3.26 attached hereto sets forth a true,
--------- -------------
correct and complete list of the names and addresses of all customers of the
Company which accounted for more than 5% of the Company's total sales in the
fiscal year ended December 31, 1996.
3.27 Suppliers. Schedule 3.27 attached hereto sets forth a true,
--------- -------------
correct and complete list of the names and addresses of the ten suppliers of the
Company which accounted for the largest dollar volume of purchases by the
Company in the fiscal year ended December 31, 1996. None of the Suppliers has
notified the Company that it intends to discontinue its relationship with the
Company.
-13-
<PAGE>
3.28 Regulatory Approvals. All consents, approvals, authorizations or
--------------------
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Company and which are necessary for the execution
and delivery by the Stockholders and the Company of this Agreement or any
documents to be executed and delivered by the Stockholders or the Company in
connection herewith are set forth on Schedule 3.28 attached hereto and have
-------------
been, or prior to the Closing Date will be, obtained and satisfied.
3.29 Environmental. Subject to the limitations set forth in
-------------
Schedule 3.29 hereto:
- -------------
(a) The Company has complied and is in compliance with all
applicable Environmental Laws, except for such noncompliance as could not
individually, or in the aggregate, reasonably be expected to have a material
adverse effect, and the Company has received no written notice, report,
communication or information regarding any liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise), or any corrective,
investigatory or remedial obligations, arising under any applicable
Environmental Laws. For purposes of this Section, material means any amount in
excess of $15,000.
(b) Without limiting the generality of the foregoing, the Company
has obtained all permits, licenses or other authorizations that may be required
pursuant to applicable Environmental Laws for the occupation of the real
property subject to the Leases and the operation of the Company's business. All
such permits, licenses and authorizations obtained by the Company are listed on
Schedule 3.21(b) and all such permits, licenses and authorizations will be in
- ----------------
full force and effect on the Closing Date. The Company is in compliance with
all material terms and conditions of every permit, license and authorization
listed on Schedule 3.21(b).
----------------
(c) Without limiting the generality of the foregoing, to the best
knowledge of the Stockholders, none of the following exists at the real property
subject to the Leases, except as set forth on Schedule 3.21(c) hereto:
----------------
(i) underground storage tanks;
(ii) asbestos-containing material in a form or condition
which, if not removed or encapsulated, would constitute a hazard to human health
or the environment; or
(iii) PCB-containing materials or equipment.
(d) The Company's performance of its obligations under this Agreement
does not impose any obligation under any applicable Environmental Laws for (i)
site investigation or clean up or (ii) notification to or consent of any
Governmental Authority or third parties.
(e) Without limiting the generality of the foregoing, no facts,
circumstances, activities, practices, incidences, actions, advance or conditions
relating to the operations of the
-14-
<PAGE>
Company through the Closing Date will (i) prevent continued compliance with any
applicable Environmental Laws or (ii) give rise to any corrective or remedial
obligations pursuant to any applicable Environmental Laws.
(f) To the best knowledge of the Stockholders, no Hazardous Substances
are present on, in, at or under the Real Estate in a manner or concentration
that is in violation of any Environmental Laws.
(g) The Company is not subject to, nor has received any notice of, any
private, administrative or judicial action, or an intended private,
administrative or judicial action relating to the presence or alleged presence
of Hazardous Substances in, at, under or upon the real property subject to the
Leases, and there are no pending or to the Stockholders' and Company's best
knowledge, threatened actions or proceedings (or notices or potential actions or
proceedings) against the Company from any Governmental Authority regarding any
matter relating to any Environmental Laws.
For the purposes of this Agreement, "Environmental Laws" means all
applicable federal, state and local laws, rules, regulations, ordinances, and
requirements relating to public health and safety, worker health and safety and
pollution and protection of the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, U.S.C.
(S)9601 et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C.
-------
(S)6901 et seq., the Emergency Planning and Community Right-to Know Act, 42
-------
U.S.C. (S)11001 et seq., the Clean Air Act, 42 U.S.C. (S)7401 et seq., the
------- -------
Federal Water Pollution Control Act, 33 U.S.C. (S)1251 et seq., the Toxic
-------
Substance Control Act, 15 U.S.C. (S)2601 et seq., the Safe Drinking Water Act,
-------
42 U.S.C. (S)300f et seq., and the Occupational Safety and Health Act, 42 U.S.C.
------
(S)1891 et seq., all as amended, and any regulations, rules, ordinances adopted
-------
or publications promulgated pursuant thereto.
"Hazardous Materials" and "Hazardous Substances" means (i) hazardous
materials, hazardous substances, extremely hazardous substances, toxic
substances, hazardous wastes or words of similar import as defined under any
Environmental Laws; (ii) petroleum, including without limitation, crude oil or
any fraction thereof; (iii) any radioactive material; (iv) asbestos in any form
or condition; (v) polychlorinated byphenyls ("PCBs") or PCB-containing
materials; and (vi) any other material, substance or waste to which liability or
standards of conduct are currently imposed under any Environmental Laws.
"Governmental Authority" means any governmental agency, department, bureau,
commission or similar body.
3.30 Full Disclosure. None of the representations or warranties made
---------------
by the Company or any Stockholder in this Agreement (as modified by the
Schedules) as of the date such representations and warranties are made or deemed
made, contains any untrue statement of a material fact or omits any material
fact required to be stated therein or necessary to make the
-15-
<PAGE>
statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered.
4. Representations of the Buyer
----------------------------
The Buyer represents and warrants to each Stockholder as follows:
4.1 Organization and Authority. The Buyer is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite power and authority (corporate and other) to own
its properties and to carry on its business as now being conducted. The Buyer
has full power and approval to execute and deliver this Agreement and the
agreements contemplated herein, and to consummate the transactions contemplated
hereby and thereby. Copies of the Certificate of Incorporation and the Bylaws
of the Buyer, as amended to date, have been previously delivered to the
Stockholders, are complete and correct, and no amendments have been made thereto
or have been authorized since the date thereof.
4.2 Capitalization of the Buyer. As of the date hereof, the Buyer's
---------------------------
authorized capital stock consists of 20,000,000 shares of common stock, $.01 par
value, of which 11,017,178 shares were issued and outstanding as of January 13,
1997, and no shares of Preferred Stock. All of the outstanding shares of
capital stock of the Buyer have been, and on the Closing Date and date of
delivery of the Stock Payment to each of the Stockholders will be, duly and
validly issued and are, or will be, fully paid and non-assessable.
4.3 Authorization. The execution and delivery of this Agreement by
-------------
the Buyer, and the agreements provided for herein, and the consummation by the
Buyer of the transactions contemplated hereby and thereby, have been duly
authorized by all requisite corporate action. This Agreement and all such other
agreements and written obligations entered into and undertaken in connection
with the transactions contemplated hereby constitute the valid and legally
binding obligations of the Buyer, enforceable against the Buyer in accordance
with their respective terms. The execution, delivery and performance of this
Agreement and the agreements provided for herein, and the consummation by the
Buyer of the transactions contemplated hereby and thereby, will not, with or
without the giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to the Buyer; (b) violate
the provisions of the Buyer's Certificate of Incorporation or Bylaws; (c)
violate any judgment, decree, order or award of any court, governmental body or
arbitrator; or (d) conflict with or result in the breach or termination of any
term or provision of, or constitute a default under, or cause any acceleration
under, or cause the creation of any lien, charge or encumbrance upon the
properties or assets of the Buyer pursuant to, any indenture, mortgage, deed of
trust or other agreement or instrument to which the Buyer is a party or by which
the Buyer is or may be bound. Schedule 4.3 attached hereto sets forth a true,
------------
correct and complete list of all consents and approvals of third parties that
are required in connection with the consummation by the Buyer of the
transactions contemplated by this Agreement.
-16-
<PAGE>
4.4 Regulatory Approvals. All consents, approvals, authorizations
--------------------
and other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Buyer and which are necessary for the consummation
of the transactions contemplated by this Agreement (including, but not limited
to, the execution and delivery by the Buyer of this Agreement or any documents
to be executed and delivered by the Buyer) have been, or will be prior to the
Closing Date, obtained and satisfied.
4.5 Investment Representation. The Buyer is acquiring the Shares
-------------------------
from each Stockholder for its own account for investment and not with a view to,
or for sale in connection with, any distribution thereof, nor with any present
intention of distributing or selling the same; and, except as contemplated by
this Agreement and the agreements contemplated herein, the Buyer has no present
or contemplated agreement, undertaking, arrangement, obligation, indebtedness or
commitment providing for the disposition thereof.
4.6 Absence of Undisclosed Liabilities. Except as and to the extent
----------------------------------
(a) reflected and reserved against in the Buyer's most recent balance sheet as
filed with the Securities and Exchange Commission ("SEC") in the Buyer's report
on Form 10Q, (b) set forth in other filings made by the Buyer with the SEC or
(c) incurred in the ordinary course of business after the date of the balance
sheet filed with the SEC and not material in amount, either individually or in
the aggregate, the Buyer has no liability or obligation, secured or unsecured,
whether accrued, absolute, contingent, unasserted or otherwise, which is
material to the condition (financial or otherwise) of the assets, properties,
business or prospects of the Buyer, taken as a whole.
4.7 Litigation. Except as set forth in Schedule 4.7 to this
---------- ------------
Agreement, there is no action, suit, claim, investigation or proceeding pending
against the Buyer or its property or assets before any court or arbitrator or
any governmental body, agency, official or authority which, if adversely
determined, would have a material adverse effect on the business, assets,
condition (financial or otherwise) or the results of operations of the Buyer
taken as a whole or the transactions contemplated by this Agreement.
4.8 Filings with the Securities and Exchange Commission. The Buyer
---------------------------------------------------
has, in accordance with the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the SEC
promulgated thereunder prepared and filed with the SEC such information,
documents and reports as the SEC may require or prescribed under Section 13 of
the Securities Exchange Act of 1934, as amended.
5. Access to Information; Public Announcements
-------------------------------------------
5.1 Access to Management, Properties and Records. From the date of
--------------------------------------------
this Agreement until the Closing Date, the Stockholders and the Company shall
afford the officers, attorneys, accountants and other authorized representatives
of the Buyer free and full access upon reasonable notice and during normal
business hours to all management personnel, offices, properties, books and
records of the Company, for the purpose of facilitating the Closing of the
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<PAGE>
transactions contemplated hereunder. The Stockholders and the Company shall
furnish to the Buyer such financial and operating data and other information as
to the business of the Company as the Buyer shall reasonably request. With the
prior consent of the Company, the Buyer shall have the right to contact the
Company's vendors, and other persons having business dealings with the Company.
5.2 Public Announcements. Except as otherwise required by law, the
--------------------
parties agree that prior to the Closing Date any and all general public
pronouncements or other general public communications concerning this Agreement
and the purchase and sale of the Shares by the Buyer, and the timing, manner and
content of such disclosures, shall be subject to the mutual agreement of the
Company, the Stockholders' and the Buyer; provided, however, that the Buyer may,
-------- -------
without the agreement of the Company or the Stockholders, make any such
disclosures that it is required to make as a result of its status as a reporting
company under the Securities Exchange Act of 1934, as amended, or as a listed
company on the Nasdaq National Market, Inc.
5.3 Confidentiality. All information not previously disclosed to the
---------------
public or generally known to the persons engaged in the respective businesses of
the Buyer or the Company which shall have been furnished by the Buyer, the
Company or the Stockholders to any other party in connection with the
transactions contemplated hereby or as provided pursuant to this Section 5 shall
not be disclosed to any other person other than their respective employees,
directors, attorneys, accountants or financial advisors or other than as
contemplated herein. In the event that the transactions contemplated by this
Agreement shall not be consummated, all such information which shall be in
writing shall be returned to the party furnishing the same, including, to the
extent reasonably practicable, all copies or reproductions thereof which may
have been prepared, and none of the parties shall at any time thereafter
disclose to any third parties or use, directly or indirectly, for its own
benefit, any such information, written or oral, about the business of the other
party hereto.
6. Pre-Closing Covenants of the Stockholders and the Company
----------------------------------------------------------
From and after the date hereof and until the Closing Date, the Company and
the Stockholders agree as follows:
6.1 Conduct of Business. The Company shall carry on its business
-------------------
diligently and substantially in the same manner as heretofore and, without the
consent of the Buyer (which shall not be unreasonably withheld or delayed),
shall not make or institute any unusual or new methods of manufacture, purchase,
sale, shipment or delivery, lease, management, accounting or operation, and
shall not ship or deliver any quantity of products in excess of normal shipment
or delivery levels. All of the property of the Company shall be used, operated,
repaired and maintained in a normal business manner consistent with past
practice.
6.2 Absence of Material Changes. Without the prior written consent
---------------------------
of the Buyer (which shall not be unreasonably withheld or delayed), the Company
shall not: (a) take any
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<PAGE>
action to amend its charter documents or bylaws; (b) issue any stock, bonds or
other corporate securities (except for the issuance of shares with respect to
outstanding stock options) or grant any option or issue any warrant to purchase
or subscribe for any of such securities or issue any securities convertible into
such securities; (c) incur any obligation or liability (absolute or contingent),
except current liabilities incurred and obligations under contracts entered into
in the ordinary course of business; (d) declare or make any payment or
distribution to its stockholders with respect to its stock or purchase or redeem
any shares of its capital stock or issue any shares of its capital stock
pursuant to options; (e) make any loan or other cash distribution to the
Stockholders or any affiliate thereof; (f) mortgage, pledge, or subject to any
lien, charge or any other encumbrance (other than purchase money security
interests arising in the ordinary course of business) any of their respective
assets or properties; (g) sell, assign, or transfer any of its assets, except
for sales or licensing in the ordinary course of business; (h) cancel any debts
or claims, except in the ordinary course of business; (i) merge or consolidate
with or into any corporation or other entity; (j) make, accrue or become liable
for any bonus, profit sharing or incentive payment, except for accruals under
existing plans, if any, or increase the rate of compensation payable or to
become payable by it to any of its officers, directors or employees; (k) make
any election or give any consent under the Code or the tax statutes of any state
or other jurisdiction or make any termination, revocation or cancellation of any
such election or any consent or compromise or settle any claim for past or
present tax due; (l) waive any rights of material value; (m) modify, amend,
alter or terminate any of its executory contracts of a material value or which
are material in amount; (n) take or permit any act or omission constituting a
breach or default under any contract, indenture or agreement by which it or its
properties are bound; (o) enter into any lease, contract, agreement or
understanding, other than those entered into in the ordinary course of business;
(p) incur any capital expenditure in excess of $10,000 in an instance or $25,000
in the aggregate; (q) materially alter the terms, status or funding condition of
any Employee Plan; (r) change its methods of inventory valuation; or (s) commit
or agree to do any of the foregoing in the future.
6.3 Continued Truth of Representations and Warranties. Neither the
-------------------------------------------------
Stockholders nor the Company will take any actions which would result in any of
the representations or warranties set forth in Sections 2 and 3 hereof being
untrue.
6.4 Reports, Taxes. The Company will duly and timely file all
--------------
reports or returns required to be filed with federal, state, local and foreign
authorities and will promptly pay all federal, state, local and foreign taxes,
assessments and governmental charges levied or assessed upon them or any of
their properties (unless contesting such in good faith and adequate provision
has been made therefor).
6.5 Communications with Customers and Suppliers. The Company will
-------------------------------------------
continue to accept customer orders in the ordinary course of business and
consistent with past practice for all products offered by the Company but
expected to be shipped after the Closing Date. The Company and the Buyer will
cooperate in communications with suppliers and customers in connection with the
transfer of the Shares to the Buyer on the Closing Date.
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<PAGE>
7. Best Efforts to Obtain Satisfaction of Conditions
-------------------------------------------------
The Stockholders, the Company and the Buyer covenant and agree to use
their best efforts to obtain the satisfaction of the conditions specified in
this Agreement.
8. Conditions to Obligations of the Buyer
--------------------------------------
The obligations of the Buyer under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each of
which may be waived in writing in the sole discretion of the Buyer:
8.1 Continued Truth of Representations and Warranties of the
--------------------------------------------------------
Stockholders and the Company; Compliance with Covenants and Obligations. The
- -----------------------------------------------------------------------
representations and warranties of the Stockholders and the Company shall be true
on and as of the Closing Date as though such representations and warranties were
made on and as of such date (even though they purport to have been given on a
date prior to the Closing Date), except for any changes permitted by the terms
hereof or consented to in writing by the Buyer. The Stockholders and the
Company shall have performed and complied with all terms, conditions, covenants,
obligations, agreements and restrictions required by this Agreement to be
performed or complied with by each of them prior to or at the Closing Date. At
the Closing, the Stockholders and the Company shall have delivered to the Buyer:
(i) a certificate signed by the Stockholders and (ii) a certificate signed by
the President or Chief Financial Officer of the Company, as the case may be, as
to their compliance with Section 8.1 hereof.
8.2 Corporate Proceedings. All corporate and other proceedings
---------------------
required to be taken on the part of the Company to authorize or carry out this
Agreement and the transactions contemplated hereby shall have been taken.
8.3 Governmental Approvals. All governmental agencies, department,
----------------------
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Stockholders, the Company or the Buyer of the
transactions contemplated by this Agreement and the operation of the business of
the Company by the Buyer shall have consented to, authorized, permitted or
approved such transactions.
8.4 Consent of Third Parties. The Stockholders and the Company shall
------------------------
have received all requisite consents and approvals of all lenders, lessors and
other third parties whose consent or approval is required in order for the
Stockholders and the Company to consummate the transactions contemplated by this
Agreement, including without limitation, those set forth on Schedule 3.3
------------
attached hereto.
8.5 Adverse Proceedings. No action or proceeding by or before any
-------------------
court or other governmental body shall have been instituted or, to the best
knowledge of the Company and
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<PAGE>
the Stockholders, threatened by any governmental body or person whatsoever which
shall seek to restrain, prohibit or invalidate the transactions contemplated by
this Agreement or which might affect the right of the Buyer to own the Shares or
to own or operate the business of the Company after the Closing.
8.6 Opinion of Counsel. The Buyer shall have received an opinion of
------------------
Shutts & Bowen, counsel to the Stockholders and the Company, dated as of the
Closing Date as to such matters as may be reasonably requested by the Buyer or
its counsel and in such form as is satisfactory to the Buyer in its sole
discretion.
8.7 Update. The Company and the Stockholders shall have provided
------
the Buyer with a true, correct and complete updated schedule with respect to all
of the information provided or required to be provided on any schedule hereto as
of the last business day immediately preceding the Closing Date. None of the
information supplied in such updated schedules shall be materially adverse from
the information previously provided by the Company and the Stockholders to the
Buyer.
8.8 Employment Agreement. Simultaneously with the Closing, the
--------------------
Buyer shall have executed employment agreements with Greg Johnson, upon
substantially the terms set forth in Exhibit B, (the "Employment Agreement").
---------
8.9 Consulting Agreement. Simultaneously with the Closing, the
--------------------
Buyer shall have executed a consulting agreement with Mary Shaeffer Smith, upon
substantially the terms set forth in Exhibit C (the "Consulting Agreement").
---------
8.10 Registration Rights Agreement. Simultaneously with the Closing,
-----------------------------
the Buyer shall have executed a registration rights agreement with the
Stockholders, on substantially the terms set forth in Exhibit D (the
---------
"Registration Rights Agreement").
8.11 Material Adverse Effect. There shall have been no material
-----------------------
adverse change in the business, operations, customers, conditions (financial or
otherwise) or prospects of the Company, taken as a whole, since the date hereof.
8.12 Closing Deliveries. The Buyer shall have received at or prior
------------------
to the Closing such documents, instruments or certificates as the Buyer may
reasonably request including, without limitation:
(a) the stock certificates representing the Shares duly endorsed
in accordance with Section 1.1 of this Agreement;
(b) a certificate of the Secretary of State for the Commonwealth
of Pennsylvania as to the legal existence and good standing (including tax) of
the Company in Pennsylvania;
-21-
<PAGE>
(c) a certificate signed by the Secretary of the Company
attesting to the incumbency of the Company's officers, the authenticity of the
resolutions authorizing the transactions contemplated by this Agreement, and the
authenticity and continuing validity of the charter documents delivered pursuant
to Section 3.1;
(d) a receipt executed by the Company and the Stockholders;
(e) a fully executed Employment Agreement;
(f) a fully executed Consulting Agreement;
(g) a fully executed Registration Rights Agreement;
(h) the written resignations of all of the officers and
directors of the Company;
(i) such other documents, instruments or certificates as the
Buyer may reasonably request.
9. Conditions to Obligations of the Stockholders
---------------------------------------------
The obligations of the Stockholders under this Agreement are subject
to the fulfillment, at the Closing Date, of the following conditions precedent,
each of which may be waived in writing in the sole discretion of the holders of
at least 70% of the Shares:
9.1 Continued Truth of Representations and Warranties of the Buyer;
---------------------------------------------------------------
Compliance with Covenants and Obligations. The representations and warranties
- -----------------------------------------
of the Buyer in this Agreement shall be true on and as of the Closing Date as
though such representations and warranties were made on and as of such date,
except for any changes consented to in writing by the Stockholders. The Buyer
shall have performed and complied with all terms, conditions, covenants,
obligations, agreements and restrictions required by this Agreement to be
performed or complied with by it prior to or at the Closing Date.
9.2 Corporate Proceedings. All corporate and other proceedings
---------------------
required to be taken on the part of the Buyer to authorize or carry out this
Agreement and the transactions contemplated hereby shall have been taken.
9.3 Governmental Approvals. All governmental agencies, departments,
----------------------
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Buyer, the Stockholders or the Company of the
transactions contemplated by this Agreement shall have consented to, authorized,
permitted or approved such transactions.
-22-
<PAGE>
9.4 Consents of Third Parties. The Buyer, the Stockholders or the
-------------------------
Company shall have received all requisite consents and approvals of all lenders,
lessors and other third parties whose consent or approval is required in order
for the Buyer, the Stockholders or the Company to consummate the transactions
contemplated by this Agreement.
9.5 Adverse Proceedings. No action or proceeding by or before any
-------------------
court or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Stockholders to transfer the Shares.
9.6 Opinion of Counsel. The Stockholders shall have received an
------------------
opinion of Epstein Becker & Green, P.C., counsel to the Buyer, dated as of the
Closing Date as to such matters as may be reasonably requested by the Company,
the Stockholders or their counsel and in such form as is satisfactory to the
Company or the Stockholders, in their sole discretion.
9.7 Closing Deliveries. The Stockholders shall have received at or
------------------
prior to the Closing such documents, instruments or certificates as the
Stockholders may reasonably request including, without limitation:
(a) a certificate of the Secretary of State of the State of
Delaware as to the legal existence and good standing (including tax) of the
Buyer in Delaware;
(b) a certificate signed by the Secretary of the Buyer attesting
to the incumbency of the Buyer's officers, the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement, and the
authenticity and continuing validity of the charter documents delivered pursuant
to Section 4.1;
(c) delivery of the Cash Payment;
(d) a fully executed Employment Agreement;
(e) a fully executed Consulting Agreement;
(f) a fully executed Registration Rights Agreement;
(g) a receipt executed by the Buyer; and
(h) such other documents, instruments or certificates as the
Stockholders may reasonably request.
10. Indemnification.
---------------
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<PAGE>
10.1 By the Stockholders and the Company. If the Closing occurs, the
-----------------------------------
Stockholders, jointly and severally, hereby indemnify and hold harmless the
Buyer and the Company, and if the Closing does not occur, the Stockholders and
the Company, jointly and severally, hereby indemnify and hold harmless the
Buyer, from and against all material claims, damages, losses, liabilities, costs
and expenses (including, without limitation, settlement costs and any legal,
accounting or other expenses for investigating or defending any actions or
threatened actions) (collectively, the "Losses") in connection with any breach
or non-performance by the Stockholders or the Company, as the case may be, of
any representation, warranty, covenant or condition contained in this Agreement
and any certificates, exhibits, schedules or documents delivered hereunder
(other than the Employment Agreement or the Consulting Agreement).
10.2 Buyer Indemnification. The Buyer hereby indemnifies and holds
---------------------
harmless the Stockholders and the Company from and against all material Losses
in connection with any breach or non-performance by the Buyer of any
representation, warranty, covenant or condition contained in this Agreement and
any certificates, exhibits, schedules or documents delivered hereunder.
10.3 Claims for Indemnification. Whenever any claim shall arise for
--------------------------
indemnification under this Section 10, the Buyer, the Stockholders or the
Company, as the case may be (the party seeking such indemnification being the
"Indemnified Party"), shall promptly notify the other party hereto (the
"Indemnifying Party") in writing (the "Indemnification Notice") of the claim,
which writing shall include the facts constituting the basis for such claim, the
specific section of this Agreement upon which the claim is based and an
estimate, if possible, of the amount of damages suffered by the Indemnified
Party. In the event of any such claim for indemnification hereunder resulting
from or in connection with any claim or legal proceedings by a third party (a
"Third Party Claim"), the Indemnification Notice shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom and shall
attach all correspondence and demands from such third party. In the event that
any claim for indemnification involves a matter other than a Third Party Claim,
the Indemnifying Party shall have thirty (30) days from receipt of the
Indemnification Notice to object to such claim by delivery of a written notice
of such objection to the Indemnified Party specifying in reasonable detail the
basis for such objection. Failure to timely object shall constitute a final and
binding acceptance of the claim for indemnification by the Indemnifying Party
and the claim shall be paid in accordance with Section 10.5 hereof. If an
objection is timely interposed by the Indemnifying Party and the dispute is not
resolved within twenty (20) business days from the date (such period is
hereinafter referred to as the "Negotiation Period") the Indemnified Party
receives such objection, such dispute shall be resolved by arbitration in
accordance with the provisions of Section 13 hereof. The Indemnified Party
shall not settle or compromise any claim by a third party for which it is
entitled to indemnification hereunder without the prior written consent, which
shall not be unreasonably withheld or delayed, of the Indemnifying Party;
provided, however, that if suit shall have been instituted against the
- -------- -------
Indemnified Party and the Indemnifying Party shall not have taken control of
such suit within ten (10) days after notification thereof, the Indemnified Party
shall have the right to settle or compromise such claim upon giving notice to
the
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<PAGE>
Indemnifying Party, so long as such settlement includes a release of the
Indemnifying Party from the Third Party Claim.
10.4 Defense of any Claim. (a) In connection with any claim which
--------------------
may give rise to indemnity hereunder resulting from or arising out of any Third
Party Claim, the Indemnifying Party, at the sole cost and expense of the
Indemnifying Party, may, upon written notice given to the Indemnified Party,
assume the defense of any such claim or legal proceeding if the Indemnifying
Party acknowledges to the Indemnified Party in writing the obligation of the
Indemnifying Party to indemnify the Indemnified Party with respect to all
elements of such claim. If the Indemnifying Party assumes the defense of any
such claim or legal proceeding, the Indemnifying Party shall select counsel
reasonably acceptable to the Indemnified Party to conduct the defense of such
claims or legal proceedings and, at the sole cost and expense of the
Indemnifying Party, shall take all steps necessary in the defense or settlement
thereof. The Indemnifying Party shall not consent to a settlement of, or the
entry of any judgment arising from, any such claim or legal proceeding without
the prior written consent of the Indemnified Party (which consent shall not be
unreasonably withheld or delayed). The Indemnified Party shall be entitled to
participate in (but not control) the defense of any such action, with its own
counsel and at its own expense. If the Indemnifying Party does not assume the
defense of any such claim or litigation resulting therefrom within ten (10) days
after the date such claim is made: (a) the Indemnified Party may defend against
such claim or litigation in such manner as it may deem appropriate, including,
but not limited to, settling such claim or litigation, after giving notice of
the same to the Indemnifying Party, on such terms as the Indemnified Party may
deem appropriate, and (b) the Indemnifying Party shall be entitled to
participate in (but not control) the defense of such action, with its counsel
and at its own expense. If the Indemnifying Party thereafter seeks to question
the manner in which the Indemnified Party defended such third party claim or the
amount or nature of any such settlement, the Indemnifying Party shall have the
burden to prove by a preponderance of the evidence that the Indemnified Party
did not defend or settle such Third Party Claim in a reasonably prudent manner.
(b) The Indemnifying Party and the Indemnified Party shall cooperate
with each other in all reasonable respects in connection with the defense of any
Third Party Claim, including making available records relating to such claim and
furnishing employees of the Indemnified Party as may be reasonably necessary for
the preparation of the defense of any such Third Party Claim or for testimony as
witnesses in any proceeding relating to a Third Party Claim.
10.5 Payment of Indemnification Obligation. The Company and the
-------------------------------------
Stockholders agree that upon a final determination of an indemnification claim
made by the Buyer, whereby such final determination is by reason of (i) a
failure of the Indemnifying Party to timely object to an Indemnification Notice,
(ii) the mutual agreement of the Indemnifying Party and the Indemnified Party,
or (iii) a final arbitration award pursuant to Section 13 hereof, then the
amount of the Losses stated in such claim or otherwise agreed to or awarded, as
the case may be, shall be paid first as an off-set against any amounts of the
Stock Payment still owed by the Buyer to the Stockholders (as provided in
Sections 1.3 and 1.4 herein) and, to the extent the value of such
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<PAGE>
remaining Stock Payment is insufficient to pay such claim(s) in full (when
valued based on the Average Closing Price as defined in Section 1.3(c) herein),
then the Indemnifying Party shall pay the amount of such deficiency to the Buyer
in cash or by cashier's check. All indemnification payments to an Indemnified
Party hereunder if the Closing does not occur, or if the Indemnified Party is
other than the Buyer, shall be effected by payment of cash or delivery of a
cashier's check to the Indemnified Party in the amount of the indemnification
liability.
10.6 Survival of Representations; Claims for Indemnification. All of
-------------------------------------------------------
the representations and warranties contained in this Agreement shall survive
until the last day of the twelfth month after the Closing Date (the "Survival
Date"), except for claims, if any, (a) asserted in writing prior to such
Survival Date and identified as a claim for indemnification pursuant to this
Section 10, which shall survive until resolved in full, or (b) which are based
upon fraud, which shall survive until the expiration of the applicable statute
of limitations.
10.7 Threshold for Liability. The Indemnified Party shall not be
-----------------------
entitled to receive, and the Indemnifying Party shall not be obligated to pay,
any amounts under this Section 10 unless and until the aggregate amount of all
Losses by an Indemnified Party under this Section 10 exceeds $25,000 (the
"Basket"). The parties hereto agree that once the aggregate amount of Losses by
any Indemnified Party exceeds the Basket, the Indemnified Party shall be
entitled to indemnity for the amount of all claims made by the Indemnified Party
only to the extent they exceed the Basket.
10.8 Maximum Liability for Stockholders Indemnity Obligations. The
--------------------------------------------------------
maximum liability of the Stockholders under this Section 10 shall be limited to
Two Million One Hundred Twenty Five Thousand Dollars ($2,125,000); provided,
--------
however, that the maximum liability of each Stockholder under this Section 10
- -------
shall be limited to the amount of the Purchase Price received by such
Stockholder pursuant to the terms of this Agreement. Notwithstanding the
language of Section 10.1, the obligations of the Stockholders for claims based
upon the representations and warranties set forth in Sections 2.1 and 2.2 only
shall be several and not joint.
10.9 Exclusive Remedy. The exclusive remedy of the parties for any
----------------
and all claims arising from or related to Sections 2, 3 or 4 of this Agreement
shall be to assert a claim for indemnification pursuant to Section 10.1 and 10.2
of this Agreement, except for claims based upon fraud or intentional
misrepresentation.
11. Post-Closing Agreements of Stockholders
---------------------------------------
The Stockholders agree that from and after the Closing Date:
11.1 Proprietary Information. Each of the Stockholders shall hold in
-----------------------
confidence all knowledge and information of a secret or confidential nature with
respect to the business of the Company and not disclose, publish or make use of
the same without the consent of the Buyer,
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<PAGE>
except to the extent that such information shall have become public knowledge
other than by breach of this Agreement by the Stockholders. Each Stockholder
agrees that the remedy at law for any breach of this Section 11.1 would be
inadequate and that the Buyer shall be entitled to injunctive relief in addition
to any other remedy it may have upon breach of any provision of this Section
11.1.
11.2 Limitation on Use of Name. From and after the date of this
-------------------------
Agreement, none of the Stockholders shall use the name "Purview Technologies,
Inc." or any derivative thereof or any trade name used in the Company's
business.
11.3 Cooperation of Stockholders. The Stockholders will cooperate with
---------------------------
the Buyer in furnishing information or other assistance reasonably requested in
connection with any actions, proceedings, arrangements or disputes involving the
business of the Company and based upon contracts, arrangements, property rights,
acts or omissions of the Company which were in effect or carried on prior to the
Closing Date. The Buyer shall reimburse the Stockholders for all expenses
incurred in providing such cooperation.
12. Termination of Agreement; Option to Proceed; Damages
----------------------------------------------------
12.1 Termination by Lapse of Time. This Agreement shall terminate at
----------------------------
5:00 p.m., Boston Time, on February 14, 1997, if the transactions contemplated
hereby have not been consummated, unless such date is extended by the written
consent of the Company, the Buyer and the Stockholders.
12.2 Termination by Agreement of the Parties. This Agreement may be
---------------------------------------
terminated by the mutual written agreement of the parties hereto.
12.3 Termination by Reason of Breach. This Agreement may be
-------------------------------
terminated by the Company or the Stockholders, if at any time prior to the
Closing there shall occur a material breach of any of the representations,
warranties or covenants of the Buyer or the failure by the Buyer to perform any
condition or obligation hereunder. The Agreement may be terminated by the
Buyer, if at any time prior to the Closing there shall occur a material breach
of any of the representations, warranties or covenants of the Stockholders or
the Company or the failure of the Stockholders or the Company to perform any
condition or obligation hereunder.
12.4 Effect of Termination. If this Agreement is terminated pursuant
---------------------
to this Section 12, no party shall have any further obligation or liability
under this Agreement; provided, however, that if this Agreement is terminated
because of the willful and intentional (i) failure of any party to fulfill its
obligations hereunder or (ii) a breach of the representations, warranties or
covenants of such party, then the non-defaulting party shall have available to
it all legal and equitable remedies and rights.
-27-
<PAGE>
12.5 Option to Proceed. Notwithstanding a pre-Closing Breach by the
-----------------
Stockholders or the Company, or the inability of the Company or the Stockholders
to satisfy all of the terms and conditions precedent to Closing as set forth in
this Agreement, all as herein stipulated, the Buyer may elect by written notice
given to the Company at or prior to the Closing Date either to (i) terminate
this Agreement, or (ii) extend the scheduled Closing Date by 10 days, during
which period the Company and the Stockholders shall use their best efforts to
remove all encumbrances, if any, not permitted by the terms of this Agreement,
and shall use reasonable efforts to remove all other defects in title and to
satisfy all other conditions to closing as provided herein. If the Company and
the Stockholders are unable, upon expiration of such 10-day period, to remove
all such encumbrances and defects and to satisfy all such conditions to Closing,
the Buyer may elect, by written notice given to the Company, to (x) terminate
this Agreement, or (y) waive such condition or breach and consummate the
transactions contemplated by this Agreement.
13. Dispute Resolution
------------------
13.1 General. In the event that any dispute should arise between the
-------
parties hereto with respect to any matter covered by this Agreement, including,
without limitation, the occurrence of a pre-Closing Breach, the parties hereto
shall resolve such dispute in accordance with the procedures set forth in this
Section 13.
13.2 Consent of the Parties. In the event of any dispute between the
----------------------
parties with respect to any matter covered by this Agreement, the parties shall
first use their best efforts to resolve such dispute among themselves. If the
parties are unable to resolve the dispute within 30 calendar days after the
commencement of efforts to resolve the dispute, the dispute will be submitted to
arbitration in accordance with this Section 13.
13.3 Arbitration.
-----------
(a) Either the Buyer or the Stockholders (acting through the
holders of 70% of Shares, who shall have the authority to bind all the
Stockholders) may submit any matter referred to in Section 13.2 hereof to
arbitration by notifying the other parties hereto, in writing, of such dispute.
Within 10 days after receipt of such notice, the Buyer and the Stockholders
shall designate in writing one arbitrator to resolve the dispute; provided, that
if the parties hereto cannot agree on an arbitrator within such 10-day period,
the arbitrator shall be selected by the American Arbitration Associations's
Boston office. The arbitrator so designated shall not be an employee,
consultant, officer, director or stockholder of any party hereto or any
Affiliate of any party to this Agreement.
(b) Within 15 days after the designation of the arbitrator, the
arbitrator, the Buyer and the Stockholders shall meet, at which time the Buyer
and the Stockholders shall be required to set forth in writing all disputed
issues and a proposed ruling on each such issue.
-28-
<PAGE>
(c) The arbitrator shall set a date for a hearing, which shall be
no later than 30 days after the submission of written proposals pursuant to
paragraph (b) above, to discuss each of the issues identified by the Buyer and
the Stockholders. Each such party shall have the right to be represented by
counsel. The arbitration shall be governed by the rules of the American
Arbitration Association; provided, that the arbitrator shall have sole
discretion with regard to the admissibility of evidence.
(d) The arbitrator shall use his best efforts to rule on each
disputed issue within 30 days after the completion of the hearings described in
paragraph (c) above. The determination of the arbitrator as to the resolution of
any dispute shall be binding and conclusive upon all parties hereto. All rulings
of the arbitrator shall be in writing and shall be delivered to the parties
hereto.
(e) Any arbitration pursuant to this Section 13 shall be
conducted in Boston, Massachusetts. Any arbitration award may be entered in and
enforced by any court having jurisdiction thereover and the parties hereby
consent and commit themselves to the jurisdiction of the courts of the
Commonwealth of Massachusetts for purposes of the enforcement of any arbitration
award.
14. Brokers
-------
14.1 For the Stockholders and the Company. Each of the Stockholders
------------------------------------
and the Company agrees to pay all fees, expenses and compensation owed to any
person, firm or corporation who has acted in the capacity of broker or finder on
its or their behalf to bring about the negotiation of this Agreement. The
Stockholders jointly and severally agree to indemnify and hold harmless the
Buyer against any claims or liabilities asserted against it by any person acting
or claiming to act as a broker or finder on behalf of the Stockholders or the
Company.
14.2 For the Buyer. The Buyer agrees to pay all fees, expenses and
-------------
compensation owed to any person, firm or corporation who has acted in the
capacity of broker or finder on its behalf to bring about the negotiation of
this Agreement. The Buyer agrees to indemnify and hold harmless the
Stockholders and the Company against any claims or liabilities asserted against
it by any person acting or claiming to act as a broker or finder on behalf of
the Buyer.
15. Notices
-------
Any notices or other communications required or permitted hereunder
shall be sufficiently given if delivered personally or sent by telex, federal
express, registered or certified mail, postage prepaid, addressed as follows or
to such other address of which the parties may have given notice:
-29-
<PAGE>
To the Buyer: ON Technology Corporation
One Cambridge Center
Cambridge, MA 02142
Attention: Christopher A. Risley
With a copy to: Gabor Garai, Esq.
Epstein Becker & Green, P.C.
75 State Street
Boston, MA 02109
To the Company: Purview Technologies, Inc.
409 Broad Street, Suite 107
Sewickly, PA 15143-1511
Attention: President
With a copy to: Alfred G. Smith, II, Esq.
Shutts & Bowen
1500 Miami Center
201 S. Biscayne Boulevard
Miami, FL 33131
To the Stockholders: The addresses set forth
on Schedule I
With a copy to: Alfred G. Smith, II, Esq.
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date actually delivered, if delivered personally, by
overnight courier or by telecopy, or (b) three business days after being sent,
if sent by registered or certified mail.
16. Successors and Assigns
----------------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Buyer, on the one hand, and the Stockholders and the Company, on the other hand,
may not assign their respective obligations hereunder without the prior written
consent of the other party. Any assignment in contravention of this provision
shall be void. No assignment shall release the Buyer, the Stockholders or the
Company from any obligation or liability under this Agreement.
17. Entire Agreement; Amendments; Attachments
-----------------------------------------
(a) This Agreement, all Schedules and Exhibits hereto, and all
agreements and instruments to be delivered by the parties pursuant hereto
represent the entire understanding and
-30-
<PAGE>
agreement between the parties hereto with respect to the subject matter hereof
and supersede all prior oral and written and all contemporaneous oral
negotiations, commitments and understandings between such parties.
(b) The Buyer, by the consent of its Board of Directors or officers
authorized by such Board, and the Stockholders holding 70% of the Shares (who
shall have the authority to bind all of the Stockholders) may amend or modify
this Agreement, in such manner as may be agreed upon, by a written instrument
executed by the Buyer and such majority of the Stockholders.
(c) If the provisions of any Schedule or Exhibit to this Agreement are
inconsistent with the provisions of this Agreement, the provisions of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
18. Severability
------------
Any provision of this Agreement which is invalid, illegal or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provision of this Agreement invalid, illegal or
unenforceable in any other jurisdiction.
19. Expenses
--------
Except as otherwise expressly provided herein, the Buyer, on the one
hand, and the Stockholders, jointly and severally, on the other hand, will pay
all other fees and expenses incurred by them in connection with the transactions
contemplated hereunder; provided, however, that the Buyer shall pay the fees and
-------- -------
expenses of the Stockholders in an amount not to exceed the total amount of
$15,000. In no event will any of the fees or expenses incurred in connection
with this transaction by the Stockholders, including, without limitation, the
fees and expenses of counsel to the Stockholders, be billed to the Company.
Each Stockholder shall be responsible for payment of all sales or transfer taxes
arising out of the conveyance of the Shares owned by such Stockholder.
20. Legal Fees
----------
In the event that legal or arbitration proceedings are commenced by the
Buyer against the Stockholders (or the Company, if the transactions contemplated
hereby are not consummated), or by the Stockholders against the Buyer, in
connection with this Agreement or the transactions contemplated hereby, the
party or parties which do not prevail in such proceedings shall pay the
reasonable attorneys' fees and other costs and expenses, including investigation
costs, incurred by the prevailing party in such proceedings.
-31-
<PAGE>
21. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware.
22. Section Headings
----------------
The section headings are for the convenience of the parties and in no
way alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
23. Counterparts
------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which shall be one and the
same document.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
-32-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
(Corporate Seal) ON TECHNOLOGY CORPORATION
ATTEST:
/s/ John M. Bogdan /s/ Christopher A. Risley
- ------------------------ -----------------------------------------------
Secretary Christopher A. Risley, President
(Corporate Seal) PURVIEW TECHNOLOGIES, INC.
ATTEST:
/s/ Jaime W. Ellertson
- ------------------------ -----------------------------------------------
Jaime W. Ellertson, Chairman
STOCKHOLDERS:
/s/ Jaime W. Ellertson
-----------------------------------------------
Jaime W. Ellertson
/s/ Mary Shaeffer Smith
-----------------------------------------------
Mary Shaeffer Smith
/s/ Mauri Johnson
-----------------------------------------------
Mauri Johnson
/s/ Larry A. Krueger
-----------------------------------------------
Larry A. Krueger
/s/ Mark E. Coticchia
-----------------------------------------------
Mark E. Coticchia
/s/ William Calcagni
-----------------------------------------------
William Calcagni
-33-
<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
No. of Shares
of Company Common
Stockholders Stock Owned or to be Cash
and Addresses Acquired by Closing % Ownership Payment
- -------------------------- -------------------- ------------ ----------
<S> <C> <C> <C>
Jaime Ellertson 3,750 15.00% $ 150,000
2270 Silver Sands Court
Vero Beach, FL 32963
Mauri Johnson* 6,133 24.53 245,300
156 Shafer Road
Moon Township, PA 15108
Mary Shaeffer Smith 12,267 49.07 490,700
3234 Eastmont Avenue
Pittsburgh, PA 15216
Larry A. Krueger** 1,700 6.80 68,000
188 Green Valley Lane
McMurray, PA 15317
Mark E. Coticchia 650 2.60 26,000
515 East McMurray Road
McMurray, PA 15317
William Calcagni 500 2.00 20,000
1 Langdon Street --------- --------- ---------
Cambridge, MA 02138
25,000 100.00% $ 1,000,000
</TABLE>
_________
* Mauri Johnson's Stock Payment is to be delivered in the form of non-statutory
stock options.
** Lawrence Krueger holds options to purchase 2,000 shares, which will be 85%
vested on the Closing Date for a total of 1,700 shares.
-34-
<PAGE>
EXHIBIT 4.1
-----------
ON TECHNOLOGY CORPORATION
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of the 30th day of January, 1997 by and among ON TECHNOLOGY CORPORATION,
a Delaware corporation (the "Company"), and each of Jaime Ellertson, Mary
Shaeffer Smith, Larry A. Krueger, Mark E. Coticchia and William Calcagni
(individually, a "Stockholder" and together, the "Stockholders"), who are
holders of Common Stock of the Company, $.01 par value (the "Common Stock").
W I T N E S S E T H :
WHEREAS, the Company, Purview Technologies, Inc. ("Purview") and the
Stockholders have entered into a Stock Purchase Agreement dated January 24, 1997
pursuant to which the Company has agreed to purchase, and the Stockholders have
agreed to sell to the Company, all of the outstanding stock of Purview in
exchange (inter alia) for 155,251 shares of Common Stock of the Company (the
----- ----
"Purchase"); and
WHEREAS, in order to induce the Stockholders to sell their shares in
Purview, the Company has agreed to grant to the Stockholders the registration
rights set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. The following terms shall be used in this Agreement with
-----------
the following respective meanings:
"Affiliate" shall mean (i) any Person directly or indirectly
---------
controlling controlled by or under common control with another Person;
(ii) any Person owning or controlling ten (10%) percent or more of the
outstanding voting securities of such other Person; (iii) any officer,
director or partner of such Person; (iv) if such Person is an officer,
director or partner, any such company for which such Person acts in such
capacity; and (v) any Person's spouse, parents, siblings and descendants
(whether natural or
<PAGE>
adopted) and any trust solely for the benefit of such Person and/or such
Person's spouse, parents, siblings and/or descendants.
"Commission" shall mean the Securities and Exchange Commission.
----------
"Exchange Act" shall mean the Securities Exchange Act of 1934, or any
------------
successor Federal statute, and the rules and regulations of the Commission (or
of any other Federal agency then administering the Exchange Act) thereunder, all
as the same shall be in effect at the time.
"NASD" shall mean the National Association of Securities Dealers, Inc.
----
"Offering Shares" shall mean shares of Common Stock to be sold by any
---------------
party pursuant to demand registration rights granted to such party by the
Company, including without limitation such demand registration rights
granted pursuant to that certain Second Restated Registration Rights
Agreement by and among the Company and certain of the Company's Stockholders
dated June 1, 1994, as amended.
"Person" shall mean any natural person, partnership, corporation or other
------
legal entity.
"Registrable Stock" shall mean (a) all Common Stock issued and distributed
-----------------
to the Stockholders in connection with the Purchase, and (b) any other shares of
Common Stock issued in respect of such shares by way of a stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger or consolidation or reorganization; provided, however, that shares of
-------- -------
Common Stock shall only be treated as Registrable Stock if and so long as they
have not been (i) sold to or through a broker or dealer or underwriter in a U.S.
public distribution or a U.S. public securities transaction, or (ii) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions
and restrictive legends with respect to such Common Stock are removed upon the
consummation of such sale and the seller and purchaser of such Common Stock
receive an opinion of counsel for the Company, which shall be in form and
content reasonably satisfactory to the seller and buyer and their respective
counsel, to the effect that such Common Stock in the hands of the purchaser is
freely transferable without restriction
-2-
<PAGE>
or registration under the Securities Act in any public or private transaction.
"Registration Statement" shall mean a registration statement filed by the
----------------------
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8, Form S-4, or successor
forms, or any registration statement covering only securities proposed to be
issued in exchange for securities or assets of another corporation).
"Securities Act" shall mean the Securities Act of 1933, or any successor
--------------
Federal statute, and the rules and regulations of the Commission (or of any
other Federal agency then administering the Securities Act) thereunder, all as
the same shall be in effect at the time.
2. Registration on Form S-3.
------------------------
(a) At any time after the last day of the sixth month after the date
hereof and through the second annual anniversary of the date hereof, the
Stockholders holding 70% or more of the Registrable Stock may jointly request
the Company to register under the Securities Act on Form S-3 or any successor
form thereto all, but not less than all, of the shares of Registrable Stock held
by them for sale in the manner specified in such notice; provided that the
-------- ----
Company is a registrant then entitled to use Form S-3 or any successor form
thereto to register such shares. Notwithstanding anything to the contrary
contained herein, no request may be made under this Section 2: (i) in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction; (ii) during the period starting with the date 60 days prior
to the Company's estimated date of filing of, and ending on the date six months
immediately following the effective date of, any registration statement
pertaining to the securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan); provided that the Company is actively employing in good faith all
-------- ----
reasonable efforts to cause such registration statement to become effective; and
(iii) if the Company shall furnish to the Stockholder a certificate signed by
the President of the Company stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Company or its
shareholders for a
-3-
<PAGE>
registration statement to be filed in the near future, in which event the
Company's obligation to use all reasonable efforts to register, qualify or
comply under this Section 2 shall be deferred for a period not to exceed 90 days
from the date of receipt of written request from the Stockholders; provided that
-------- ----
the Company may not utilize this right more than once in any 12-month period.
The Stockholders holding Registrable Stock may only make one such request
pursuant to this Section 2.
(b) If the Stockholders request that the Registrable Stock be sold in an
underwritten offering, then the Company, in consultation with the Stockholders,
shall designate the managing underwriter of such offering. The Company shall be
obligated to register Registrable Stock pursuant to this Section 2 on a single
occasion only; provided, however, that such obligation shall be deemed satisfied
-------- -------
only when a Registration Statement covering all shares of Registrable Stock
specified in the notice received pursuant to Section 2(a) for sale in accordance
with the method of disposition specified by the Stockholders shall have become
effective.
(c) The Company shall be entitled to include in any registration statement
referred to in this Section 2, for sale in accordance with the method of
disposition specified by the Stockholders, shares of Common Stock to be sold by
the Company for its own account, except as and to the extent that, in the
opinion of the managing underwriter, such inclusion would adversely affect the
marketing of the Registrable Stock to be sold.
3. Incidental Registration. Each time the Company shall determine to file
-----------------------
a Registration Statement in connection with the proposed offer and sale for cash
of any of its securities by it or any of its security holders, the Company will
give written notice of its determination to the Stockholders at least 15 days
prior to the filing of such Registration Statement. Upon the written request of
any of the Stockholders given within 30 days after the giving of any such notice
by the Company, the Company will use its best efforts to cause all shares of
Registrable Stock which such Stockholder(s) have requested to register to be
included in such Registration Statement, all to the extent required to permit
the sale or other disposition by the prospective seller of the Registrable Stock
to be so registered. If the Registration Statement is to cover an underwritten
distribution, the Company shall use its best efforts to cause the Registrable
Stock requested for inclusion pursuant to this Section 3 to be included in the
-4-
<PAGE>
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. If, in the good faith judgment of the managing
underwriter of such public offering, the inclusion of all of the Registrable
Stock requested for inclusion pursuant to this Section 3 and other securities
would interfere with the successful marketing of a smaller number of shares to
be offered, then the number of shares of Registrable Stock and other securities
to be included in the offering, except for shares to be issued by the Company in
an offering initiated by the Company or Offering Shares to be sold by any other
party, shall be reduced to the required level with the participation in such
offering to be pro rata among the holders thereof requesting such registration,
based upon the number of shares of Registrable Stock and other securities owned
by such holders.
4. Limitations on Registration Rights. Notwithstanding anything to the
----------------------------------
contrary in Sections 2 and 3 hereto, in the event that holders of "Registrable
Stock," as such term is defined in that certain Second Restated Registration
Rights Agreement among the Company and certain of the Company's shareholders
dated June 1, 1994, as amended ("Other Registrable Stock"), elect to participate
in any registration contemplated by Sections 2 or 3 hereto of this Agreement,
then the number of shares of Registrable Stock shall be reduced if and to the
extent necessary to permit such shareholders to include in such registration
that number of shares of Other Registrable Stock equal to one-third of the total
number of Offering Shares.
5. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of Section 2 or 3 hereof to effect the registration of shares of
Registrable Stock under the Securities Act, the Company will, at its expense, as
expeditiously as possible:
(a) In accordance with the Securities Act and the rules and regulations
of the Commission, prepare and file with the Commission a Registration Statement
with respect to such securities and use its best efforts to cause such
Registration Statement to become and remain effective until the earlier of (i)
180 days, in the event of a registration on Form S-3, or (ii) the date on which
all of the securities covered by such Registration Statement have been sold, and
prepare and file with the Commission such amendments to such Registration
Statement and supplements to the prospectus contained therein as may be
necessary to keep such Registration
-5-
<PAGE>
Statement effective and such Registration Statement and prospectus accurate and
complete;
(b) If the offering is to be underwritten in whole or in part, enter into a
written underwriting agreement in form and substance reasonably satisfactory to
the managing underwriter of the public offering and the Stockholders;
(c) Furnish to the Stockholders and to the underwriters such reasonable
number of copies of the Registration Statement, preliminary prospectus, final
prospectus and such other documents as such underwriters and the Stockholders
may reasonably request in order to facilitate the public offering of such
securities;
(d) Use its best efforts to register or qualify the securities covered by
such Registration Statement under such state securities or blue sky laws of such
jurisdictions as the Stockholders and the underwriters may reasonably request,
except that the Company shall not for any purpose be required to execute a
general consent to service of process, to qualify to do business as a foreign
corporation in any jurisdiction where it is not so qualified, or to subject
itself to taxation in such jurisdiction;
(e) Notify the Stockholders, promptly after it shall receive notice
thereof, of the date and time when such Registration Statement and each post-
effective amendment thereto has become effective, or a supplement to any
prospectus forming a part of such Registration Statement has been filed;
(f) Notify the Stockholders, promptly of any request by the Commission or
any state securities commission or agency for the amending or supplementing of
such Registration Statement or prospectus, or for additional information;
(g) Prepare and file with the Commission, promptly upon the request of the
Stockholders, any amendments or supplements to such Registration Statement or
prospectus which, in the opinion of counsel representing the Company in such
registration (and which counsel is reasonably acceptable to the Stockholders),
is required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of the Registrable Stock by the Stockholders;
(h) notify each seller of Registrable Stock under such Registration
Statement (at any time when a prospectus relating
-6-
<PAGE>
thereto is required to be delivered under the Securities Act), of the happening
of any event by which the Company has knowledge as a result of which the
prospectus contained in such Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and promptly prepare and
furnish to such seller a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers of
such Registrable Stock, such prospectus shall not include an untrue statement or
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing.
(i) During the time period during which the Company is required, pursuant
to Section 5(a), to cause a Registration Statement to be effective, in case the
Stockholders or any underwriter for the Stockholders is required to deliver a
prospectus at a time when the prospectus then in circulation is not in
compliance with the Securities Act or the rules and regulations of the
Commission, prepare promptly upon request such amendments or supplements to such
Registration Statement and such prospectus as may be necessary in order for such
prospectus to comply with the requirements of the Securities Act and such rules
and regulations;
(j) Advise the Stockholders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission or
any state securities commission or agency suspending the effectiveness of such
Registration Statement or the initiation or threatening of any proceeding for
that purpose and promptly use its best efforts to prevent the issuance of any
stop order or to obtain its withdrawal if such stop order should be issued;
(k) Not file any amendment or supplement to such Registration Statement or
prospectus to which counsel for the Stockholders has reasonably objected on the
grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or the rules and
regulations thereunder, after having been furnished with a copy thereof at least
three business days prior to the filing thereof (which advance furnishing of
copies the Company hereby agrees to);
-7-
<PAGE>
(l) At the request of the Stockholders (i) furnish to the Stockholders
on the effective date of the Registration Statement or, if such registration
includes an underwritten public offering, at the closing provided for in the
underwriting agreement, an opinion, dated such date, of the counsel representing
the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the Stockholders, covering such matters with
respect to the registration statement, the prospectus and each amendment or
supplement thereto, proceedings under state and Federal securities laws, other
matters relating to the Company, the securities being registered and the offer
and sale of such securities as are customarily the subject of opinions of
issuer's counsel provided to underwriters in underwritten public offerings, and
(ii) use its best effort to furnish to the Stockholders letters dated each such
effective date and such closing date, from the independent certified public
accountants of the Company, addressed to the underwriters, if any, and to the
Stockholders, stating that they are independent certified public accountants
within the meaning of the Securities Act and dealing with such matters as the
underwriters may request, or, if the offering is not underwritten, that in the
opinion of such accountants the financial statements and other financial data of
the Company included in the Registration Statement or the prospectus or any
amendment or supplement thereto comply in all material respects with the
applicable accounting requirements of the Securities Act, and additionally
covering such other financial matters, including information as to the period
ending not more than five business days prior to the date of such letter with
respect to the Registration Statement and prospectus, as the Stockholder may
reasonably request; and
(m) Use its best efforts to ensure the obtaining of all necessary
approvals from the NASD.
6. Expenses.
--------
(a) With respect to each registration effected pursuant to Sections 2
or 3 hereof, all fees, costs and expenses of and incidental to such registration
and the public offering in connection therewith shall be borne by the Company;
provided, however, that the Stockholders shall bear their pro rata share of the
- -------- -------
underwriting discounts and selling commissions.
(b) The fees, costs and expenses of registration to be borne as
provided in paragraph (a) above, shall include, without
-8-
<PAGE>
limitation, all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, fees and disbursements
of counsel for the underwriter or underwriters of such securities (if the
Company and/or selling security holders are otherwise required to bear such fees
and disbursements), all legal fees and disbursements and other expenses of
complying with state securities laws in those states in which the securities to
be offered are to be registered or qualified, the reasonable fees and
disbursements of counsel for the Stockholders, and the premiums and other costs
of policies of insurance insuring the Company against liability arising out of
such public offering.
7. Indemnification and Contribution.
--------------------------------
(a) To the fullest extent permitted by law, the Company will indemnify
and hold harmless each of the Stockholders, whether or not their shares have
been sold in the offering, and any underwriter (as defined in the Securities
Act) for the Stockholders, and any person who controls the Stockholders or such
underwriter within the meaning of the Securities Act, from and against, and will
reimburse the Stockholders and each such underwriter and controlling person with
respect to, any and all claims, actions, demands, losses, damages, liabilities,
costs and expenses to which the Stockholders or any such underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such claims, actions, demands, losses, damages, liabilities, costs or
expenses arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in such Registration Statement, any
prospectus contained therein or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or arise out of any violation by the Company of any rule
or regulation under the Securities Act applicable to the Company and relating to
action or inaction required of the Company in connection with such registration;
provided, however, that the Company will not be liable in any such case to the
- -------- -------
extent that any such claim, action, demand, loss, damage, liability, cost or
expense is caused by an untrue statement or alleged untrue statement or omission
or alleged omission so made in reliance upon information furnished by any of the
Stockholders, such underwriter or such controlling person for use in the
preparation thereof.
-9-
<PAGE>
(b) Each of the Stockholders will severally indemnify and hold
harmless the Company from and against, and will reimburse the Company with
respect to, any and all losses, damages, liabilities, costs or expenses to which
the Company may become subject under the Securities Act or otherwise, insofar as
such losses, damages, liabilities, costs or expenses are caused by any untrue or
alleged untrue statement of any material fact contained therein or any amendment
or supplement thereto, or are caused by the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they are made,
not misleading, in each case only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was so made in reliance
upon information furnished to the Company by such Stockholder specifically for
use in the preparation thereof.
(c) Promptly after receipt by a party to be indemnified pursuant to
the provisions of paragraph (a) or (b) of this Section 7 (an "indemnified
party") of notice of the commencement of any action involving the subject matter
of the foregoing indemnity provisions, such indemnified party will, if a claim
thereof is to be made against the indemnifying party pursuant to the provisions
of paragraph (a) or (b), notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to an indemnified party otherwise than
under this Section 7 and shall not relieve the indemnifying party from liability
under this Section 7, unless such indemnifying party is prejudiced by such
omission. In case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party pursuant to the provisions of such paragraph
(a) and (b) for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall be liable to an indemnified
party for any settlement of any action or claim made without the consent of the
indemnifying party; provided that no indemnifying party may unreasonably
withhold or
-10-
<PAGE>
delay its consent to any such settlement. No indemnifying party will consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any of the
Stockholders or any controlling person of any of the Stockholders makes a claim
for indemnification pursuant to this Section 7, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that this Section 7 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any of the
Stockholders or any such controlling person in circumstances for which
indemnification is provided under this Section 7; then, in each such case, the
Company and the Stockholders will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that each Stockholder is responsible for the
portion represented by the percentage that the public offering price of his
Registrable Stock offered by the Registration Statement bears to the public
offering price of all securities offered by such Registration Statement, and the
Company is responsible for the remaining portion; provided, however, that, in
-------- -------
any such case, no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
8. Reporting Requirements Under Securities Exchange Act of 1934. The
------------------------------------------------------------
Company shall keep effective its registration under Section 12 of the Exchange
Act and shall timely file such information, documents and reports as the
Commission may require or prescribe under Section 13 of the Exchange Act. The
Company shall (whether or not it shall then be required to do so) timely file
such information, documents and reports as the Commission may require or
prescribe under Section 13 or 15(d) (whichever is applicable) of the Exchange
Act. The Company shall forthwith upon request furnish to the Stockholders: (i)
a written statement by the Company that it has complied with the reporting
requirements of Section 13 or 15(d) of the Exchange Act, (ii) a copy of the most
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<PAGE>
recent annual or quarterly report of the Company, and (iii) such other reports
and documents filed by the Company with the Commission as the Stockholders may
reasonably request in availing themselves of an exemption for the sale of
Registrable Stock without registration under the Securities Act. The Company
acknowledges and agrees that the purposes of the requirements contained in this
Section 8 are (a) to enable the Stockholders to comply with the current public
information requirement contained in Paragraph (c) of Rule 144 under the
Securities Act should any of the Stockholders ever wish to dispose of any of the
securities of the Company acquired by them without registration under the
Securities Act in reliance upon Rule 144 (or any other similar or successor
exemptive provision), and (b) to qualify the Company for the use of Registration
Statements on Form S-3. In addition, the Company shall take such other measures
and file such other information, documents and reports, as shall hereafter be
required by the Commission as a condition to the availability of Rule 144 under
the Securities Act (or any similar or successor exemptive provision hereafter in
effect) and the use of Form S-3. The Company also covenants to use its best
efforts, to the extent that it is reasonably within its power to do so, to
quality for the use of Form S-3. The Company agrees to use its best efforts to
facilitate and expedite transfers of Registrable Stock pursuant to Rule 144
under the Securities Act (or any similar or successor exemptive provision
hereafter in effect), which efforts shall include timely notice to its transfer
agent to expedite such transfers of Registrable Stock.
9. Stockholder Information. The Company may require each Stockholder to
-----------------------
furnish the Company in a timely manner such information with respect to himself
and the distribution of such Registrable Stock as the Company may from time to
time reasonably request in writing and as shall be required by law or by the
Commission in connection therewith.
10. Specific Enforcement. All of the parties hereto acknowledge that the
--------------------
parties will be irreparably damaged in the event that this Agreement is not
specifically enforced. Upon a breach or threatened breach of the terms,
covenants or conditions of this Agreement by any of the parties hereto, the
other parties shall, in addition to all other remedies, be entitled to a
temporary or permanent injunction, without showing any actual damage, or a
decree for specific performance, in accordance with the provisions hereof.
-12-
<PAGE>
11. Notices. Any notices or other communications required or permitted
-------
hereunder shall be sufficiently given if delivered personally or sent by
facsimile, overnight courier, registered or certified mail, postage prepaid,
addressed as follows or to such other address of which the parties may have
given notice:
<TABLE>
<CAPTION>
<S> <C>
If to the Company: ON Technology Corporation
One Cambridge Center
Cambridge, MA 02142
Attn: Christopher A. Risley
Tel: (617) 374-1400
Fax: (617) 374-1433
with a copy to: Epstein Becker & Green, P.C.
75 State Street
Boston, MA 02109
Attn: Gabor Garai, Esq.
Tel: (617) 342-4000
Fax: (617) 342-4001
If to the Stockholders: Jaime Ellertson
c/o Purview Technologies, Inc.
409 Broad Street, Suite 107
Sewickly, PA 15143
Tel: (412)
Fax: (412)
with a copy to: Shutts & Bowen
1500 Miami Center
201 S. Biscayne Boulevard
Miami, FL 33131
Attn: Alfred G. Smith, II, Esq.
Tel: (305) 379-9147
Fax: (305)
</TABLE>
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered, if delivered personally or by
facsimile; (b) one business day after being sent, if sent by overnight courier;
or (c) three business days after being sent, if sent by registered or certified
mail.
12. Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of Delaware.
-13-
<PAGE>
13. Waivers; Amendments. No waiver of any right hereunder by any party
-------------------
operate as a waiver of any other right, or of the same right with respect
to any subsequent occasion for its exercise, or of any right to damages. No
waiver by any party of any breach of this Agreement shall be held to constitute
a waiver of any other breach or a continuation of the same breach. All remedies
provided by this Agreement are in addition to all other remedies provided by
law. This Agreement may not be amended except by a writing executed by the
Company and all of the Stockholders.
14. Miscellaneous. All covenants and agreements in this Agreement by or
-------------
on behalf of any of the parties hereto will bind and inure to the benefit of the
respective transferees, heirs, executors, administrators, legal representatives,
successors and assigns of the parties hereto whether so expressed or not. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. This Agreement represents the complete agreement of the parties
with respect to the transactions contemplated hereby and supersedes all prior
agreements and understandings. Headings in this Agreement are included for
reference only and shall have no effect upon the construction or interpretation
of any part of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
a duly authorized signatory and the Stockholders have duly executed this
Agreement, each as of the date first above recited.
ON TECHNOLOGY CORPORATION
By: /s/ Christopher A. Risley
----------------------------------
Christopher A. Risley
President
/s/ Jaime Ellertson
----------------------------------------
Jaime Ellertson
/s/ Mary Shaeffer Smith
----------------------------------------
Mary Shaeffer Smith
/s/ Larry A. Krueger
----------------------------------------
Larry A. Krueger
/s/ Mark E. Coticchia
----------------------------------------
Mark E. Coticchia
/s/ William Calcagni
----------------------------------------
William Calcagni
-15-
<PAGE>
EXHIBIT 4.2
-----------
EXECUTION COPY
ON TECHNOLOGY CORPORATION
STOCK RESTRICTION AND REGISTRATION RIGHTS AGREEMENT
---------------------------------------------------
THIS STOCK RESTRICTION AND REGISTRATION RIGHTS AGREEMENT (the
"Agreement") is made and entered into as of the 28th day of January, 1997 by and
among ON TECHNOLOGY CORPORATION, a Delaware corporation (the "Company"), and
each of Eugen Heiter, Iska Heiter, Hans-Till Freiherr von Ruxleben, Liliane
Freifrau von Ruxleben, Harald Moller, Reinhold Weber and Prof. Jochen Tschunke
(individually, a "Stockholder" and together, the "Stockholders"), who are
holders of Common Stock of the Company, $.01 par value (the "Common Stock").
W I T N E S S E T H :
WHEREAS, Wilma 96 Vermogensverwaltungs GmbH, a wholly owned subsidiary
of the Company ("ON Germany"), and the Stockholders have entered into a Stock
Purchase Agreement of even date pursuant to which the Company has agreed to
purchase, and the Stockholders have agreed to sell to the Company, all of the
outstanding stock of csd Software GmbH ("csd") in exchange (inter alia) for an
----- ----
aggregate of 1,315,790 shares of Common Stock of the Company, subject to
adjustment as provided in the Stock Purchase Agreement (the "Purchase"); and
WHEREAS, in order to induce the Stockholders to sell their shares in
csd, the Company has agreed to grant to the Stockholders the registration rights
set forth herein; and
WHEREAS, in order to induce ON Germany to purchase the Stockholders'
shares in csd, the Stockholders have agreed to certain restrictions on the
transfer of a portion of the Common Stock they receive in the Purchase.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. The following terms shall be used in this Agreement
-----------
with the following respective meanings:
"Affiliate" shall mean (i) any Person directly or indirectly
---------
controlling, controlled by or under common control with another Person; (ii) any
Person owning or controlling ten (10%) percent or more of the outstanding voting
securities of such other Person; (iii) any officer, director or partner of such
Person; (iv) if such Person is an officer, director or partner, any such company
for which such Person acts in such capacity; and (v) any Person's spouse,
parents, siblings and descendants (whether natural or adopted) and any trust
solely for the benefit of such Person and/or such Person's spouse, parents,
siblings and/or descendants.
"Commission" shall mean the Securities and Exchange Commission.
----------
"Escrowed Shares" shall mean the shares of the Company's capital
---------------
stock held in escrow pursuant to that certain Escrow Agreement between the
Company, csd and certain other parties thereto of even date.
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, or any
------------
successor Federal statue, and the rules and regulations of the Commission (or of
any other Federal agency then administering the Exchange Act) thereunder, all as
the same shall be in effect at the time.
"First Release Period" shall mean the period beginning on the date of
--------------------
this Agreement and ending on the first anniversary date thereof; provided,
--------
however, that if during such period any of the Stockholders (other than Reinhold
- -------
Weber and Prof. Jochen Tschunke, as to whom this provision shall have no force
and effect) voluntarily leaves the employ of the Company or is terminated by the
Company for "cause" as such term is defined in the Employment Agreement by and
between that Stockholder and the Company, then the First Release Period with
respect to such Stockholder, and such Stockholder's spouse, if such spouse is
also a Stockholder, shall mean the period beginning on the date of this
Agreement and ending on the sixth anniversary date thereof; provided, that in
the event that a final non-appealable decision of any court of competent
jurisdiction determines that the Company was in breach of its obligations
pursuant to such Employment Agreement, then the Second Release Period shall end
on the date of such final decision.
"NASD" shall mean the National Association of Securities Dealers, Inc.
----
"Offering Shares" shall mean shares of Common Stock to be sold by any
---------------
party pursuant to demand registration rights granted to such party by the
Company, including without limitation such demand registration rights granted
pursuant to that certain Second Restated Registration Rights Agreement by and
among the Company and certain of the Company's Stockholders dated June 1, 1994,
as amended.
"Person" shall mean any natural person, partnership, corporation or
------
other legal entity.
"Registrable Stock" shall mean (a) all Common Stock issued to the
-----------------
Stockholders in connection with the Purchase, and (b) any other shares of Common
Stock issued in respect of such shares by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger or
consolidation or reorganization; provided, however, that shares of Common Stock
-------- -------
shall only be treated as Registrable Stock if and so long as they have not been
(i) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (ii) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof so that all transfer restrictions and
restrictive legends with respect to such Common Stock are removed upon the
consummation of such sale and the seller and purchaser of such Common Stock
receive an opinion of counsel for the Company, which shall be in form and
content reasonably satisfactory to the seller and buyer and their respective
counsel, to the effect that such Common Stock in the hands of the purchaser is
freely transferable without restriction or registration under the Securities Act
in any public or private transaction; provided further that in no event shall
-------- -------
Registrable Stock mean or include any Common Stock then constituting Restricted
Stock.
"Registration Statement" shall mean a registration statement filed by
----------------------
the Company with the Commission for a public offering and sale of securities of
the Company (other than a registration statement on Form S-8, Form S-4, or
successor forms, or any registration statement covering only securities proposed
to be issued in exchange for securities or assets of another corporation).
"Restricted Stock" shall mean (a) during the First Release Period, 79%
----------------
of the Common Stock held by each of the Stockholders (other than Reinhold Weber
and Prof. Jochen Tschunke, as to whom this provision shall have no force and
effect) on the date of this Agreement, together with 79% of any other shares of
Common Stock issued in respect of such shares by way of a stock dividend, stock
split or in connection with a combination of shares, recapitalization, merger or
consolidation or
-2-
<PAGE>
reorganization; and (b) during the Second Release Period, 39% of the Common
Stock held by each of the Stockholders (other than Reinhold Weber and Prof.
Jochen Tschunke, as to whom this provision shall have no force and effect) on
the date of this Agreement, together with 39% of any other shares of Common
Stock issued in respect of such shares by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger or
consolidation or reorganization. Notwithstanding anything to the contrary, the
Restricted Stock shall not include any shares constituting Escrowed Shares.
"Second Release Period" shall mean the period beginning on the date of
---------------------
this Agreement and ending on the second anniversary date thereof; provided,
--------
however, that if during such period any of the Stockholder (other than Reinhold
- -------
Weber and Prof. Jochen Tschunke, as to whom this provision shall have no force
and effect) voluntarily leaves the employ of the Company or is terminated by the
Company for "cause" as such term is defined in the Employment Agreement by and
between that Stockholder and the Company, then the Second Release Period with
respect to such Stockholder, and such Stockholder's spouse, if such spouse is
also a Stockholder, shall mean the period beginning on the date of this
Agreement and ending on the seventh anniversary date thereof, provided, that in
the event that a final non-appealable decision of any court of competent
jurisdiction determines that the Company was in breach of its obligations
pursuant to such Employment Agreement, then the Second Release Period shall end
on the date of such final decision.
"Securities Act" shall mean the Securities Act of 1933, or any
--------------
successor Federal statute, and the rules and regulations of the Commission (or
of any other Federal agency then administering the Securities Act) thereunder,
all as the same shall be in effect at the time.
2. Restrictions on Transfer of Common Stock. Each Stockholder (other
----------------------------------------
than Reinhold Weber and Prof. Jochen Tschunke, as to whom this provision shall
have no force and effect) severally agrees that he shall not, directly or
indirectly, exchange, encumber, distribute, sell, assign, transfer, pledge,
hypothecate or otherwise dispose of, by operation of law or otherwise
(collectively, "transfer") any Common Stock of the Company during the period
that such Common Stock constitutes Restricted Stock, or any interest therein,
except for transfers of Restricted Stock pursuant to a will or the laws of
intestacy upon the death of the Stockholder. This covenant against transfer
applies to all attempted transfers of any record or beneficial interest in
Common Stock, and the Company and its transfer agent is hereby authorized and
directed to treat any such attempted transfer as null and void for all purposes.
Each Stockholder (other than Reinhold Weber and Prof. Jochen Tschunke, as to
whom this provision shall have no force and effect) agrees that an appropriate
stock legend referencing the restrictions on transfer set forth in this
Agreement shall be placed upon each certificate representing Common Stock held
by the Stockholders and that appropriate stop order instructions preventing any
attempted transfer shall be delivered to the Company's transfer agent.
Notwithstanding anything in this Agreement to the contrary, in the event that
any Stockholder is terminated by the Company without cause, all restrictions on
the transfer of the Restricted Stock held by such Stockholder, as set forth in
this Section 2, shall terminate and be of no further force and effect.
3. Demand Registrations.
--------------------
(a) The Stockholders holding 50% or more of then remaining Registrable
Stock may jointly request the Company to register under the Securities Act on
Form S-3 or any successor form thereto all, but not less than all, of the shares
of Registrable Stock held by such Stockholders for sale in the manner specified
in such notice; provided that the Company is a registrant then entitled to use
-------- ----
Form S-3 or any successor form thereto to register such shares. Upon receipt of
such a request by Stockholders holding 50% or more of the then remaining
Registrable Stock, the Company shall within five days of the receipt thereof
give notice to all Stockholders and shall, subject to the limitations of this
-3-
<PAGE>
Section 3, use its best efforts to effect such a registration as soon as
practicable and in any event to file within 75 days of such a request a
registration statement under the 1933 Act covering all the Registrable Stock
which the Stockholders shall in writing request to be included in such
registration and to use its best efforts to have such registration statement
become effective. Notwithstanding anything to the contrary contained herein, no
request may be made under this Section 3(a): (i) during the period starting
with the date 60 days prior to the Company's estimated date of filing of, and
ending on the date six months immediately following the effective date of, any
registration statement pertaining to the securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan); provided that the Company is actively employing in good
-------- ----
faith all reasonable efforts to cause such registration statement to become
effective; and (ii) if the Company shall furnish to the Stockholder a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be significantly detrimental
to the Company or its shareholders, provided that any impact on the stock price
that such an offer would cause will not be considered detrimental to the
shareholders for a registration statement to be filed in the near future, in
which event the Company's obligation to use all reasonable efforts to register,
qualify or comply under this Section 3(b) shall be deferred for a period not to
exceed 90 days from the date of receipt of written request from the
Stockholders; provided that the Company may not utilize this right more than
-------- ----
once in any 12-month period. The Company will use its best efforts to insure
that each registration filed pursuant to this Section 3(a) remain in effect for
120 days after the effective date of such filing.
(b) In the event that the Company is not a registrant entitled to use
Form S-3 or any successor form thereto, the Stockholders holding 50% or more of
then remaining Registrable Stock may jointly request the Company to register
under the Securities Act of 1933 on Form S-1, Form S-2 or any similar or
successor registration form thereto all, but not less than all, of the shares of
Registrable Stock held by them for sale in the manner specified in such notice;
provided, that such registration shall be underwritten on a firm commitment
- -------- ----
basis. Upon receipt of such a request by any Stockholders holding 50% or more
of the Registrable Stock, the Company shall within five days of the receipt
thereof give notice to all Stockholders and shall, subject to the limitations of
this Section 3, use its best efforts to effect such a registration as soon as
practicable and in any event to file within 75 days of such a request a
registration statement under the 1933 Act covering all the Registrable Stock
which the Stockholders shall in writing request to be included in such
registration and to use its best efforts to have such registration statement
become effective. The Company will use its best efforts to insure that each
registration filed pursuant to this Section 3(a) remain in effect for 120 days
after the effective date of such filing.
(c) If the Stockholders request that the Registrable Stock be sold in
an underwritten offering, then the Company, in consultation with the
Stockholders, shall designate the managing underwriter of such offering. The
Company shall be obligated to register Registrable Stock pursuant to this
Section 3 on two occasions only; provided, however, that such obligation shall
-------- -------
be deemed satisfied only when a Registration Statement covering all shares of
Registrable Stock specified in the notice received pursuant to Section 3(a) for
sale in accordance with the method of disposition specified by the Stockholders,
shall have become effective.
(d) The Company shall be entitled to include in any registration
statement referred to in this Section 3, for sale in accordance with the method
of disposition specified by the Stockholders, shares of Common Stock to be sold
by the Company for its own account, except as and to the extent that, in the
opinion of the managing underwriter, such inclusion would adversely affect the
marketing of the Registrable Stock to be sold.
4. Incidental Registration. Each time the Company shall determine to
-----------------------
file a Registration Statement in connection with the proposed offer and sale for
cash of any of its securities by it or any of
-4-
<PAGE>
its security holders, the Company will give written notice of its determination
to the Stockholders. Upon the written request of any or all of the Stockholders
given within 30 days after the giving of any such notice by the Company, the
Company will use its best efforts to cause all shares of Registrable Stock which
such Stockholder(s) have requested to register to be included in such
Registration Statement, all to the extent required to permit the sale or other
disposition by the prospective seller of the Registrable Stock to be so
registered. If the Registration Statement is to cover an underwritten
distribution, the Company shall use its best efforts to cause the Registrable
Stock requested for inclusion pursuant to this Section 4 to be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. If, in the good faith judgment of the managing
underwriter of such public offering, the inclusion of all of the Registrable
Stock requested for inclusion pursuant to this Section 4 and other securities
would interfere with the successful marketing of a smaller number of shares to
be offered, then the number of shares of Registrable Stock and other securities
to be included in the offering, except for shares to be issued by the Company in
an offering initiated by the Company or Offering Shares to be sold by any other
party, shall be reduced to the required level with the participation in such
offering to be pro rata among the holders thereof requesting such registration,
based upon the number of shares of Registrable Stock and other securities owned
by such holders.
5. Limitations on Registration Rights. Notwithstanding anything to
----------------------------------
the contrary in Sections 3 and 4 hereto, in the event that holders of
"Registrable Stock," as such term is defined in that certain Second Restated
Registration Rights Agreement among the Company and certain of the Company's
shareholders dated June 1, 1994, as amended ("Other Registrable Stock"), elect
to participate in any registration contemplated by Sections 3 or 4 hereto of
this Agreement, then the number of shares of Registrable Stock shall be reduced
if and to the extent necessary to permit such other shareholders to include in
such registration that number of shares of Other Registrable Stock equal to one-
third of the total number of Offering Shares.
6. Registration Procedures. If and whenever the Company is required
-----------------------
by the provisions of Section 3 or 4 hereof to effect the registration of shares
of Registrable Stock under the Securities Act, the Company will, at its expense,
undertake its best efforts as expeditiously as possible:
(a) In accordance with the Securities Act and the rules and
regulations of the Commission, prepare and file with the Commission a
Registration Statement with respect to such securities and use its best efforts
to cause such Registration Statement to become and remain effective until the
earlier of (i) 180 days, in the event of a registration on Form S-3, or (ii) the
date on which all of the securities covered by such Registration Statement have
been sold, and prepare and file with the Commission such amendments to such
Registration Statement and supplements to the prospectus contained therein as
may be necessary to keep such Registration Statement effective and such
Registration Statement and prospectus accurate and complete;
(b) If the offering is to be underwritten in whole or in part,
enter into a written underwriting agreement in form and substance reasonably
satisfactory to the managing underwriter of the public offering and the
Stockholders;
(c) Furnish to the Stockholders and to the underwriters such
reasonable number of copies of the Registration Statement, preliminary
prospectus, final prospectus and such other documents as such underwriters and
the Stockholders may reasonably request in order to facilitate the public
offering of such securities;
(d) Use its best efforts to register or qualify the securities
covered by such Registration Statement under such state securities or blue sky
laws of such jurisdictions (i) as shall be
-5-
<PAGE>
reasonably appropriate for the distribution of the securities covered by such
Registration Statement, or (ii) as the Stockholders and the underwriters may
reasonably request within 20 days following the original filing of such
Registration Statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process, to qualify to do
business as a foreign corporation in any jurisdiction where it is not so
qualified, or to subject itself to taxation in such jurisdiction;
(e) Notify the Stockholders, promptly after it shall receive
notice thereof, of the date and time when such Registration Statement and each
post-effective amendment thereto has become effective, or a supplement to any
prospectus forming a part of such Registration Statement has been filed;
(f) Notify the Stockholders, promptly of any request by the
Commission or any state securities commission or agency for the amending or
supplementing of such Registration Statement or prospectus, or for additional
information;
(g) Prepare and file with the Commission, promptly upon the
request of the Stockholders, any amendments or supplements to such Registration
Statement or prospectus which, in the opinion of counsel representing the
Company in such registration (and which counsel is reasonably acceptable to the
Stockholders), is required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Registrable Stock by the
Stockholders;
(h) Prepare and promptly file with the Commission, and promptly
notify the Stockholders of the filing of, such amendments or supplements to such
Registration Statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event that
has occurred as the result of which any such prospectus or any other prospectus
as then in effect would include an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading;
(i) During the time period during which the Company is required,
pursuant to Section 5(a), to cause a Registration Statement to be effective, in
case the Stockholders or any underwriter for the Stockholders is required to
deliver a prospectus at a time when the prospectus then in circulation is not in
compliance with the Securities Act or the rules and regulations of the
Commission, prepare promptly upon request such amendments or supplements to such
Registration Statement and such prospectus as may be necessary in order for such
prospectus to comply with the requirements of the Securities Act and such rules
and regulations;
(j) Advise the Stockholders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the
Commission or any state securities commission or agency suspending the
effectiveness of such Registration Statement or the initiation or threatening of
any proceeding for that purpose and promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued and if such a stop order is received, extend the term of this
Agreement by the length of time that such stop order is in effect;
(k) Not file any amendment or supplement to such Registration
Statement or prospectus to which counsel for the Stockholders has reasonably
objected on the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or the rules and
regulations thereunder, after having been furnished with a copy thereof at least
three business days prior to the filing thereof (which advance furnishing of
copies the Company hereby agrees to);
-6-
<PAGE>
(l) At the request of the Stockholders (i) furnish to the
Stockholders on the effective date of the Registration Statement or, if such
registration includes an underwritten public offering, at the closing provided
for in the underwriting agreement, an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the Stockholders, covering such matters with
respect to the registration statement, the prospectus and each amendment or
supplement thereto, proceedings under state and Federal securities laws, other
matters relating to the Company, the securities being registered and the offer
and sale of such securities as are customarily the subject of opinions of
issuer's counsel provided to underwriters in underwritten public offerings, and
(ii) use its best effort to furnish to the Stockholders letters dated each such
effective date and such closing date, from the independent certified public
accountants of the Company, addressed to the underwriters, if any, and to the
Stockholders, stating that they are independent certified public accountants
within the meaning of the Securities Act and dealing with such matters as the
underwriters may request, or, if the offering is not underwritten, that in the
opinion of such accountants the financial statements and other financial data of
the Company included in the Registration Statement or the prospectus or any
amendment or supplement thereto comply in all material respects with the
applicable accounting requirements of the Securities Act, and additionally
covering such other financial matters, including information as to the period
ending not more than five business days prior to the date of such letter with
respect to the Registration Statement and prospectus, as the Stockholder may
reasonably request;
(m) Use its best efforts to ensure the obtaining of all necessary
approvals from the NASD; and
(n) Use its best efforts to cause all shares of Registrable Stock
covered by the Registration Statement to be listed on each securities exchange
or market, if any, on which similar securities issued by the Company are then
listed.
7. Expenses.
--------
(a) With respect to each registration effected pursuant to
Sections 3 or 4 hereof, all fees, costs and expenses of and incidental to such
registration and the public offering in connection therewith shall be borne by
the Company; provided, however, that the Stockholders shall bear their pro rata
-------- -------
share of the underwriting discounts and selling commissions.
(b) The fees, costs and expenses of registration to be borne as
provided in paragraph (a) above, shall include, without limitation, all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel and accountants for the Company, fees and disbursements of counsel for
the underwriter or underwriters of such securities (if the Company and/or
selling security holders are otherwise required to bear such fees and
disbursements), all legal fees and disbursements and other expenses of complying
with state securities to be offered are to be registered or qualified, the
reasonable fees and disbursements of counsel for the Stockholders, and the
premiums and other costs of policies of insurance insuring the Company against
liability arising out of such public offering.
8. Indemnification and Contribution.
--------------------------------
(a) To the fullest extent permitted by law, the Company will
indemnify and hold harmless each of the Stockholders, whether or not their
shares have been sold in the offering, and any underwriter (as defined in the
Securities Act) for the Stockholders, and any person who controls the
Stockholders or such underwriter within the meaning of the Securities Act, from
and against, and will reimburse the Stockholders and each such underwriter and
controlling person with respect to, any and
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<PAGE>
all claims, actions, demands, losses, damages, liabilities, costs and expenses
to which the Stockholders or any such underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such claims,
actions, demands, losses, damages, liabilities, costs or expenses arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in a Registration Statement covering shares of
Registrable Stock, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or arise out of any
violation by the Company of any rule or regulation under the Securities Act, the
Securities Exchange Act, any state securities act, any rule or regulation
promulgated under such acts applicable to the Company and relating to action or
inaction required of the Company in connection with such registration; provided,
--------
however, that the Company will not be liable in any such case to the extent that
- -------
any such claim, action, demand, loss, damage, liability, cost or expense is
caused by an untrue statement or alleged untrue statement or omission or alleged
omission so made in reliance upon information furnished by any of the
Stockholders, such underwriter or such controlling person for use in the
preparation thereof.
(b) Each of the Stockholders will severally indemnify and hold
harmless the Company from and against, and will reimburse the Company with
respect to, any and all losses, damages, liabilities, costs or expenses to which
the Company may become subject under the Securities Act or otherwise, insofar as
such losses, damages, liabilities, costs or expenses are caused by any untrue or
alleged untrue statement of any material fact contained in a Registration
Statement covering shares of Registrable Stock or any amendment or supplement
thereto, or are caused by the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are made, not misleading,
in each case to the extent, but that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon
information furnished by such Stockholder for use in the preparation thereof.
(c) Promptly after receipt by a party to be indemnified pursuant
to the provisions of paragraph (a) or (b) of this Section 8 (an "indemnified
party") of notice of the commencement of any action involving the subject matter
of the foregoing indemnity provisions, such indemnified party will, if a claim
thereof is to be made against the indemnifying party pursuant to the provisions
of paragraph (a) or (b), notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to an indemnified party otherwise than
under this Section 8 and shall not relieve the indemnifying party from liability
under this Section 8, unless such indemnifying party is prejudiced by such
omission. In case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party pursuant to the provisions of such paragraph
(a) and (b) for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall be liable to an indemnified
party for any settlement of any action or claim without the consent of the
indemnifying party; no indemnifying party may unreasonably withhold its consent
to any such settlement. No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation.
-8-
<PAGE>
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) one or
both of the Stockholders or any controlling person of one or both of the
Stockholders makes a claim for indemnification pursuant to this Section 8, but
it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case, notwithstanding the fact that this Section 8 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of either or both of the Stockholders or any such
controlling person in circumstances for which indemnification is provided under
this Section 8; then, in each such case, the Company and the Stockholders will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion so that
either of the Stockholders is responsible for the portion represented by the
percentage that the public offering price of his Registrable Stock offered by
the Registration Statement bears to the public offering price of all securities
offered by such Registration Statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, no person or
-------- -------
entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
9. Reporting Requirements Under Securities Exchange Act of 1934. The
------------------------------------------------------------
Company shall keep effective its registration under Section 12 of the Exchange
Act and shall timely file such information, documents and reports as the
Commission may require or prescribe under Section 13 of the Exchange Act. The
Company shall (whether or not it shall then be required to do so) timely file
such information, documents and reports as the Commission may require or
prescribe under Section 13 or 15(d) (whichever is applicable) of the Exchange
Act. The Company shall forthwith upon request furnish to the Stockholders: (i)
a written statement by the Company that it has complied with the reporting
requirements of Section 13 or 15(d) of the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company, and (iii) such other reports
and documents filed by the Company with the Commission as the Stockholders may
reasonably request in availing themselves of an exemption for the sale of
Registrable Stock without registration under the Securities Act. The Company
acknowledges and agrees that the purposes of the requirements contained in this
Section 9 are (a) to enable the Stockholders to comply with the current public
information requirement contained in Paragraph (c) of Rule 144 under the
Securities Act should any of the Stockholders ever wish to dispose of any of the
securities of the Company acquired by him without registration under the
Securities Act in reliance upon Rule 144 (or any other similar or successor
exemptive provision), and (b) to qualify the Company for the use of Registration
Statements on Form S-3. In addition, the Company shall take such other measures
and file such other information, documents and reports, as shall hereafter be
required by the Commission as a condition to the availability of Rule 144 under
the Securities Act (or any similar or successor exemptive provision hereafter in
effect) and the use of Form S-3. The Company also covenants to use its best
efforts, to the extent that it is reasonably within its power to do so, to
qualify for the use of Form S-3. The Company agrees to use its best efforts to
facilitate and expedite transfers of Registrable Stock pursuant to Rule 144
under the Securities Act (or any similar or successor exemptive provision
hereafter in effect), which efforts shall include timely notice to its transfer
agent to expedite such transfers of Registrable Stock.
10. Stockholder Information. The Company may require each
-----------------------
Stockholder to furnish the Company in a timely manner such information with
respect to himself and the distribution of such Registrable Stock as the Company
may from time to time reasonably request in writing and as shall be required by
law or by the Commission in connection therewith.
11. Specific Enforcement. All of the parties hereto acknowledge that
--------------------
the parties will be irreparably damaged in the event that this Agreement is not
specifically enforced. Upon a breach or
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<PAGE>
threatened breach of the terms, covenants or conditions of this Agreement by any
of the parties hereto, the other parties shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction, without showing
any actual damage, or a decree for specific performance, in accordance with the
provisions hereof.
12. Notices. Any notices or other communications required or
-------
permitted hereunder shall be sufficiently given if delivered personally or sent
by facsimile, overnight courier, registered or certified mail, postage prepaid,
addressed as follows or to such other address of which the parties may have
given notice:
If to the Company: ON Technology Corporation
One Cambridge Center
Cambridge, MA 02142
Attn: Christopher A. Risley
Tel: (617) 374-1400
Fax: (617) 374-1433
with a copy to: Epstein Becker & Green, P.C.
75 State Street
Boston, MA 02109
Attn: Gabor Garai, Esq.
Tel: (617) 342-4000
Fax: (617) 342-4001
If to the Stockholders: to the respective addresses
set forth on Schedule 15.6 to
the Stock Purchase Agreement.
with a copy to: Ropes & Gray
One International Place
Boston, MA 02110
Attention: David B. Walek, Esq.
Tel: (617) 951-7000
Fax: (617) 951-7050
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered, if delivered personally or by
facsimile; (b) one business day after being sent, if sent by overnight courier;
or (c) three business days after being sent, if sent by registered or certified
mail.
13. Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the Commonwealth of Massachusetts.
14. Waivers; Amendments. No waiver of any right hereunder by either party
-------------------
shall operate as a waiver of any other right, or of the same right with respect
to any subsequent occasion for its exercise, or of any right to damages. No
waiver by either party of any breach of this Agreement shall be held to
constitute a waiver of any other breach or a continuation of the same breach.
All remedies provided by this Agreement are in addition to all other remedies
provided by law. This Agreement may not be amended except by a writing executed
by the Company and all of the Stockholders.
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<PAGE>
15. Miscellaneous. All covenants and agreements in this Agreement by or
-------------
on behalf of any of the parties hereto will bind and inure to the benefit of the
respective transferees, heirs, executors, administrators, legal representatives,
successors and assigns of the parties hereto whether so expressed or not. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. This Agreement represents the complete agreement of the parties
with respect to the transactions contemplated hereby and supersedes all prior
agreements and understandings. Headings in this Agreement are included for
reference only and shall have no effect upon the construction or interpretation
of any part of this Agreement.
16. Mergers, Etc. The Company shall not, directly or indirectly, enter
-------------
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation unless the proposed surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of the Company under this Agreement, and for that purpose
references hereunder to "Registrable Stock" shall be deemed reference to the
securities that the Stockholders would be entitled to receive in exchange for
Registrable Stock under any such merger, consolidation or reorganization.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
a duly authorized signatory and the Stockholder has duly executed this
Agreement, each as of the date first above recited.
ON TECHNOLOGY CORPORATION
By: /s/ Christopher A. Risley
--------------------------------
Christopher A. Risley
President
/s/ Eugen Heiter
--------------------------------------
Eugen Heiter
/s/ Iska Heiter
--------------------------------------
Iska Heiter
/s/ Hans-Till Freiherr von Ruxleben
--------------------------------------
Hans-Till Freiherr von Ruxleben
/s/ Liliane Freifrau von Ruxleben
--------------------------------------
Liliane Freifrau von Ruxleben
/s/ Harald Moller
--------------------------------------
Harald Moller
/s/ Reinhold Weber
--------------------------------------
Reinhold Weber
/s/ Prof. Jochen Tschunke
--------------------------------------
Prof. Jochen Tschunke
<PAGE>
EXHIBIT 5.1
[EBG LETTERHEAD]
January 16, 1998
ON Technology Corporation
One Cambridge Center
Cambridge, MA 02142
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 filed by ON
Technology Corporation with the Securities and Exchange Commission on January
16, 1998 (Registration No. 33- ), as amended (the "Registration
Statement"), in connection with the registration under the Securities Act of
1933, as amended, of a total of 1,471,041 shares of Common Stock, $.01 par
value per share, in ON Technology Corporation (the "Shares"). We understand
that the Shares are to be sold from time to time on the Nasdaq National Market
at prevailing prices or as otherwise described in the Registration Statement.
As your legal counsel, we have examined the proceedings taken by you in
connection with the sale of the Shares.
It is our opinion that the Shares are legally and validly issued, fully paid
and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
EPSTEIN BECKER & GREEN, P.C.
/s/ Gabor Garai
By:__________________________________
Gabor Garai, Member
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference included in this Registration Statement on Form S-3 of our report
dated January 21, 1997, except for the matters discussed in Note 12 for which
the dates are January 24, 1997 and January 28, 1997,respectively, included in
ON Technology Corporation's Form 10-K for the year ended December 31, 1996 and
our report dated January 21, 1997, except for the matters discussed in Note
4(a) and 4(b) as to which the dates are January 24, 1997 and January 28,1997,
respectively, included in ON Technology Corporation's Current Report on Form
8-K pertaining to a special meeting of the Company's stockholders filed on
January 9, 1998 and to the reference to our firm under the heading "EXPERTS"
included in this Registration Statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 16, 1998
